Systems Design: Job-Order Costing

Chapter 3

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
 Types of Product Costing Systems

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.

3-2
 Comparing Process and Job-Order Costing

Job-Order Process
Number of jobs worked Many
Individual Single Product
Cost accumulated by Job Department
Average cost computed by Job Department

3-3
Measuring Direct Materials Cost

3-4
Job-Order Cost Accounting

3-5
Manufacturing Overhead Application
The predetermined overhead rate (POHR) used
to apply overhead to jobs is determined before
the period begins.

3-6
Determining Predetermined Overhead Rates
Predetermined overhead rates are calculated
using a three-step process.


 
 

Estimate
Estimate the
the level
level of
of Estimate
Estimate total
total amount
amount Estimate
Estimate total
total
production
production for
for the
the of
of the
the allocation
allocation base
base manufacturing
manufacturing
period.
period. for
for the
the period.
period. overhead
overhead costs.
costs.

POHR =  ÷ 
3-7
Job-Order Cost Accounting

3-8
Job-Order Costing
Document Flow Summary

Materials
Materials
used
used may
may be be Direct Job Cost
either
either direct
direct or
or materials Sheets
indirect.
indirect.
Materials
Requisition

Manufacturing
Indirect
Overhead
materials
Account

3-9
Job-Order Costing
Document Flow Summary
An
employee’s
time may be either Direct Job Cost
Labor Sheets
direct or
indirect.
Employee Time
Ticket

Manufacturing
Indirect
Overhead
Labor
Account

3-10
Job-Order Costing
Document Flow Summary

Materials Indirect
Requisition Material POHR
rate used
to apply
Other Manufacturing
overhead Job Cost
Actual OH Overhead
Sheets
Charges Account

Employee Indirect
Time Ticket Labor

3-11
The Purchase and Issue of Raw Materials

Raw Materials Work in Process

Material Direct
 (Job Cost Sheet)
Purchases Materials Direct

Indirect Materials
Materials

Mfg. Overhead
Actual Applied
Indirect

Materials

3-12
Cost Flows – Material Purchases
Raw material purchases are recorded in an
inventory account.

3-13
Cost Flows – Material Usage
Direct materials issued to a job increase Work in
Process and decrease Raw Materials. Indirect
materials used are charged to Manufacturing
Overhead and also decrease Raw Materials.

3-14
The Recording of Labor Costs
Salaries and Work in Process
Wages Payable (Job Cost Sheet)
Direct  Direct
Labor
Indirect
Materials
Direct

Labor Labor

Mfg. Overhead
Actual Applied
Indirect

Materials
Indirect

Labor
3-15
Applying Manufacturing Overhead
Salaries and Work in Process
Wages Payable (Job Cost Sheet)
Direct  Direct
Labor
Indirect
Materials
Direct

Labor Labor
Overhead
Mfg. Overhead
Actual Applied Applied
Indirect
If actual and
and applied
Materials Overhead
Indirect
manufacturing overhead
overhead
Applied to are not equal, a year-end
Labor Work in adjustment is required.
Other
required.
Process
Overhead
3-16
Transferring Completed Units
Work in Process Finished Goods
(Job Cost Sheet )
 Direct Cost of
Cost of

Goods
Materials
Direct
Goods Mfd.
Mfd.
Labor
Overhead

Applied

3-17
End of Chapter 3

3-18