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Costing Methods
Costing methods
Specific orders Continuous operations
Job costing(small, short-term jobs)
Batch costing(small, identical units)
Contract costing(large, long-term)
Output costing(only one product)
Service costing(product is a service)
Process costing(produced in stages)
Lecture 4
Job-Order Costing
Types of Product Costing Systems
ProcessCosting
Job-orderCosting
A company produces many units of a single A company produces many units of a single product. product.
One unit of product is One unit of product is indistinguishableindistinguishable from from other units of product.other units of product.
The identical nature of each unit of product The identical nature of each unit of product enables enables assigning the same average cost per unit.assigning the same average cost per unit.
A company produces many units of a single A company produces many units of a single product. product.
One unit of product is One unit of product is indistinguishableindistinguishable from from other units of product.other units of product.
The identical nature of each unit of product The identical nature of each unit of product enables enables assigning the same average cost per unit.assigning the same average cost per unit.
Types of Product Costing Systems
ProcessCosting
Job-orderCosting
A company produces many units of a single A company produces many units of a single product. product.
One unit of product is indistinguishable from One unit of product is indistinguishable from other units of product.other units of product.
The identical nature of each unit of product The identical nature of each unit of product enables enables assigning the same average cost per unit.assigning the same average cost per unit.
A company produces many units of a single A company produces many units of a single product. product.
One unit of product is indistinguishable from One unit of product is indistinguishable from other units of product.other units of product.
The identical nature of each unit of product The identical nature of each unit of product enables enables assigning the same average cost per unit.assigning the same average cost per unit.
Example companies:Example companies:1. AAA (paper manufacturing)1. AAA (paper manufacturing)2. Unilever (margarine, tea, soap)2. Unilever (margarine, tea, soap)3. Coca-Cola (mixing and bottling beverages)3. Coca-Cola (mixing and bottling beverages)
Example companies:Example companies:1. AAA (paper manufacturing)1. AAA (paper manufacturing)2. Unilever (margarine, tea, soap)2. Unilever (margarine, tea, soap)3. Coca-Cola (mixing and bottling beverages)3. Coca-Cola (mixing and bottling beverages)
Types of Product Costing Systems
ProcessCosting
Job-orderCosting
Many different products are produced each period. Many different products are produced each period.
Products are Products are manufactured to ordermanufactured 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 Products are manufactured to ordermanufactured 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.
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.
Example companies:Example companies:1. Boeing (aircraft manufacturing)1. Boeing (aircraft manufacturing)2. GAMUDA (large scale construction)2. GAMUDA (large scale construction)3. Walt Disney Studios (movie production)3. Walt Disney Studios (movie production)
Example companies:Example companies:1. Boeing (aircraft manufacturing)1. Boeing (aircraft manufacturing)2. GAMUDA (large scale construction)2. GAMUDA (large scale construction)3. Walt Disney Studios (movie production)3. Walt Disney Studios (movie production)
Quick Check
Which of the following companies would be likely to use job-order costing rather than process costing?a. Scott Paper Company for Kleenex.
b. Architects.
c. Heinz for ketchup.
d. Caterer for a wedding reception.
e. Builder of commercial fishing vessels.
Which of the following companies would be likely to use job-order costing rather than process costing?a. Scott Paper Company for Kleenex.
b. Architects.
c. Heinz for ketchup.
d. Caterer for a wedding reception.
e. Builder of commercial fishing vessels.
Quick Check
Which of the following companies would be likely to use job-order costing rather than process costing?a. Scott Paper Company for Kleenex.
b. Architects.
c. Heinz for ketchup.
d. Caterer for a wedding reception.
e. Builder of commercial fishing vessels.
Which of the following companies would be likely to use job-order costing rather than process costing?a. Scott Paper Company for Kleenex.
b. Architects.
c. Heinz for ketchup.
d. Caterer for a wedding reception.
e. Builder of commercial fishing vessels.
