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Cost Accounting Job Order Costing PDF
Cost Accounting Job Order Costing PDF
Chapter 3
Chapter Three
Process Job-order
Costing Costing
AA company
company produces
produces many
many units
units of
of aa single
single
product.
product.
One
One unit
unit of
of product
product is
is indistinguishable
indistinguishable fromfrom
other
other units
units of
of product.
product.
The
The identical
identical nature
nature of
of each
each unit
unit of
of product
product enables
enables
assigning
assigning the
the same
same average
average cost
cost per
per unit.
unit.
Process Job-order
Costing Costing
AA company
company produces
produces many
many units
units of
of aa single
single
product.
product.
Example companies:
1.One
Weyerhaeuser
One unit
unit of (paper
of product
product is manufacturing) from
is indistinguishable
indistinguishable from
other
other2.units
units of
of product.
Reynoldsproduct.
Aluminum (refining aluminum ingots)
3.The
Coca-Cola
The identical(mixing
identical nature and
nature of bottling
of each
each unit beverages)
unit of
of product
product enables
enables
assigning
assigning the
the same
same average
average cost
cost per
per unit.
unit.
Process Job-order
Costing Costing
Many
Many different
different products
products are
are produced
produced each
each period.
period.
Products
Products are
are manufactured
manufactured to
to order.
order.
The
The unique
unique nature
nature of
of each
each order
order requires
requires tracing
tracing or
or
allocating
allocating costs
costs to
to each
each job,
job, and
and maintaining
maintaining cost
cost
records
records for
for each
each job.
job.
Process Job-order
Costing Costing
Many
Many different
different products
products are
are produced
produced each
each period.
period.
Example companies:
Products
Products are
are manufactured
manufactured to
to order.
order.
1. Boeing (aircraft manufacturing)
2.The
The unique
unique
Bechtel nature
nature ofof each
International each
(largeorder
order requires
requires
scale tracing
tracing or
construction) or
allocating
allocating costs
costs to
to each
each job,
job, and
and maintaining
maintaining cost
cost
3. Walt Disney
records for each job.
Studios (movie production)
records for each job.
Job-Order Process
Number of jobs worked Many
Individual Single Product
Cost accumulated by Job Department
Average cost computed by Job Department
Which
Which of of the
the following
following companies
companies would
would
be
be likely
likely to
to use
use job-order
job-order costing
costing rather
rather
than
than process
process costing?
costing?
a.
a. Scott
Scott Paper
Paper Company
Company forfor Kleenex.
Kleenex.
b.
b. Architects.
Architects.
c.
c. Heinz
Heinz for
for ketchup.
ketchup.
d.
d. Caterer
Caterer for
for aa wedding
wedding reception.
reception.
e.
e. Builder
Builder ofof commercial
commercial fishing
fishing vessels.
vessels.
Which
Which of of the
the following
following companies
companies would
would
be
be likely
likely to
to use
use job-order
job-order costing
costing rather
rather
than
than process
process costing?
costing?
a.
a. Scott
Scott Paper
Paper Company
Company forfor Kleenex.
Kleenex.
b.
b. Architects.
Architects.
c.
c. Heinz
Heinz for
for ketchup.
ketchup.
d.
d. Caterer
Caterer for
for aa wedding
wedding reception.
reception.
e.
e. Builder
Builder ofof commercial
commercial fishing
fishing vessels.
vessels.
Charge
Charge
Direct
DirectMaterials
Materials
Job direct
direct
JobNo.
No.11
material
material and
and
Direct
DirectLabor
Labor direct
direct labor
labor
Job
JobNo.
No.22
costs
costs toto
each
each job
job as
as
Manufacturing
Manufacturing Job
JobNo.
No.33 work
work isis
Overhead
Overhead
performed.
performed.
Manufacturing
Manufacturing
Overhead,
Overhead,
Direct
DirectMaterials
Materials including
including
Job
JobNo.
No.11
indirect
indirect
Direct
DirectLabor
Labor
materials
materials and and
Job
JobNo.
No.22 indirect
indirect labor
labor,,
are
are allocated
allocated to to
Manufacturing
Manufacturing Job jobs
jobs rather
rather than
than
JobNo.
No.33
Overhead directly
Overhead directly traced
traced
to
to each
each job.
job.
Supervisor C. M. W o r k m a n
Ideally,
Ideally, the
the allocation
allocation base
base
is
is aa cost
cost driver
driver that
that causes
causes
overhead.
overhead.
