1. 5 -1 Job-Order Costing CHAPTER

2. 5 -2 1.Describe the differences between job-order costing and process costing, and identify the types of firms that would use each method. 2.Identify and set up the source documents used in job-order costing. 3.Describe the cost flows associated with job- order costing. 4.Appendix: Prepare the journal entries associated with job-order costing. ObjectivesObjectives After studying this chapter, you should be able to:

3. 5 -3 Comparison of Job-Order and Process Costing Process or job- order costing?

4. 5 -4 Characteristics of Job-Order Costing   Wide-variety of services or products that are quite distinct from each other   Cost accumulated by job   Unit cost computed by dividing total job costs by units produced on that job BEAT SOUTH HIGH

5. 5 -5 Characteristics of Process Costing   Produce large quantities of similar or homogeneous products   Cost accumulated by process or department for a given period of time   Unit cost computed by dividing process costs of period by the units produced in the period

6. 5 -6 Process or job-order costing? Process Job order Process Job order Exxon oil refinery Coca Cola plant Custom home builder Shop for customizing vans Television repair shop Campbell soup plant Advertising agency Law firm Job order

7. 5 -7 Job 425 Job 426 Job 427 Total Beginning balance$58,600$51,300$ 0$109,900 Current costs: Direct materials4,8003,60023,50031,900 Direct labor6,0009,00010,00025,000 Applied overhead 2,400 3,600 4,000 10,000 Total$71,800$67,500$37,500$176,800 This information is used to determine the total cost of goods manufactured. Job-Order Costing

8. 5 -8 Johnson Leathergoods

9. 5 -9 Job-Order Cost Sheet A job-cost sheet is a document used to accumulate the cost for a specific job in a job- cost system

10. 5 -10 Direct materials$1,000 Direct labor1,080 Applied Overhead 240 Total cost$2,320  number of units  20 Unit cost$ 116 Johnson Leathergoods Unit Cost

11. 5 -11 Johnson Leathergoods Date Department Job Authorized Signature Description Quantity Cost/Unit Total Cost Jim Lawson Buckles 10 $30 $300 Material Requisition Form Material Requisition Number 12 January 11, 2004 Briefcase Assembly

12. 5 -12 Johnson Leathergoods Authorized Signature Start Time Stop Time Total Time Hourly Rate Amount Job Number Jim Lawson Job Time Ticket Number 8 Employee Number Name Date 8:0010:002$9$18Backpacks 10:0011:00199Briefcases 11:0012:00199Backpacks 1:005:004936Backpacks 4 Ed Wilson January 12, 2003 Department Supervisor

13. 5 -13 Through the Accounts Johnson Leathergoods

14. 5 -14 Summary of Materials Cost Flows

15. 5 -15 Summary of Direct Labor Cost Flows

16. 5 -16 Accounting for Overhead Actual overhead costs are never assigned directly to jobs. Overhead is applied using a predetermined overhead rate. Estimated Overhead Overhead rate = Estimated Direct Labor Hours $9,600 4,800 = $2 per direct labor hour Functional Approach

17. 5 -17 Accounting for Overhead—Using ABC Estimated Overhead ($) for Each Driver Expected Demand for Each Driver Purchasing$3,000Purchase orders100 Machining4,200Machine hours2,800 Other2,400Direct labor hours4,800 $3,000 ÷ 100 = $30 per purchase order $4,200 ÷ 2,800 = $1.50 per machine hour $2,400 ÷ 4,800 = $0.50 per direct labor hour

18. 5 -18 Accounting for Overhead—Using ABC Backpacks: Briefcases: Purchase orders3 Machine hours60 Direct labor hours120 Purchase orders1 Machine hours30 Direct labor hours50

19. 5 -19 Accounting for Overhead—Using ABC Purchasing: 3 orders x $30$ 90 1 order x $30$30 Machining: 60 hours x $1.5090 30 hours x $1.5045 Other: 120 DLH x $0.5060 50 DLH x $0.5025 Total overhead applied$240$100

20. 5 -20 Summary of Overhead Cost Flows Actual Overhead Lease$200 Utilities50 Equipment depreciation100 Indirect labor 65 Total actual overhead$415 Job Order Cost Sheet Job: 20 Backpacks Job Order Cost Sheet Job: 10 Briefcases Direct materials$1,000Direct materials$500 Direct labor1,080Direct labor450 Overhead applied240Overhead applied100Total costNumber of unitsUnit cost Applied Overhead Direct labor hours170 Overhead rate x $2 Total applied overhead$340 120 x $250 x $2

