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JOB ORDER COSTING
Two Types of Costing Systems
Homogeneous products Example: Paint, pencils, hammers, etc.
Job Order Costing
Products that are different from one another
Custom built homes Battleships Printing shops Auto repair
Flow of Costs
Raw Materials Finished Goods Inventory
Work in Process Inventory
Cost of Goods Sold
000 $10.Journal Entries—Raw Materials Raw Materials Inventory Accounts Payable To record purchase of raw materials $10.000 .
Journal Entries—Raw Materials Raw materials inventory Accounts payable 10.000 To record purchase of raw materials Work in process Raw materials inventory Raw materials used in production 5.000 10.000 5.000 .
then subsidiary ledgers for Each job will be debited also. For example if the work in process consisted of $20. The work in process and Finished goods are control accounts.000. .000 going into job 2. and Job 2 WIP $5.000 15.Journal--Factory Labor and Overhead Labor Work in process Manufacturing overhead Payroll payable To assign labor costs to work in process and overhead 25. then you would also Debit Job 1 WIP $20.000 Note: if more than one Job is being debited.000 of payroll going into Job 1 and $5.000.000 40.
000 Work in Process To transfer completed work in process to finished goods 9.000 .Journal—Transfer from Work in Process to Finished Goods Finished Goods 9.
Journal—Transfer from Finished Goods To COGS Cost of Goods Sold Finished Goods 5.850 .850 7.000 5.000 To record sale of finished goods Accounts Receivable Sales To record sale of finished goods $7.
cleaning supplies in factory. electricity in factory. insurance in factory. . copy expense in factory. and so on.Overhead Overhead is defined as indirect costs that occur in the factory Examples: Factory supervisor labor.
Three Overhead Categories Budgeted overhead Estimated at the beginning of the year Used for one purpose—calculation of overhead rate Actual overhead Calculated at the end of the year Found in the general ledger Overhead applied The amount of overhead credited from the Manufacturing Overhead account and debited to Work in Process using a rate and a base .
Overhead Rate Formula Rate = Budgeted Overhead/Base Base should be cost driver Examples of overhead bases include Direct labor hours Direct labor dollars Total costs Units manufactured And so on .
Overhead Example Jensen Woodworking manufactures custom furniture Overhead is applied on the basis of direct labor hours At the beginning of the year the controller prepares the information shown on the next slide .
000 = $10 per labor hour .000 Estimated overhead cost = $1.000.000.000 Overhead rate = 1.000/100.Budget Estimated direct labor hours = 100.
500 Actual overhead expense from the general ledger = $1.020.Actual Data Year End Actual direct labor hours worked = 99.000 .
Overhead Applied Formula: Actual hours worked x overhead rate 99.000 overhead applied .500 x $10 = $995.
000 Work in Process $995.000 $995.020.000 .Overhead Account and Work in Process Accounts Manufacturing Overhead 1.
000 .000 $25.000 Are we over or under applied? We are under applied by $25.000 $995.020.Overhead Account and Work in Process Accounts Manufacturing Overhead 1.000 Work in Process $995.
000 $25.020.000 0 $995.000 Our next step is to close the over or under applied amount into Cost of Goods Sold (providing the amount is immaterial) .000 Cost of Goods Sold $25.Overhead Account and Work in Process Accounts Manufacturing Overhead 1.
400 . Prepare a summary journal entry to record raw material used.Brief Exercise Three In January.800 600 3. Reyes Tool & Dye requisitions raw materials for production as follows: Job one $900. and general factory use $600. job two $1200. job three $700. Work in Process Inventory Manufacturing Overhead Raw Materials Inventory 2.
.200 Job 2 $1. During January.000 was used as follows: Job 1 $1.400 And general factory use $800 Prepare a summary journal entry to record factory labor used. time tickets show that the factory labor of $5.600 Job 3 $1.Brief Exercise Four Factory labor data for Reyes Tool & Dye is given in BE2-2.
General Journal Entry Work in Process Inventory Manufacturing Overhead Factory Labor 4.000 .200 800 5.
.000.000 Machine hours 100.Brief Exercise Six Marquis Company estimates that annual manufacturing overhead costs will be $800. Estimated annual operating activity bases are: Direct labor costs $500.000 Compare the predetermined overhead rate for each activity base.000 Direct labor hours 50.
000 = $16 per direct labor hour Machine hours: $800.Brief Exercise Six Overhead rates using each base: Direct labor costs: $800.60 per direct labor dollar (or 160%) Direct labor hour: $800.000/$500.000/100.000 = $1.000/50.000 = $8 per machine hour .
200 Information from source documents for May is shown on the following slide.200 and two jobs in process: Job 429: $2. On May 1. . the company has a balance in work in process inventory of $3.Exercise 2-2 Miller Manufacturing uses a job order costing system.000 Job 430: $1.
500 1.600 $12.500 4. Job 429 is completed during the month.200 $13.900 3.400 $10.Source Documents Job # 429 430 431 Subtotal Gen Use Total Material Requisition Slips $2.500 3. .400 800 $11.000 7.700 Miller applies overhead to jobs at an overhead rate of 80% of direct labor cost.200 Labor Time Tickets $1.
Prepare Summary Journals to Record The requisition slips The time tickets The assignment of manufacturing overhead to jobs The completion of job 429 Then post the entries to work in process and prove the agreement of the control account with the job cost sheets. .
To Record Materials and Labor Work in process inventory Manufacturing overhead Raw materials inventory 10.700 .500 Manufacturing overhead Factory labor 1200 13.200 Work in process inventory 12.400 800 11.
920 Work in process inventory ($2000 +$2500 + $1900 +1520) 7920 .000 10.500 × 80%) 10.To Record Overhead and Finished Goods Inventory Work in process inventory Manufacturing Overhead ($12.000 Finished goods inventory 7.
180 May 31 7.500 10.000 28.Work in Process Inventory Account May 1 Balance May 31 May 31 May 31 Balance 3.920 .200 10.400 12.
100 18.080 28.Job Cost Sheets Job 430 431 1200 BW IP 1200 DM 3500 4400 7900 DL 3000 7600 10.180 Same balance as control work in process account .600 MOH 2400 6080 8480 Total 10.
Remaining Problems to Be Worked on Excel or on Board .