Based
Based on
on estimates,
estimates, and
and
determined
determined before
before the
the
period
period begins.
begins.
Actual
Actual amount
amount ofof the
the allocation
allocation
based
based upon
upon the
the actual
actual level
level of
of
activity.
activity.
$640,000
POHR =
160,000 direct labor hours (DLH)
For
For each
each direct
direct labor
labor hour
hour worked
worked on on aa
particular
particular job,
job, $4.00
$4.00 ofof factory
factory overhead
overhead
will
will be
be applied
applied toto that
that job.
job.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
Job-Order Cost Accounting
Job
Job WR53
WR53 at at NW
NW Fab,
Fab, Inc.
Inc. required
required $200
$200 of
of
direct
direct materials
materials and
and 10
10 direct
direct labor
labor hours
hours at
at
$15
$15 per
per hour.
hour. Estimated
Estimated total
total overhead
overhead for
for
the
the year
year was
was $760,000
$760,000 and and estimated
estimated direct
direct
labor
labor hours
hours were
were 20,000.
20,000. WhatWhat would
would be
be
recorded
recorded asas the
the cost
cost of
of job
job WR53?
WR53?
a.
a. $200.
$200.
b.
b. $350.
$350.
c.
c. $380.
$380.
d.
d. $730.
$730.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
Quick Check
Job
Job WR53
WR53 at at NW
NW Fab,
Fab, Inc.
Inc. required
required $200
$200 of
of
direct
direct materials
materials and
and 10
10 direct
direct labor
labor hours
hours at
at
$15
$15 per
per hour.
hour. Estimated
Estimated total
total overhead
overhead for
for
the
the year
year was
was $760,000
$760,000 and and estimated
estimated direct
direct
labor
labor hours
hours were
were 20,000.
20,000. WhatWhat would
would be
be
recorded
recorded asas the
the cost
cost of
of job
job WR53?
WR53?
a.
a. $200.
$200.
b.
b. $350.
$350.
c.
c. $380.
$380.
d.
d. $730.
$730.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
Job-Order Costing
Document Flow Summary
Let’s summarize
the document flow
in a job-order
costing system.
A
A sales
sales order
order isis the
the AA production
production
basis
basis of
of issuing
issuing aa order
order initiates
initiates
production
production order.
order. work
work on
on aa job.
job.
Materials
Materialsused
used
may
may be
beeither
either Direct Job
Job Cost
Cost
direct
director
or materials Sheets
Sheets
indirect.
indirect.
Materials
Materials
Requisition
Requisition
Manufacturing
Manufacturing
Indirect
Overhead
Overhead
materials
Account
Account
An
Anemployee’s
employee’s
time
timemay
maybe beeither
either Direct Job
Job Cost
Cost
direct
direct or
orindirect.
indirect. Labor Sheets
Sheets
Employee
EmployeeTime
Time
Ticket
Ticket
Manufacturing
Manufacturing
Indirect
Overhead
Overhead
Labor
Account
Account
Employee
Employee Indirect
Time
TimeTicket
Ticket Labor
Other
Other Manufacturing
Manufacturing Applied Job
Job Cost
Cost
Actual
Actual OH
OH Overhead
Overhead Overhead Sheets
Sheets
Charges
Charges Account
Account
Materials
Materials Indirect
Requisition
Requisition Material
Mfg. Overhead
Actual Applied
Indirect
Materials
Labor Labor
Mfg. Overhead
Actual Applied
Indirect
Materials
Indirect
Labor
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
Cost Flows – Labor
GENERAL JOURNAL
Post.
Date Description Ref. Debit Credit
Work in Process XXXXX
Manufacturing Overhead XXXXX
Salaries and Wages Payable XXXXX
Labor Labor
Mfg. Overhead
Actual Applied
Indirect
Materials
Indirect
Labor
Other
McGraw-Hill/Irwin
Overhead Copyright © 2006, The McGraw-Hill Companies, Inc.
Cost Flows – Actual Overhead
Labor Labor
Mfg. Overhead
Overhead
Actual Applied Applied
Indirect
IfIf actual
actual and
and applied
applied
Materials Overhead
Indirect
manufacturing
manufacturing overhead
overhead
Applied to are
are notnot equal,
equal, aa year-end
year-end
Labor Work in adjustment
Other adjustment is is required.
required.
Process
McGraw-Hill/Irwin
Overhead Copyright © 2006, The McGraw-Hill Companies, Inc.
Cost Flows – Overhead Applied
GENERAL JOURNAL
Post.
