3A-1

Job-Order Costing: A Microsoft

Excel-Based Approach

Appendix 3A

PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
April L. Mohr, MAcc, CPA

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 3A-2

Learning Objective 5

Use Microsoft Excel to

summarize the flow of
costs in a job-order
costing system.

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Fundamental Accounting Equation

Balance Sheet Equation

Assets = Liabilities + Stockholders’ Equity

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Fundamental Accounting Equation –

Retained Earnings Balance
Computation of Ending Balance in Retained
Earnings as Part of Stockholders’ Equity

Ending balance in Retained Earnings = Beginning

balance in Retained Earnings + Net Operating
Income − Dividends

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 3A-5

Three Key Assumptions

1. We will always use only one predetermined

overhead rate.
2. Any underapplied or overapplied manufacturing
overhead will always be closed to Cost of Goods
Sold as reported in the income statement.
3. We will record transactions within Microsoft
Excel by using positive numbers to increase
balance sheet accounts and negative numbers
(shown in parentheses) to decrease balance sheet
accounts.

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Sapphire Company Example –

Manufacturing Overhead
The transaction template that we’ll use to record the
company’s transactions is shown as a spreadsheet; it
reflects the beginning balance sheet account balances.
All of the accounts shown in the beginning balance
sheet plus an account called Manufacturing
Overhead.
1. Manufacturing Overhead is a clearing account
that always has a beginning and ending balance of
zero.

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Sapphire Company Example –

Applied and Actual Overhead
2. This account is used to record two things.
a. All actual overhead costs
b. The amount of manufacturing overhead
applied to production using the predetermined
overhead rate.
3. The difference between the actual overhead cost
and the amount of overhead applied to production
is the underapplied or overapplied overhead.

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 3A-8

Sapphire Company Example –

Materials
To begin our illustration, let’s assume that Sapphire
Company has a predetermined overhead rate of $25
per direct labor-hour that was based on a cost formula
that estimated $100,000 in manufacturing overhead
cost for an estimated allocation base of 4,000 direct
labor-hours. During January, the company completed
the following transactions:
a. Purchased raw materials on account, $80,000.
b. Raw materials used in production, $78,000 ($70,000
was direct materials and $8,000 was indirect
materials).

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 3A-9

Sapphire Company Example –

Labor
c. Paid $135,000 of salaries and wages in cash ($68,000
was direct labor, $45,000 was indirect labor, and
$22,000 was related to employees responsible for
selling and administration).

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 3A-10

Sapphire Company Example –

Transactions d–g
Additional transactions include:
d. Utility costs incurred (on account) to support
production, $15,000.
e. Depreciation recorded on property, plant, and
equipment, $40,000 (70% related to manufacturing
equipment and 30% related to assets that support
selling and administration).
f. Advertising expenses paid in cash, $18,000.
g. Prepaid insurance expired during the month, $1,000
(80% related to production, and 20% related to selling
and administration).

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 3A-11

Sapphire Company Example –

Transactions h–k
The final transactions include:
h. Manufacturing overhead applied to production,
$102,500. This amount was computed by multiplying
4,100 direct labor-hours worked in January by the
predetermined overhead rate of $25 per direct labor-
hour.
i. Cost of goods manufactured, $235,000.
j. Cash sales, $320,000.
k. Cost of goods sold, $245,000.

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Sapphire Company Example –

Transactions l–m
l. Cash payments to creditors, $92,000.
m. Close overapplied overhead of $5,700 to cost of goods
sold.
Let’s set up our initial Excel spreadsheet showing
beginning balances.

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Sapphire Company Example – Completed

Transaction Analysis Spreadsheet
The completed transaction template is shown as a spreadsheet; it
reflects the ending balance sheet account balances.

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 3A-14

Sapphire Company Example –

Explanations for Transactions a–c
Explanation of transactions during the period.*
a. Debit Raw Materials, and credit Accounts Payable for
$80,000.
b. Debit Manufacturing Overhead for indirect materials of
$8,000, debit Work in Process for $70,000, and credit Raw
Materials for $78,000.
c. Debit Work in Process for $68,000, debit Manufacturing
Overhead for $45,000, debit Salaries and Wages Expense
for $22,000, and credit Cash for $135,000.
*Debits and credits to income statement accounts are shown in the spreadsheet as
adjustments to Retained Earnings.

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Sapphire Company Example –Explanations

for Transactions d–g
d. Debit Manufacturing Overhead for $15,000, and credit
Accounts Payable for the same amount.
e. Debit $28,000 to Manufacturing Overhead, debit
$12,000 to Depreciation Expense, and credit $40,000
to Accumulated Depreciation – Property, Plant, and
Equipment.
f. Debit Advertising Expense for $18,000, and credit
Cash for the same amount.
g. Debit Manufacturing Overhead for $800, debit Selling
and Administration Expenses for $200, and credit
Prepaid Insurance for $1,000.
*Debits and credits to income statement accounts are shown in the
spreadsheet as adjustments to Retained Earnings.
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Sapphire Company Example –

Explanations for Transactions h–m
h. Debit Work in Process, and credit Manufacturing Overhead for
$102,500.
i. Debit Finished Goods Inventory, and credit Work in Process
Inventory for $235,000.
j. Debit Cash and credit Sales Revenue for $320,000.
k. Debit Cost of Goods Sold for $245,000, and credit Finished
Goods Inventory for the same amount.
l. Debit Accounts Payable and credit Cash for $92,000.
m. Debit Manufacturing Overhead and credit Cost of Goods Sold of
the overapplied overhead of $5,700.
*Debits and credits to income statement accounts are shown in the spreadsheet as
adjustments to Retained Earnings .

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Sapphire Company Example –

Schedule of Cost of Goods Manufactured
Using the information generated on the previous slide we
may create the Schedule of Cost of Goods Manufactured for
Sapphire Company.

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Sapphire Company Example –

Schedule of Cost of Goods Sold

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Sapphire Company Example –

Income Statement

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End of Chapter 3A

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