Costing Approaches
• Actual Costing – allocates:– Indirect costs based on the actual indirect-cost rates
times the actual activity consumption• Normal Costing – allocates:
– Indirect costs based on the budgeted indirect-cost rates times the actual activity consumption
• Both methods allocate Direct costs to a cost object the same way: by using actual direct-cost rates times actual consumption
Sykt ABC Job Cost Sheet
Job Number A - 143 Date Initiated 3-4-05Date Completed
Department B3 Units CompletedItem Wooden cargo crate
Direct Materials Direct Labor Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate Amount
Cost Summary Units ShippedDirect Materials Date Number BalanceDirect LaborManufacturing OverheadTotal CostUnit Product Cost
Job-Order Cost Accounting
Materials Requisition Form
Ali bin Abu
Job-Order Cost Accounting
Accounting for Material
Material Control Procedures• Stores Dept functions: to order, receive and
issue materials.• Documents involved are: bin card (to monitor
stock level), purchase requisition, purchase order (PO).
• Receiving: Supplier’s Delivery Note vs PO, list in GRN (Goods Received Note) and send a copy of GRN to accounts dept for payment (check again with PO). Then, accounts dept enter info into Stores Ledger Account.
BIN CARD
Description: …………… Bin no : ………………. Code no.: ……………..Normal quantity to order:…. Maximum: ………….. Minimum:…………… Re-order level:……….
Receipts Issues Balance Remarks
Date GRN no.
Quantity Date Req. no.
Quantity Quantity
Stores (Purchase) requisition Material required for: No. (job or overhead account)Department: Date:
Quantity Description Code no.
Weight Rate RM Notes
Foreman
Stores ledger account
Material:………. Code:………. Maximum quantity:……. Minimum quantity:……..
Date
Receipts Issues Stock
GRN no.
Quantity
Unit price (RM)
Amount (RM)
Stores req.No.
Quantity
Unit price (RM)
Amount (RM)
Quantity
Unit price (RM)
Amount (RM)
During the quarter ended 31 March, a company purchased 200 litres of liquid on the following dates:
1 February: 100 litres at RM1 per litre
1 March: 100 litres at RM2 per litre
On 30 March, 100 litres were issued to Job X. The liquid had been placed in a tank, and it would be impossible to determine which consignment had been used.
The liquid is suitable for resale in its purchased state at RM4 per litre. Assume no labour or overhead costs and opening stock.
Question: How to determine the value of closing stock ?
FIFO = RM200
LIFO = RM100
Average cost = RM150
• The most acceptable method of pricing stores issues for decision-making (Management Accounting) is replacement cost.
• Because it takes into consideration future costs.
Employee Time Ticket
Job-Order Cost Accounting
Methods of Remuneration:
• Time related method
• Output related method
Accounting for Labour
Problems of Output Related Method:
• Quantity recorded on the job sheet is potentially open to abuse unless there is adequate supervision.
• Quality of the output may not be maintained as there is a temptation to produce more units in order to get higher pay.
Piece Rate (Output) with Guaranteed Pay:• This provides a security for the employees if they are
unable to achieve certain levels of output as a guaranteed minimum wage will be paid.
Differential Piecework:• In order to overcome the problem of employees slowing
down their work on reaching a certain level of earnings, an increased piece rate is offered at different level of production.
Premium Bonus Scheme
• It is a reward to the employees for any time saved on the production based on the standard time set.
• Employees will still receive normal pay in respect of the basic hours worked and the bonus is only applied to the time actually saved.
Halsey Scheme
• Time saved may be shared between employer and employees on an agreed basis.
• Formulae:
The employee receives 50% of the time saved.
Bonus = Time allowed – Time taken x Time Rate
2
Rowan Scheme
• Time saved is split on the ratio of time taken to time allowed.
• Formulae:
The proportion paid to the employee is based on the ratio of time taken to time allowed.
Bonus = Time taken x Time rate x Time saved
Time allowed
Group Bonus Scheme
• A reward to a group of employees where the bonus will be shared among the members of the group based on the pre-agreed basis.
• Advantages:• ‘Group loyalty’ may result in less absenteeism and
lateness.
Why Use an Allocation Base?
