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Unformatted text preview: Job Costing Job Costing Chapter 20 Objectives Objectives Distinguish between job costing & process costing Trace materials and labor in a manufacturer’s job costing system Allocate manufacturing overhead in a manufacturer’s job costing system Account for completion and sales of finished goods and adjust for under and overallocated manufacturing overhead Assign noninventoriable costs in job costing Cost Systems There are two basic systems used by manufacturers to assign costs to their products: Job order costing Process costing Process Costing Example Laura Foods produces a garlic flavored tomato sauce. Production of the sauce requires two major processes: Chopping Mixing and Canning Process Costing Process Costing Used by companies that produce large amounts of identical products Process Costing Example Assume that Laura incurred $20,000 in the Mixing and Canning process to mix 100,000 pints of tomato sauce. What is the Mixing and Canning cost per pint? $20,000 ÷ 100,000 = $0.20/pint Job Costing Job Costing It is used by a manufacturer who produces products as individual units or in distinct batches or jobs. Job Costing Example Job Costing Example David, Bryan, and Co. is a small furniture manufacturing business in Texas. They received an order for 10 chairs from a customer in Kansas City. Job Costing Example Total cost for the job was $500. How much was the cost per chair? $500 ÷ 10 = $50/chair Job Costing Job Costing
• Job cost record is a document used to accumulate the costs of a job.
• • Includes: Job Number, Customer Info, Job Description, Date Promised, Date Started, Date Completed, Materials, Labor, Overhead used and amounts, etc Exhibit 208, pg. 804 Job Cost Record Example
Job Number: J9738 Date Promised: 9/11/06 Customer: Miami Motors Date Started: 8/03/06 Job Description: 300 automobile engine valves Engineering Design Number: JJJ-100 Job Cost Record Example
Material Requisition Number Description 47624 Quantity Rate $11.50 $38.00 Amount $ 8,280 11,020 $19,300 Bar steel 720 lbs stock 3” A35161 Subassemblies 290 units Total direct materials cost: Job Cost Record Example
Dates 8/2,3,4,5 8/2,3,4,5 8/6,7,8,9,10 8/6,7,8,9,10 Hours M16 24 M18, M19, M20 64 A25, A26, A27 120 A32, A34, A35 61 269 Number Rate $28 $26 $18 $17 Amount $ 672 1,664 2,160 1,037 $5,533 Total direct labor cost : Job Cost Record Example
Manufacturing Overhead Amount 118 machine hours @ $40 per hour $ 4,720 269 direct labor hours @ 36 per hour 9,684 Total overhead cost: $14,404 Job Cost Record Example Total cost $39,237 Number of units produced 300 Cost per unit $130.79 Accounting for Materials and Labor Accounting for Materials and Labor Want to know costs incurred for each job
Accumulate the costs for all jobs Assign the costs to individual jobs Cost tracing Cost allocation Materials Cost Materials Cost Companies using job costing often use a perpetual system to account for direct materials. A materials requisition is used to request transfer of materials to the production floor. Materials Cost Example Materials Cost Example Alec Clothing Co. purchased raw materials on account for $15,000. Materials costing $10,000 were requested for production. Materials Inventory 15,000 Accounts Payable 15,000 Of this total, $2,000 was indirect materials.
Work in Process Inventory 8,000 Manufacturing Overhead 2,000 Materials Inventory 10,000 Materials Requisition – Exhibit 207 Materials Cost Example
Materials Inventory 15,000 10,000 Direct materials WIP Inventory 8,000 Manufacturing Overhead 2,000 Indirect materials Labor Costs Labor Costs Labor costs are accumulated using the payroll register and time records. Labor time records identify the employee, the amount of time spent, and the cost charged to each job. Labor Cost Example Labor Cost Example The company incurred $30,000 of manufacturing wages for all jobs. Wages Payable 30,000 Assume that $25,000 can be traced directly to the jobs and $5,000 is for indirect labor. Manufacturing Wages 30,000 Manufacturing Overhead 5,000 Work in Process Inventory 25,000 Labor Cost Example
Manufacturing Wages 30,000 30,000 Direct labor WIP Inventory 25,000 Manufacturing Overhead 5,000 Indirect labor Manufacturing Overhead Costs Manufacturing Overhead Costs are accumulated in the Manufacturing Overhead Account as they occur throughout the year Example: The company incurred $20,000 of plant equipment depreciation. Manufacturing Overhead 20,000 Accum. Depr. – P & Equip 20,000 Indirect Materials, Indirect Labor, Depreciation, Utilities, Insurance, Property Taxes Manufacturing Overhead Rate At the beginning of the year, a predetermined manufacturing overhead application rate is computed. This rate is used to apply overhead to all jobs completed during the year. Estimated overhead ÷ Estimated base = Predetermined Rate Six Steps in Allocating Six Steps in Allocating Manufacturing Overhead Cost
