JOB-ORDER COSTING

JBCG
 INTRODUCTION
• Cost accumulation systems are used to assign production or
performance costs to products or services for internal and
external financial reporting purposes.
• Such systems range from very simple to very complex.
• The two principal product costing systems are job order and
process.
 COST DETERMINATION
• Before product cost can be computed, a determination must
be made about the:
• Cost accumulation system
• Valuation method to be used.
 CONCERN OF PRODUCT COSTING
• Cost Identification
• Cost Measurement
• Product Cost Assignment
 COST ACCUMULATION SYSTEMS
• Job Order Costing System – used by companies that make
relatively small quantities of distinct products or perform
unique services that conform to specifications designated by
the purchaser.
• Job is synonymous with client or customer, engagement,
project, product or contract.
 COST ACCUMULATION SYSTEMS
• Process Costing Systems – used by companies that make
large quantities of homogenous goods such as breakfast
cereal, candy bars, detergent, gasoline and bricks.
 VALUATION METHODS (JO
COSTING)
Actual Normal
Actual Direct Material Actual Direct Material
Actual Direct Labor Actual Direct Labor
Actual Overhead Overhead Applied using
(assigned to job at the predetermined rate(s) that
end of period) completion of job or end
of period (predetermined
rate times actual input)
Standard
Standard Direct Material
Standard Direct Labor
Overhead Applied using
predetermined rate(s)
when goods are
completed or at end of
period (predetermined
rate times standard input)
 COSTING METHOD OF CUSTOM
MANUFACTURERS
• Cost-plus contract – allows producers to cover all direct
costs and some indirect costs to generate an acceptable profit
margin.
• Competitive bidding technique – the company must
accurately estimate the costs of making the unique products
associated with each contract.
 THREE STAGES OF PRODUCTION
• Contracted but not yet started
• In process
• Completed
 JOB ORDER COST SHEET
• Source document that provides virtually all financial
information about a particular job.
 MATERIAL REQUISITIONS
• Prepared so material can be released from inventory, or
purchased, and sent to the production area.
• This source document indicates the types and quantities of
material to be used to production or used to perform a
service job.
 EMPLOYEE TIME SHEETS
• Indicates the jobs on which each employee worked and the
direct labor time consumed.
• Such time sheets are most reliable if the employees update
the sheets as the day progresses.
 USES OF TIME SHEETS
• Managerial explanation of discrepancies.
• Number of hours worked may be audited by the buyer if
using cost-plus basis.
• Information on overtime.
 PRODUCT AND MATERIAL LOSSES
• Shrinkage – some losses, such as evaporation, leakage, or
oxidation inherent on the manufacturing process.
• Defects – rejected items which can be economically
reworked.
• Spoilage - rejected items which cannot be economically
reworked.
 NORMAL LOSS
• Losses which falls within a tolerance level that is expected
during production.
 ABNORMAL LOSSES
• Loss in excess of the set expectation level.
 NORMAL LOSSES
• Overhead costs other than spoilage 121,500
• Estimated spoilage cost 10,300
• Sales of improperly mixed compounds(4,300) 6,000
• Total Estimated OH 127,500
• Estimated gallons of prod during the yr 150,000
• Predetermined OH rate per gallon 0.85
 JO USING STANDARD COSTS
• Assume that A Coat of Many Colors paints a house requiring
50 gallons of paint and 80 hours of labor time. The standard
paint and labor costs, respectively, are $1500 (50x$30) and
$1,440 (80/$18). The paint was purchased at a sale price of
$27 per gallon (a total of $1,350). The actual labor rate paid
to painters was $19 per hour.