Manufacturing overhead is applied to jobs that Manufacturing overhead is applied to jobs that are in process. An allocation base, such as are in process. An allocation base, such as
direct labor hours, direct labor dollars, or direct labor hours, direct labor dollars, or machine hours, is used to assign machine hours, is used to assign
manufacturing overhead to individual jobs.manufacturing overhead to individual jobs.
Manufacturing overhead is applied to jobs that Manufacturing overhead is applied to jobs that are in process. An allocation base, such as are in process. An allocation base, such as
direct labor hours, direct labor dollars, or direct labor hours, direct labor dollars, or machine hours, is used to assign machine hours, is used to assign
manufacturing overhead to individual jobs.manufacturing overhead to individual jobs.
We use an allocation base because:
1. It is impossible or difficult to trace overhead costs to particular jobs.
2. Manufacturing overhead consists of many different items ranging from the grease used in machines to production manager’s salary.
3. Many types of manufacturing overhead costs are fixed even though output fluctuates during the period.
The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the period begins.
Manufacturing Overhead Application
Estimated total manufacturingoverhead cost for the coming period
Estimated total units in theallocation base for the coming period
POHR =
Ideally, the allocation base is a cost driver that causes
overhead.
Ideally, the allocation base is a cost driver that causes
overhead.
Using a predetermined rate makes itpossible to estimate total job costs
sooner.
Actual overhead for the period is notknown until the end of the period.
The Need for a POHR
RM
Actual amount of the allocation based upon the actual level of
activity.
Actual amount of the allocation based upon the actual level of
activity.
Based on estimates, and determined before the
period begins.
Based on estimates, and determined before the
period begins.
Application of Manufacturing Overhead
Overhead applied = POHR × Actual activity
For each direct labor hour worked on a particular job, RM4.00 of factory overhead
will be applied to that job.
For each direct labor hour worked on a particular job, RM4.00 of factory overhead
will be applied to that job.
Overhead Application Rate
POHR = RM4.00 per DLH
RM640,000
160,000 direct labor hours (DLH)POHR =
Estimated total manufacturingoverhead cost for the coming period
Estimated total units in theallocation base for the coming period
POHR =
Job-Order Cost Accounting
Job-Order Cost Accounting
Quick Check
Job WR53 at NW Fab, Inc. required RM200 of direct materials and 10 direct labor hours at RM15 per hour. Estimated total overhead for the year was RM760,000 and estimated direct labor hours were 20,000. What would be recorded as the cost of job WR53?
a. RM200.
b. RM350.
c. RM380.
d. RM730.
Job WR53 at NW Fab, Inc. required RM200 of direct materials and 10 direct labor hours at RM15 per hour. Estimated total overhead for the year was RM760,000 and estimated direct labor hours were 20,000. What would be recorded as the cost of job WR53?
a. RM200.
b. RM350.
c. RM380.
d. RM730.
Quick Check
Job WR53 at NW Fab, Inc. required RM200 of direct materials and 10 direct labor hours at RM15 per hour. Estimated total overhead for the year was RM760,000 and estimated direct labor hours were 20,000. What would be recorded as the cost of job WR53?
a. RM200.
b. RM350.
c. RM380.
d. RM730.
Job WR53 at NW Fab, Inc. required RM200 of direct materials and 10 direct labor hours at RM15 per hour. Estimated total overhead for the year was RM760,000 and estimated direct labor hours were 20,000. What would be recorded as the cost of job WR53?
a. RM200.
b. RM350.
c. RM380.
d. RM730.
Let’s summarize the document flow
in a job-order costing system.
Job-Order Costing Document Flow Summary
Job-Order Costing Document Flow Summary
A sales order is the A sales order is the basis of issuing a basis of issuing a production order. production order.
A sales order is the A sales order is the basis of issuing a basis of issuing a production order. production order.
A production A production order initiates order initiates work on a job.work on a job.
A production A production order initiates order initiates work on a job.work on a job.
Job-Order Costing Document Flow Summary
Job Cost Sheets
Job Cost Sheets
MaterialsRequisition
MaterialsRequisition
Manufacturing Overhead Account
Manufacturing Overhead Account
Direct materials
Indirect materials
Materials usedMaterials usedmay be eithermay be either
direct ordirect orindirect.indirect.