21. 5 -21 Summary of Overhead Cost Flows

22. 5 -22 Summary of Finished Goods Cost Flows

23. 5 -23 Johnson Leathergoods Schedule of Cost of Goods Manufactured For the Month Ended January 31, 2004 Direct materials: Beginning raw materials inventory$ 0 Purchases of raw materials2,500 Total raw materials available for use$2,500 Ending raw materials1,000 Total raw materials used$1,500 Direct labor1,530 Overhead: Lease$ 200 Utilities50 Depreciation100 Indirect labor 65 $ 415 ContinuedContinued

24. 5 -24 $ 415 Less: Underapplied overhead 75 Overhead applied 340 Current manufacturing costs$3,370 Add: Beginning work in process 0 Total manufacturing cost$3,370 Less: Ending work in process1,050 Cost of goods manufactured$2,320

25. 5 -25 Statement of Cost of Goods Sold Beginning finished goods inventory$ 0 Cost of goods manufactured2,320 Cost of goods available for sale$2,320 Less: Ending finished goods inventory 0 Normal cost of goods sold$2,320 Add: Underapplied overhead 75 Adjusted cost of goods sold$2,395

26. 5 -26 Johnson Leathergoods Income Statement For the Month Ended January 31, 2004 Sales$3,480 Cost of goods sold2,395 Gross margin$1,085 Less selling and administrative expenses: Selling expenses$200 Administrative expenses550 750 Net operating income$ 335

27. 5 -27 Journal Entries Associated With Job- Order Costing Johnson Leathergoods

28. 5 -28 1. Materials costing $2,500 were purchased on account. The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. 1 Materials 2 500 00 Accounts Payable 2 500 00 Johnson Leathergoods

29. 5 -29 2.Materials costing $1,500 were requisitioned for use in production. The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. 2 Work in Process 1 500 00 Materials 1 500 00 Johnson Leathergoods

30. 5 -30 3.Direct labor costing $1,530 was recognized. The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. 3 Work in Process 1 530 00 Wages Payable 1 530 00 Johnson Leathergoods

31. 5 -31 4.Overhead was applied to production at the rate of $2 per direct labor hour. A total of 170 direct labor hours were worked. The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. 4 Work in Process 340 00 Overhead Control 340 00 Johnson Leathergoods

32. 5 -32 5. Actual overhead costs of $415 were incurred: lease, $200; utilities, $50; depreciation, $100; accrued wages, $65. The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. 5Overhead Control 415 00 Lease Payable200 00 Utilities Payable50 00 Accumulated Depreciation100 00 Wages Payable65 00 Johnson Leathergoods

33. 5 -33 6. The backpacks were completed and transferred to finished goods. The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. 6 Finished Goods 2 320 00 Work in Process 2 320 00 Johnson Leathergoods

34. 5 -34 7.The backpacks were sold at cost plus 50 percent. The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. 7Cost of Goods Sold 2 320 00 Finished Goods 2 320 00 Johnson Leathergoods 7Accounts Receivable 3 480 00 Sales Revenue 3 480 00

35. 5 -35 8. Underapplied overhead was closed to cost of goods sold. The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. 8 Cost of Goods Sold 75 00 Overhead Control 75 00 Johnson Leathergoods

36. 5 -36 Materials (1) 2,500 Johnson Leathergoods (1) Purchased of materials

37. 5 -37 Johnson Leathergoods (2) Issue of materials Work in Process (2) 1,500 Materials (1) 2,500

38. 5 -38 Johnson Leathergoods (3) Incurrence of direct labor cost Work in Process (2) 1,500 (3) 1,530 Wages Payable (3) 1,530

39. 5 -39 Johnson Leathergoods (4) Estimated overhead applied to Work in Process Work in Process (2) 1,500 (3) 1,530 (4) 340 Overhead Control (4) 340

40. 5 -40 (5) Actual overhead recorded Work in Process (2) 1,500 (3) 1,530 (4) 340 Overhead Control (4) 340(5) 415 Johnson Leathergoods

41. 5 -41 Johnson Leathergoods (6) Transfer of Job 1 to finished goods Work in Process Finished Goods (6) 2,320 (2) 1,500 (3) 1,530 (4) 340

42. 5 -42 Johnson Leathergoods (7) Cost of goods sold for Job 1 and revenue from sale on account Finished Goods (6) 2,320 Cost of Goods Sold Accounts Receivable (7) 3,480 Sales Revenue (7) 3,480 (7) 2,320(6) 2,320

43. 5 -43 Johnson Leathergoods (8) Underapplied overhead closed Overhead Control (4) 340(5) 415 (8) 75 Cost of Goods Sold (7) 2,320 (8) 75

44. 5 -44 The End Chapter Five

45. 5 -45