Job Costing Presentation

Objective 1

To Teach 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
‡ Laxmi Foods Company produces a garlic flavored tomato sauce. ‡ Production of the sauce requires two major processes:

Chopping

Mixing and Canning

000 = $0. ‡ What is the Mixing and Canning cost per pint? $20.000 ÷ 100.000 in the Mixing and Canning process to mix 100.20/pint .Process Costing Example ‡ Assume that Laxmi incurred $20.000 pints of tomato sauce.

Job Costing ‡ It is used by a manufacturer who produces products as individual units or in distinct batches or jobs. .

Job Costing Example ‡ Ram. . and Co. Sham. is a small furniture manufacturing business in Texas. ‡ They received an order for 10 chairs from a customer in Kansas City.

‡ How much was the cost per chair? $500 ÷ 10 = $50/chair .Job Costing Example ‡ Total cost for the job was $500.

.Job Costing ‡ Job cost record is a document used to accumulate the costs of a job.

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 .

00 Amount $ 8.Job Cost Record Example Material Requisition Number Description 47624 Quantity Rate $11.280 11.020 $19.50 $38.300 Bar steel 720 lbs stock 3´ A35161 Subassemblies 290 units Total direct materials cost: .

9. A34.8.9.7.3.664 $18 2.10 8/6.Job Cost Record Example Dates 8/2.4.4. A27 120 A32.8. M20 64 A25. A35 61 269 Number Rate Amount $28 $ 672 $26 1.160 $17 1.037 $5.7.5 8/2.5 8/6.3.533 Total direct labor cost : . M19. A26.10 Hours M16 24 M18.

Job Cost Record Example Manufacturing Overhead Amount 118 machine hours @ $40 per hour $ 4.684 Total overhead cost: $14.720 269 direct labor hours @ 36 per hour 9.404 .

237 Number of units produced 300 Cost per unit $130.Job Cost Record Example Total cost $39.79 .

Objective 2 Trace Materials and Labor in a Manufacturer¶s Job Costing System. .

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. .

$2.000 was indirect materials. ‡ Materials costing $10.000. ‡ Of this total. .Materials Cost Example ‡ Alec Clothing Co. purchased raw materials on account for $15.000 were requisitioned for production.

000 10.Materials Cost Example Materials Inventory 15.000 Indirect materials .000 Direct materials WIP Inventory 8.000 Manufacturing Overhead 2.

Labor Costs ‡ Labor costs are accumulated using the payroll register and time records. and the cost charged to each job. . ‡ Labor time records identify the employee. the amount of time spent.

Labor Cost Example ‡ The company incurred $30. .000 is for indirect labor.000 can be traced directly to the jobs and $5.000 of manufacturing wages for all jobs. ‡ Assume that $25.

000 Indirect labor .000 30.000 Direct labor WIP Inventory 25.Labor Cost Example Manufacturing Wages 30.000 Manufacturing Overhead 5.

Objective 3 Allocate Manufacturing Overhead in a Manufacturer¶s Job Costing System .

000 Accumulated Depreciation (Plant and Equipment) 20.-Plant and Equipment) 20.000 To record plant and equipment depreciation .000 of plant equipment depreciation. Manufacturing Overhead (Deprec.Manufacturing Overhead Costs ‡ The company incurred $20.

Estimated overhead ÷ Estimated base = Rate . a predetermined manufacturing overhead application rate is computed. ‡ This rate is used to apply overhead to all jobs completed during the year.Manufacturing Overhead Rate ‡ At the beginning of the year.

4 Compute the predetermined overhead rate. .Six Steps in Allocating Manufacturing Overhead Cost 1 Estimate total overhead for the period. 3 Estimate total quantity of the overhead allocation base. 2 Select an overhead allocation base.

. 6 Allocate manufacturing overhead by multiplying the predetermined manufacturing overhead rate by the actual quantity of the allocation base that pertains to each job.Six Steps in Allocating Manufacturing Overhead Cost 5 Obtain actual quantities of the overhead allocation base.