Materials usedMaterials usedmay be eithermay be either
direct ordirect orindirect.indirect.
Job-Order Costing Document Flow Summary
Job Cost Sheets
Job Cost Sheets
Employee Time Ticket
Employee Time Ticket
Manufacturing Overhead Account
Manufacturing Overhead Account
An employee’stime may be eitherdirect or indirect.
An employee’stime may be eitherdirect or indirect.
Direct Labor
Indirect Labor
Job-Order Costing Document Flow Summary
Manufacturing Overhead Account
Manufacturing Overhead Account
OtherActual OHCharges
OtherActual OHCharges
Job Cost Sheets
Job Cost Sheets
AppliedOverhead
MaterialsRequisition
MaterialsRequisition
EmployeeTime Ticket
EmployeeTime Ticket
IndirectMaterial
IndirectLabor
Job-Order System Cost Flows
Let’s examine the cost flows in a
job-order costing system.
Raw MaterialsMaterial
Purchases
Mfg. Overhead
Work in Process(Job Cost Sheet)
Actual Applied
Direct Materials Direct
Materials
Indirect Materials
Indirect Materials
Job-Order System Cost Flows
Cost Flows – Material Purchases
Raw material purchases are recorded in aninventory account.
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.
Mfg. Overhead
Salaries and Wages Payable
Work in Process(Job Cost Sheet)
Direct
MaterialsDirect Labor
Direct Labor
Indirect Materials
Actual Applied
IndirectLabor
IndirectLabor
Job-Order System Cost Flows
Cost Flows – Labor
The cost of direct labor incurred increases Work in Process and the cost of indirect
labor increases Manufacturing Overhead.
Mfg. Overhead
Salaries and Wages Payable
Work in Process(Job Cost Sheet)
Direct
MaterialsDirect Labor
Direct Labor
Indirect Materials
Actual Applied
IndirectLabor
IndirectLabor
Job-Order System Cost Flows
OtherOverhead
Cost Flows – Actual Overhead
In addition to indirect materials and indirect labor, other manufacturing overhead costs are charged to the Manufacturing Overhead
account as they are incurred.
Mfg. Overhead
Salaries and Wages Payable
Work in Process(Job Cost Sheet)
Direct
MaterialsDirect Labor
Direct Labor
Indirect Materials
Actual Applied
IndirectLabor
IndirectLabor
Job-Order System Cost Flows
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.
Cost Flows – Overhead Applied
Work in Process is increased when Manufacturing Overhead is applied to
jobs.
Nonmanufacturing Cost Flows
Nonmanufacturing costs are not assigned to individual jobs, rather they are expensed in the
period incurred.
Examples:Examples:1.1. Salary expense of employeesSalary expense of employees
that work in a marketing, selling,that work in a marketing, selling,or administrative capacity.or administrative capacity.
2.2. Advertising expenses are expensedAdvertising expenses are expensedin the period incurred.in the period incurred.
Examples:Examples:1.1. Salary expense of employeesSalary expense of employees
that work in a marketing, selling,that work in a marketing, selling,or administrative capacity.or administrative capacity.
2.2. Advertising expenses are expensedAdvertising expenses are expensedin the period incurred.in the period incurred.
Nonmanufacturing Cost Flows
Nonmanufacturing costs (period expenses) are charged to expense as they
are incurred.
Finished GoodsWork in Process(Job Cost Sheet)
Direct
MaterialsDirect Labor
Overhead Applied
Cost ofGoodsMfd.
Cost ofGoodsMfd.
Job-Order System Cost Flows
Cost Flows – Cost of Goods Manufactured
As jobs are completed, the Cost of Goods Manufactured is transferred to Finished
Goods from Work in Process.
Finished Goods
Cost of Goods Sold
Work in Process(Job Cost Sheet)
Direct
MaterialsDirect Labor
Overhead Applied
Cost ofGoodsMfd.
Cost ofGoodsMfd.
Cost ofGoodsSold
Cost ofGoodsSold
Job-Order System Cost Flows
Cost Flows – Sales
When finished goods are sold, two entries are required: (1) to record the sale, and (2) to record COGS and reduce Finished
Goods.
