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Systems Design: Job-Order Costing
Chapter 3
Types of Product Costing Systems
ProcessCosting
Job-orderCosting
Many different products are produced each period. Many different products are produced each period.
Products are manufactured to order.Products are manufactured to order.
The unique nature of each order requires tracing or The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost allocating costs to each job, and maintaining cost
records for each job.records for each job.
Many different products are produced each period. Many different products are produced each period.
Products are manufactured to order.Products are manufactured to order.
The unique nature of each order requires tracing or The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost allocating costs to each job, and maintaining cost
records for each job.records for each job.
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Comparing Process and Job-Order Costing
Job-Order Process
Number of jobs worked Many Single Product
Cost accumulated byIndividual
Job Department
Average cost computed by Job Department
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Measuring Direct Materials Cost
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Job-Order Cost Accounting
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The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before
the period begins.
Manufacturing Overhead Application
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Determining Predetermined Overhead RatesPredetermined overhead rates are calculated
using a three-step process.
Estimate the level of
production for the period.
Estimate the level of
production for the period.
Estimate total amount of the allocation base
for the period.
Estimate total amount of the allocation base
for the period.
Estimate total manufacturing
overhead costs.
Estimate total manufacturing
overhead costs.
POHR = ÷ 3-7
Job-Order Cost Accounting
3-8
Job-Order CostingDocument Flow Summary
Job Cost Sheets
Job Cost Sheets
MaterialsRequisitionMaterials
Requisition
Manufacturing Overhead Account
Manufacturing Overhead Account
Direct materials
Indirect materials
MaterialsMaterialsused may beused may be
either direct oreither direct orindirect.indirect.
MaterialsMaterialsused may beused may be
either direct oreither direct orindirect.indirect.
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Job-Order CostingDocument Flow Summary
Job Cost Sheets
Job Cost Sheets
Employee Time Ticket
Employee Time Ticket
Manufacturing Overhead Account
Manufacturing Overhead Account
Anemployee’s
time may be eitherdirect orindirect.
Anemployee’s
time may be eitherdirect orindirect.
Direct Labor
Indirect Labor
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Job-Order CostingDocument Flow Summary
Manufacturing Overhead Account
Manufacturing Overhead Account
OtherActual OHCharges
OtherActual OHCharges
Job Cost Sheets
Job Cost Sheets
POHR rate used to apply overhead
MaterialsRequisitionMaterials
Requisition
EmployeeTime TicketEmployee
Time TicketIndirectLabor
IndirectMaterial
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Raw MaterialsMaterial
Purchases
Mfg. Overhead
Work in Process(Job Cost Sheet)
Actual Applied
Direct Materials Direct
Materials
Indirect Materials
Indirect Materials
The Purchase and Issue of Raw Materials
3-12
Cost Flows – Material Purchases
Raw material purchases are recorded in aninventory 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
Mfg. Overhead
Salaries and Wages Payable
Work in Process(Job Cost Sheet)
Direct
MaterialsDirect Labor
Direct Labor
Indirect Materials
Actual Applied
IndirectLabor
IndirectLabor
The Recording of Labor Costs
3-15
Mfg. Overhead
Salaries and Wages Payable
Work in Process(Job Cost Sheet)
Direct
MaterialsDirect Labor
Direct Labor
Indirect Materials
Actual Applied
IndirectLabor
IndirectLabor
Applying Manufacturing Overhead
OtherOverhead
Overhead Applied
OverheadApplied to
Work inProcess
If actual and applied manufacturing overheadare not equal, a year-end adjustment is required.
If actual and applied manufacturing overheadare not equal, a year-end adjustment is required.
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Finished GoodsWork in Process(Job Cost Sheet)
Direct
MaterialsDirect Labor
Overhead Applied
Cost ofGoodsMfd.
Cost ofGoodsMfd.
Transferring Completed Units
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Underapplied and Overapplied Overhead Beginning of the period: Estimated total manufacturing overhead cost / Estimated total amount
of the allocation base = Predetermined overhead rate (POHR)
During the period: Predetermined overhead rate x Actual total amount of the allocation
base incurred during the period = Total manufacturing overhead applied
End of the period: Actual total manufacturing overhead cost - Total manufacturing
overhead applied = Underapplied (Overapplied) overhead
End of Chapter 3
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