500 direct labor hours. ‡ What is the predetermined overhead rate? $243. ‡ The predetermined overhead rate is based on 4.500 = $54 .Manufacturing Overhead Example ‡ Alec Clothing Co.000 ÷ 4.000.¶s total estimated overhead for the year equals $243.

800 To record overhead applied to Job 51 . ‡ What is the journal entry to record the manufacturing overhead applied? Work-in-Process Inventory 10.800 Manufacturing Overhead 10.Manufacturing Overhead Example ‡ Assume that Job 51 used 200 direct labor hours.

Objective 4 Account for Completion and Sales of Finished Goods. and Adjust for Under-orOverapplied Manufacturing Overhead .

000 and direct materials totaled $30.Accounting for Finished Goods. ‡ In addition to the overhead applied to Job 51. ‡ How much was transferred to Finished Goods Inventory? . Sales.000. direct labor was $4. and Cost of Goods Sold ‡ As jobs are completed they are transferred to finished goods inventory.

Sales.000 10.800 Finished Goods 44. and Cost of Goods Sold Direct materials Direct labor Manufacturing overhead $30.000 4.800 Work in Process 44.Accounting for Finished Goods.800 .800 $44.

800 .800 44. and Cost of Goods Sold ‡ Assume that Job 51 was sold for $74. ‡ What are the journal entries? Accounts Receivable 74.800. Sales.800 Sales Revenue Cost of Goods Sold 44.800 Finished Goods Inventory To record sale of Job 51 74.Accounting for Finished Goods.

800 Finished Goods 44. Sales.Accounting for Finished Goods.800 44. and Cost of Goods Sold Work in Process 44.800 Cost of Goods Sold 44.800 .

and that actual direct labor hours worked were 4. ‡ The actual manufacturing overhead rate would have been $232.Disposing of Underallocated or Overallocated Overhead ‡ Suppose that the company incurred $232. ‡ The predetermined rate was $54. .000 ÷ 4.000.000 of actual manufacturing overhead during the year.000 = $58.

000 direct labor hours × $54 = $216.000 .Disposing of Underallocated or Overallocated Overhead ‡ How much overhead was allocated to the various jobs? ‡ 4.000 allocated = $16.000 actual ± $216.000 ‡ What is the underallocated amount? ‡ $232.

000 16.000 0 Cost of Goods Sold 16.000 216.Disposing Underallocated Overhead to Cost of Goods Sold Manufacturing Overhead 232.000 .

000.000 and actual overhead is $216. ‡ 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 ‡ Assume the opposite situation in which allocated overhead is $232.

000 232.000 16.Disposing Overallocated Overhead to Cost of Goods Sold Manufacturing Overhead 216.000 0 Cost of Goods Sold 16.000 .

.Objective 5 Assign Noninventoriable Costs in Job Costing.

‡ Musician Judy Lopez¶s salary is $80. and Associates is a firm specializing in composing and arranging music parts for different clients.000 per year.Job Costing in a Nonmanufacturing Company ‡ How is direct labor traced to individual jobs in a nonmanufacturing company? ‡ Employees complete a weekly time record. Abby. ‡ Jim. .

Job Costing in a Nonmanufacturing Company ‡ Assuming a 40-hour workweek and 50 workweeks in each year gives a total of 2.000 available working hours per year (40 hours × 50 weeks).000 ÷ 2. ‡ What is her hourly rate? 80.000 = $40 .

000 .000 $160.000 6.000 47. Advertising Depreciation Maintenance Office rent Office support Travel Total indirect costs $ 15.000 20.000 12.000 60.Job Costing in a Nonmanufacturing Company ‡ Jim and Abby estimated the indirect costs that will be incurred in 2006.

000 = $20 .000 direct labor hours in 2006.Job Costing in a Nonmanufacturing Company ‡ Assume that they estimate that the musicians will work 8. ‡ What is the predetermined indirect cost rate? 160.000 ÷ 8.

‡ What is the total cost assigned to this client? Direct Labor: Indirect costs: Total costs: 25 hours × $40 = 25 hours × $20 = $1.Job Costing in a Nonmanufacturing Company ‡ Records show that Judy Lopez worked 25 hours servicing Los Abuelos Music Co.000 500 $1.500 .

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