Defining Under- and Overapplied Overhead
The difference between the overhead cost applied to Work in Process and the actual overhead costs of a period is termed either underapplied or overapplied
overhead.
Underapplied overhead exists when the amount of overhead applied to jobs
during the period using the predetermined overhead rate is less than the total
amount of overhead actually incurred during the period.
Underapplied overhead exists when the amount of overhead applied to jobs
during the period using the predetermined overhead rate is less than the total
amount of overhead actually incurred during the period.
Overapplied overheadOverapplied overhead exists when the amount of exists when the amount of overhead applied to jobs overhead applied to jobs
during the period using the during the period using the predetermined overhead predetermined overhead
rate is rate is greater thangreater than the total the total amount of overhead actually amount of overhead actually incurred during the period.incurred during the period.
Overapplied overheadOverapplied overhead exists when the amount of exists when the amount of overhead applied to jobs overhead applied to jobs
during the period using the during the period using the predetermined overhead predetermined overhead
rate is rate is greater thangreater than the total the total amount of overhead actually amount of overhead actually incurred during the period.incurred during the period.
Sykt ABC’s Sykt ABC’s actual overheadactual overhead for the year for the year was was RM650,000RM650,000 with a total of with a total of 170,000170,000
direct labor hours worked on jobs.direct labor hours worked on jobs.
How much total overhead was applied to How much total overhead was applied to Sykt ABC’s jobs during the year? Use Sykt ABC’s jobs during the year? Use Sykt ABC’s predetermined overhead Sykt ABC’s predetermined overhead rate of RM4.00 per direct labor hour. rate of RM4.00 per direct labor hour.
Sykt ABC’s Sykt ABC’s actual overheadactual overhead for the year for the year was was RM650,000RM650,000 with a total of with a total of 170,000170,000
direct labor hours worked on jobs.direct labor hours worked on jobs.
How much total overhead was applied to How much total overhead was applied to Sykt ABC’s jobs during the year? Use Sykt ABC’s jobs during the year? Use Sykt ABC’s predetermined overhead Sykt ABC’s predetermined overhead rate of RM4.00 per direct labor hour. rate of RM4.00 per direct labor hour.
Overhead Application Example
Overhead Applied During the PeriodApplied Overhead = POHR × Actual Direct Labor Hours
Applied Overhead = RM4.00 per DLH × 170,000 DLH = RM680,000
Sykt ABC’s Sykt ABC’s actual overheadactual overhead for the year was for the year was RM650,000RM650,000 with a total of with a total of 170,000170,000 direct direct
labor hours worked on jobs.labor hours worked on jobs.
How much total overhead was applied to Sykt How much total overhead was applied to Sykt ABC’s jobs during the year? Use Sykt ABC’s jobs during the year? Use Sykt ABC’s predetermined overhead rate of ABC’s predetermined overhead rate of
RM4.00 per direct labor hour. RM4.00 per direct labor hour.
Sykt ABC’s Sykt ABC’s actual overheadactual overhead for the year was for the year was RM650,000RM650,000 with a total of with a total of 170,000170,000 direct direct
labor hours worked on jobs.labor hours worked on jobs.
How much total overhead was applied to Sykt How much total overhead was applied to Sykt ABC’s jobs during the year? Use Sykt ABC’s jobs during the year? Use Sykt ABC’s predetermined overhead rate of ABC’s predetermined overhead rate of
RM4.00 per direct labor hour. RM4.00 per direct labor hour.
Overhead Application Example
Overhead Applied During the PeriodApplied Overhead = POHR × Actual Direct Labor Hours
Applied Overhead = RM4.00 per DLH × 170,000 DLH = RM680,000
Sykt ABC has Sykt ABC has overappliedoverappliedoverhead for the yearoverhead for the year
by RM30,000. What willby RM30,000. What willSykt ABC do?Sykt ABC do?
Sykt ABC has Sykt ABC has overappliedoverappliedoverhead for the yearoverhead for the year
by RM30,000. What willby RM30,000. What willSykt ABC do?Sykt ABC do?