Date Description Ref. Debit Credit
Work in Process XXXXX
Manufacturing Overhead XXXXX
Examples:
Examples:
1.
1. Salary
Salary expense
expense of of employees
employees
that
that work
work in
in aa marketing,
marketing, selling,
selling,
or
or administrative
administrative capacity.
capacity.
2.
2. Advertising
Advertising expenses
expenses areare expensed
expensed
in
in the
the period
period incurred.
incurred.
Applied
PearCo’s
PearCo’s actual
actual overhead
overhead forfor the
the year
year was
was
$650,000
$650,000 with
with aa total
total of
of 170,000
170,000 direct
direct labor
labor
hours
hours worked
worked on on jobs.
jobs.
How
How much
much total
total overhead
overhead was was applied
applied toto
PearCo’s
PearCo’s jobs
jobs during
during the
the year?
year? Use
Use
PearCo’s
PearCo’s predetermined
predetermined overhead
overhead rate
rate ofof
$4.00
$4.00 per
per direct
direct labor
labor hour.
hour.
Overhead Applied During the Period
Applied Overhead = POHR × Actual Direct Labor Hours
Applied Overhead = $4.00 per DLH × 170,000 DLH = $680,000
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
Overhead Application Example
PearCo’s
PearCo’s actual
actual overhead
overhead for for the
the year
year was
was
$650,000
$650,000 with
with aa total
total of
of 170,000
170,000 direct
direct labor
labor
hours
hours worked
worked on on jobs.
jobs.
PearCo has overapplied
How
How much
much total
total overhead
overhead was
was applied
applied to
to
overhead for the year
PearCo’s
PearCo’s jobs
jobs during
during the
the year?
year? Use
Use
by $30,000. What will
PearCo’s
PearCo’s predetermined
PearCo predetermined
do?
overhead
overhead raterate ofof
$4.00
$4.00 perper direct
direct labor
labor hour.
hour.
Overhead Applied During the Period
Applied Overhead = POHR × Actual Direct Labor Hours
Applied Overhead = $4.00 per DLH × 170,000 DLH = $680,000
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
Quick Check
Tiger,
Tiger, Inc.
Inc. had
had actual
actual manufacturing
manufacturing overhead
overhead
costs
costs of
of $1,210,000
$1,210,000 and
and aa predetermined
predetermined
overhead
overhead rate
rate of
of $4.00
$4.00 per
per machine
machine hour.
hour. Tiger,
Tiger,
Inc.
Inc. worked
worked 290,000
290,000 machine
machine hours
hours during
during the
the
period.
period. Tiger’s
Tiger’s manufacturing
manufacturing overhead
overhead is
is
a.
a. $50,000
$50,000 overapplied.
overapplied.
b.
b. $50,000
$50,000 underapplied.
underapplied.
c.
c. $60,000
$60,000 overapplied.
overapplied.
d.
d. $60,000
$60,000 underapplied.
underapplied.
Tiger,
Tiger, Inc.
Inc. had
had actual
actual manufacturing
manufacturing overhead
overhead
costs
costs of
of $1,210,000
$1,210,000 and
and aa predetermined
predetermined
overhead
overhead rate
rate of
of $4.00
$4.00 per
per machine
machine hour.
hour. Tiger,
Tiger,
Inc.
Inc. worked
worked 290,000
290,000 machine
machine
Overhead hours
hours during
OverheadApplied
Applied during thethe
period.
period. Tiger’s
Tiger’s manufacturing
$4.00
manufacturing peroverhead
$4.00per hour is
hour××290,000
overhead ishours
290,000 hours
== $1,160,000
$1,160,000
a.
a. $50,000
$50,000 overapplied.
overapplied.
Underapplied
UnderappliedOverhead
Overhead
b. $50,000 $1,210,000
$1,210,000--$1,160,000
b. $50,000 underapplied.
underapplied. == $50,000
$1,160,000
$50,000
c.
c. $60,000
$60,000 overapplied.
overapplied.
d.
d. $60,000
$60,000 underapplied.
underapplied.
PearCo’s
PearCo’s Method
Method
Cost
Cost of
of Cost
Cost of
of
Goods
Goods Sold
Sold Goods
Goods Sold
Sold
Percent of Allocation of
Amount Total $30,000
Work in process $ 68,000 10% $ 3,000
Finished Goods 204,000 30% 9,000
Cost of Goods Sold 408,000 60% 18,000
Total $ 680,000 100% $ 30,000
GENERAL JOURNAL
Post.