1. 1. links indirect manufacturing overhead to cost objects (want it to be primary cost driver)
3 4 Estimate total overhead for the period. Select an overhead allocation base. Estimate total quantity of the overhead allocation base. Compute the predetermined overhead rate. (using formula) Six Steps in Allocating Six Steps in Allocating Manufacturing Overhead Cost
5 6 Obtain actual quantities of the overhead allocation base. Allocate manufacturing overhead by multiplying the predetermined manufacturing overhead rate by the actual quantity of the allocation base that pertains to each job. Manufacturing Overhead Manufacturing Overhead Example Alec Clothing Co.’s total estimated overhead for the year equals $243,000. The predetermined overhead rate is based on 4,500 direct labor hours. What is the predetermined overhead rate? Assume that Job 51 used 200 direct labor hours. What is the amount of manufacturing overhead? What is the journal entry to record the manufacturing overhead applied? Manufacturing Overhead Manufacturing Overhead Example Accounting for Finished Goods, Accounting for Finished Goods, Sales, and Cost of Goods Sold As jobs are completed they are transferred to finished goods inventory. In addition to the overhead applied to Job 51, direct labor was $4,000 and direct materials totaled $30,000. How much was transferred to Finished Goods Inventory? Accounting for Finished Goods, Sales, and Cost of Goods Sold
Direct materials Direct materials Direct labor Manufacturing overhead ________ Work in Process Finished Goods Accounting for Finished Goods, Accounting for Finished Goods, Sales, and Cost of Goods Sold Assume that Job 51 was sold for $74,800. What are the journal entries? Accounting for Finished Goods, Sales, and Cost of Goods Sold
Work in Process 44,800 Finished Goods 44,800 44,800 Cost of Goods Sold 44,800 Disposing of Underallocated or Disposing of Underallocated or Overallocated Overhead Suppose that the company incurred $232,000 of actual manufacturing overhead during the year, and that actual direct labor hours worked were 4,000. The actual manufacturing overhead rate would have been $232,000 ÷ 4,000 = $58. The predetermined rate was $54. Disposing of Underallocated or Disposing of Underallocated or Overallocated Overhead How much overhead was allocated to the various jobs? _____ direct labor hours × $___ = $_________ What is the underallocated amount? $________ actual – $_______ allocated = $_______ Need to increase the cost of the job by $________ Disposing Underallocated Overhead to Cost of Goods Sold
Manufacturing Overhead 232,000 216,000 16,000 0 Cost of Goods Sold 16,000 Disposing Overallocated Disposing Overallocated Overhead to Cost of Goods Sold Assume the opposite situation in which allocated overhead is $232,000 and actual overhead is $216,000. How do we dispose of overallocated overhead? Debit the Manufacturing Overhead account and credit the Cost of Goods Sold account to decrease the costs that went to the income statement. Disposing Overallocated Overhead to Cost of Goods Sold
Manufacturing Overhead 216,000 232,000 16,000 0 Cost of Goods Sold 16,000 Job Costing in a Job Costing in a Nonmanufacturing Company How is direct labor traced to individual jobs in a nonmanufacturing company? Employees complete a weekly time record. Jim, Abby, and Associates is a firm specializing in composing and arranging music parts for different clients. Musician Judy Lopez’s salary is $80,000 per year. Job Costing in a Job Costing in a Nonmanufacturing Company Assuming a 40hour workweek and 50 workweeks in each year gives a total of 2,000 available working hours per year (40 hours × 50 weeks). What is her hourly rate? Job Costing in a Nonmanufacturing Company Jim and Abby estimated the indirect costs that will be incurred in 2006. Advertising $ 15,000 Depreciation 6,000 Maintenance 12,000 Office rent 60,000 Office support 47,000 Travel 20,000 Total indirect costs $160,000 Job Costing in a Job Costing in a Nonmanufacturing Company Assume that they estimate that the musicians will work 8,000 direct labor hours in 2006. What is the predetermined indirect cost rate? Job Costing in a Nonmanufacturing Company Records show that Judy Lopez worked 25 hours servicing Los Abuelos Music Co. What is the total cost assigned to this client? Direct Labor: Indirect costs: Total costs: _______ Review Review Process Costing Job Costing in Manufacturing Companies Completion and Sale of Finished Products Under and Over Allocated Overhead Job Costing in Nonmanufacturing Companies Accounting for Materials Accounting for Labor Manufacturing Overhead ...
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