Systems Design:

Job-Order Costing

UAA – ACCT 202

Principles of Managerial Accounting
Dr. Fred Barbee

Chapter
 Cost
Measurement
Cost
Accumulation
Cost
Assignment

Direct
Direct
Materials
Materials

Direct
Direct Work-in-
Work-in- Finished
Finished Cost-of
Cost-of
Labor
Labor Process
Process Goods
Goods Goods
GoodsSold
Sold

Mfg.
Mfg.
Overhead
Overhead Goal: Accurately costed
products.
The same basic purpose exists in both systems.

Job-Order
Costing Vs. To assign direct
Process 1 material, direct labor
Costing - and manufacturing
overhead to products.
Similarities

2 e t’s
L
To provide a mechanism for
computing unit cost.
The same basic purpose exists in both systems.

Job-Order
Costing Vs. Both systems maintain
Process 3 and use the same
Costing - manufacturing
accounts.
Similarities

4 e t’s
L
The flow of costs through the
accounts is basically the same.
 Cost
Cost Flows
Flows in
in aa Manufacturing
Manufacturing Firm
Firm
Manufacturing Costs Balance Sheet
Unused
DM
DM DM
DMInv.
Inv.
Use
d
Used Unfinished
DL
DL WIP
WIP WIP
WIPInv.
Inv.
plied Fini
Ap she
d
MOH
MOH FG
FGInv.
Inv.

Sales
- COGS
COGS Sold

Income = Gross Margin

Statement
- S&A
S&A
= Net Income
Differences arise from two factors . . .

e t’s These units are indistinguishable

L from one another.

Job-Order
The flow of units in a
Costing Vs.
process costing
system is more or less 1 Process
continuous. Costing -
Differences
 Job-Order Costing
Job 100

DM Cost of
Finished Goods
DL Job 101
Goods Sold
MOH

Job 102

Work in Process Finished Goods Cost of Goods Sold

 Process Costing System
Process A

DM
Process B
DL
MOH
Finished Cost of
Process C Goods Goods Sold
Equivalent Units
Total Cost
of Production

Information
Information
provided
Providedby
by a
Cost System
cost system.

Cost of Units
Cost Per Unit
in WIP
 Usefulness of Cost Information

Valuing Pricing
Inventory Products

Decision
Making

Planning & Financial

Control Reporting
 Unit Cost
Is based on an
1 averaging
process . . .

. . . With the averaging process being

dependant on the system used.
 Flow of Documents in a Job-Order Costing System

Sales Order A sales order is prepared as

a basis for issuing a . . .
A production order initiates
work on a job, whereby Production Order
costs are charged through:

Materials
Direct Labor Predetermined
Requisition
Time Ticket Overhead Rates
Form

Job Cost
Sheet
 Direct
Direct
Materials
Materials

Direct
Direct Work-in-
Work-in- Finished
Finished Cost-of
Cost-of
Labor
Labor Process
Process Goods
Goods Goods
GoodsSold
Sold

Mfg.
Mfg.
Overhead
Overhead
 Direct
Direct
Materials
Materials

Direct
Direct Work-in-
Work-in- Finished
Finished Cost-of
Cost-of
Labor
Labor Process
Process Goods
Goods Goods
GoodsSold
Sold

Mfg.
Mfg.
Overhead
Overhead
 Direct
Direct
Materials
Materials

Direct
Direct Work-in-
Work-in- Finished
Finished Cost-of
Cost-of
Labor
Labor Process
Process Goods
Goods Goods
GoodsSold
Sold

Mfg.
Mfg.
Overhead
Overhead
 Cost Assignment Dilemma
Direct
Materials

Traceable
Mfg. Process Unit Cost
Direct
for Finished
Labor (Work in
Goods
Process)

Assigned
Problem Overhead

Costs must be assigned using some activity

base and a predetermined overhead rate.
 Cost Assignment Dilemma
Direct
Materials

Traceable
Mfg. Process Unit Cost
Direct
for Finished
Labor (Work in
Goods
Process)

Assigned
Problem Overhead
Solution?

Estimated Overhead
POR = -------------------------------------------
Estimated Units in Activity Base
Simplify Why Timeliness
Record- 2 1
keeping
Allocate?

Avoid
Seasonal
Factors
 Selecting an Allocation Base
Possible Criterion: Cause- POR
Drivers
and-Effect
Relationship

 Units produced
 Direct Labor Hours Choice of activity
base used in the
 Direct Labor $ calculation of the
 Machine Hours Predetermined
Overhead Rate.
 Direct Materials
 Basic Concept of Applied Overhead

Applied overhead = Overhead rate x Actual production

activity
Two points to consider in
the application of MOH

 Applied overhead is the basis for computing per-unit

overhead cost.
 Applied overhead is rarely equal to a period's actual
overhead costs.
 Summary of Overhead Concepts

Estimated The amount of

Overhead Cost estimated overhead
costs.

The amount of
Actual overhead costs
Overhead Cost Difference
actually incurred. equals
Under- or
The amount of Over-
Applied applied
Overhead Cost overhead costs
applied to WIP. Overhead.
 The Manufacturing Overhead Account

Amounts rarely agree

Actual
Overhead Costs

MOH
xxx xxx

A “Clearing”
Account

Overhead Applied
to WIP