Date Description Ref. Debit Credit
Manufacturing Overhead 30,000
Work in Process Inventory 3,000
Finished Goods Inventory 9,000
Cost of Goods Sold 18,000
PearCo’s
Method
Alternative 1 Alternative 2
If Manufacturing Close to Cost
Overhead is . . . of Goods Sold Allocation
What
What effect
effect will
will the
the overapplied
overapplied overhead
overhead
have
have on
on PearCo’s
PearCo’s net net operating
operating income?
income?
a.
a. Net
Net operating
operating income
income will
will increase.
increase.
b.
b. Net
Net operating
operating income
income will
will be
be unaffected.
unaffected.
c.
c. Net
Net operating
operating income
income will
will decrease.
decrease.
What
What effect
effect will
will the
the overapplied
overapplied overhead
overhead
have
have on
on PearCo’s
PearCo’s net net operating
operating income?
income?
a.
a. Net
Net operating
operating income
income will
will increase.
increase.
b.
b. Net
Net operating
operating income
income will
will be
be unaffected.
unaffected.
c.
c. Net
Net operating
operating income
income will
will decrease.
decrease.
Calculating
Calculating predetermined
predetermined overhead
overhead rates
rates using
using
an
an estimated,
estimated, or
or budgeted
budgeted amount
amount of of the
the
allocation
allocation base
base has
has been
been criticized
criticized because:
because:
1.
1. Basing
Basing the
the predetermined
predetermined overhead
overhead rate
rate upon
upon
budgeted
budgeted activity
activity results
results in
in product
product costs
costs that
that
fluctuate
fluctuate depending
depending upon
upon thethe activity
activity level.
level.
2.
2. Calculating
Calculating predetermined
predetermined rates
rates based
based upon
upon
budgeted
budgeted activity
activity charges
charges products
products for
for costs
costs that
that
they
they do
do not
not use.
use.
Criticisms
Criticisms can
can bebe overcome
overcome by by using
using
estimated
estimated total
total units
units in
in the
the allocation
allocation base
base at
at
capacity
capacity inin the
the denominator
denominator of of the
the
predetermined
predetermined overhead
overhead raterate calculation.
calculation.
Capacity $100,000
= = $2.00 per unit
Method 50,000
Crest
Crest Winery
Winery in in Woodinville
Woodinville leases
leases an
an automatic
automatic
corking
corking machine
machine forfor $100,000
$100,000 per
per year.
year. IfIf run
run at
at
full
full capacity,
capacity, itit can
can cork
cork 50,000
50,000 cases
cases ofof wine
wine
per
per year.
year. The
The company
company estimates
estimates 40,000
40,000 cases
cases
of
of wine
wine will
will be
be produced
produced and
and sold
sold next
next year.
year.
What
What is is the
the predetermined
predetermined overhead
overhead rate
rate based
based
on
on the
the estimated
estimated number
number ofof cases
cases ofof wine?
wine?
a.
a. $2.00
$2.00 per
per case.
case.
b.
b. $2.50
$2.50 per
per case.
case.
c.
c. $4.00
$4.00 perper case.
case.
Crest
Crest Winery
Winery in in Woodinville
Woodinville leases
leases an
an automatic
automatic
corking
corking machine
machine forfor $100,000
$100,000 per
per year.
year. IfIf run
run at
at
full
full capacity,
capacity, itit can
can cork
cork 50,000
50,000 cases
cases ofof wine
wine
per
per year.
year. The
The company
company estimates
estimates 40,000
40,000 cases
cases
of
of wine
wine will
will be
be produced
produced and
and sold
sold next
next year.
year.
What
What is is the
the predetermined
predetermined overhead
overhead rate
rate based
based
on
on the
the estimated
estimated number
number ofof cases
cases ofof wine?
wine?
a.
a. $2.00
$2.00 per
per case.
case.
b.
b. $2.50
$2.50 per
per case.
case.
c.
c. $4.00
$4.00 perper case.
case.
Crest
Crest Winery
Winery in in Woodinville
Woodinville leases
leases an
an automatic
automatic
corking
corking machine
machine for for $100,000
$100,000 per
per year.
year. IfIf run
run at
at
full
full capacity,
capacity, itit can
can cork
cork 50,000
50,000 cases
cases of
of wine
wine
per
per year.
year. The
The company
company estimates
estimates 40,000
40,000 cases
cases
of
of wine
wine will
will be
be produced
produced andand sold
sold next
next year.
year.
What
What is is the
the predetermined
predetermined overhead
overhead rate
rate based
based
on
on the
the number
number of of cases
cases of
of wine
wine at
at capacity?
capacity?
a.
a. $2.00
$2.00 per
per case.
case.
b.
b. $2.50
$2.50 per
per case.
case.
c.
c. $4.00
$4.00 perper case.
case.
Crest
Crest Winery
Winery in in Woodinville
Woodinville leases
leases an
an automatic
automatic
corking
corking machine
machine for for $100,000
$100,000 per
per year.
year. IfIf run
run at
at
full
full capacity,
capacity, itit can
can cork
cork 50,000
50,000 cases
cases of
of wine
wine
per
per year.
year. The
The company
company estimates
estimates 40,000
40,000 cases
cases
of
of wine
wine will
will be
be produced
produced andand sold
sold next
next year.
year.
What
What is is the
the predetermined
predetermined overhead
overhead rate
rate based
based
on
on the
the number
number of of cases
cases of
of wine
wine at
at capacity?
capacity?
a.
a. $2.00
$2.00 per
per case.
case.
b.
b. $2.50
$2.50 per
per case.
case.
c.
c. $4.00
$4.00 perper case.
case.
When
When capacity
capacity is is used
used in
in the
the denominator
denominator in in the
the
predetermined
predetermined rate, rate, what
what happens
happens to to the
the
predetermined
predetermined overhead overhead rate
rate as
as estimated
estimated
activity
activity decreases?
decreases?
a.
a. The
The predetermined
predetermined overhead
overhead rate
rate goes
goes up
up when
when
activity
activity goes
goes down.
down.
b.
b. The
The predetermined
predetermined overhead
overhead rate
rate stays
stays the
the
same;
same; itit isis not
not affected
affected by
by changes
changes inin activity.
activity.
c.
c. The
The predetermined
predetermined overhead
overhead rate
rate goes
goes down
down
when
when activity
activity goes
goes down.
down.
When
When capacity
capacity is is used
used in
in the
the denominator
denominator in in the
the
predetermined
predetermined rate, rate, what
what happens
happens to to the
the
predetermined
predetermined overhead overhead rate
rate as
as estimated
estimated
activity
activity decreases?
decreases?
a.
a. The
The predetermined
predetermined overhead
overhead rate
rate goes
goes up
up when
when
activity
activity goes
goes down.
down.
b.
b. The
The predetermined
predetermined overhead
overhead rate
rate stays
stays the
the
same;
same; itit isis not
not affected
affected by
by changes
changes inin activity.
activity.
c.
c. The
The predetermined
predetermined overhead
overhead rate
rate goes
goes down
down
when
when activity
activity goes
goes down.
down.
When
When estimated
estimated activityactivity is
is used
used in
in the
the
denominator
denominator in in the
the predetermined
predetermined rate,rate, what
what
happens
happens to to thethe predetermined
predetermined overhead
overhead rate rate as
as
estimated
estimated activity
activity decreases?
decreases?
a.The
a.The predetermined
predetermined overheadoverhead rate
rate goes
goes upup when
when
activity
activity goes
goes down.down.
b.The
b.The predetermined
predetermined overheadoverhead rate
rate stays
stays the
the
same;
same; itit isis not
not affected
affected by
by changes
changes in in activity.
activity.
c.The
c.The predetermined
predetermined overheadoverhead rate
rate goes
goes down
down
when
when activity
activity goesgoes down.
down.
When
When estimated
estimated activityactivity is
is used
used in
in the
the
denominator
denominator in in the
the predetermined
predetermined rate,rate, what
what
happens
happens to to thethe predetermined
predetermined overhead
overhead rate rate as
as
estimated
estimated activity
activity decreases?
decreases?
a.The
a.The predetermined
predetermined overheadoverhead rate
rate goes
goes upup when
when
activity
activity goes
goes down.down.
b.The
b.The predetermined
predetermined overheadoverhead rate
rate stays
stays the
the
same;
same; itit isis not
not affected
affected by
by changes
changes in in activity.
activity.
c.The
c.The predetermined
predetermined overheadoverhead rate
rate goes
goes down
down
when
when activity
activity goesgoes down.
down.
Revenue $ 1,600,000
Cost of goods sold 1,040,000
Gross margin 560,000
Cost of idle capacity 20,000
Selling and admin. expense 500,000
Net operating income $ 40,000
Revenue $ 1,600,000
Cost of goods sold 1,060,000
Gross margin 540,000
Cost of idle capacity -
Selling and admin. expense 500,000
Net operating income $ 40,000