Sykt TT had actual manufacturing overhead costs of RM1,210,000 and a predetermined overhead rate of RM4.00 per machine hour. Sykt TT worked 290,000 machine hours during the period. Sykt TT’s manufacturing overhead is
a. RM50,000 overapplied.
b. RM50,000 underapplied.
c. RM60,000 overapplied.
d. RM60,000 underapplied.
Sykt TT had actual manufacturing overhead costs of RM1,210,000 and a predetermined overhead rate of RM4.00 per machine hour. Sykt TT worked 290,000 machine hours during the period. Sykt TT’s manufacturing overhead is
a. RM50,000 overapplied.
b. RM50,000 underapplied.
c. RM60,000 overapplied.
d. RM60,000 underapplied.
Quick Check
Sykt TT had actual manufacturing overhead costs of RM1,210,000 and a predetermined overhead rate of RM4.00 per machine hour. Sykt TT worked 290,000 machine hours during the period. Sykt TT’s manufacturing overhead is
a. RM50,000 overapplied.
b. RM50,000 underapplied.
c. RM60,000 overapplied.
d. RM60,000 underapplied.
Sykt TT had actual manufacturing overhead costs of RM1,210,000 and a predetermined overhead rate of RM4.00 per machine hour. Sykt TT worked 290,000 machine hours during the period. Sykt TT’s manufacturing overhead is
a. RM50,000 overapplied.
b. RM50,000 underapplied.
c. RM60,000 overapplied.
d. RM60,000 underapplied.
Quick Check
Overhead Applied RM4.00 per hour × 290,000 hours = RM1,160,000
Underapplied Overhead RM1,210,000 - RM1,160,000 = RM50,000
Overhead Applied RM4.00 per hour × 290,000 hours = RM1,160,000
Underapplied Overhead RM1,210,000 - RM1,160,000 = RM50,000
Disposition of Under- or Overapplied Overhead
RM30,000 may beRM30,000 may beclosed directly toclosed directly to
cost of goods sold. cost of goods sold.
Cost of Goods Sold
Cost of Goods Sold
Sykt ABC’s MethodSykt ABC’s Method
Work inProcessWork inProcess
FinishedGoods
FinishedGoods
Cost of Goods Sold
Cost of Goods Sold
RM30,000RM30,000may be allocatedmay be allocated
to these accounts.to these accounts.
OROROROR
Disposition of Under- or Overapplied Overhead
Sykt ABC’sMfg. Overhead
Actualoverhead
costs
$650,000$30,000
overapplied
Sykt ABC’s Costof Goods Sold
Unadjusted Balance
AdjustedBalance
$30,000
$30,000
Overhead appliedto jobs
$680,000
Allocating Under- or Overapplied Overhead Between Accounts
Assume the overhead applied in ending Work in Process Inventory, ending Finished Goods Inventory, and Cost of Goods Sold is shown below:
Allocating Under- or Overapplied Overhead Between Accounts
Amount Percent of
Total Allocation of
$30,000 Work in process 68,000$ 10% 3,000$ Finished Goods 204,000 30% 9,000 Cost of Goods Sold 408,000 60% 18,000 Total 680,000$ 100% 30,000$
We would complete the following allocation of RM30,000 overapplied overhead:
Allocating Under- or Overapplied Overhead Between Accounts
Amount Percent of
Total Allocation of
$30,000 Work in process 68,000$ 10% 3,000$ Finished Goods 204,000 30% 9,000 Cost of Goods Sold 408,000 60% 18,000 Total 680,000$ 100% 30,000$
Multiple Predetermined Overhead Rates
To this point we have assumed that there is a To this point we have assumed that there is a single predetermined overhead rate called a single predetermined overhead rate called a
plantwide overhead rate.plantwide overhead rate.
To this point we have assumed that there is a To this point we have assumed that there is a single predetermined overhead rate called a single predetermined overhead rate called a
plantwide overhead rate.plantwide overhead rate.
Large companies Large companies often use multiple often use multiple predetermined predetermined overhead rates.overhead rates.
Large companies Large companies often use multiple often use multiple predetermined predetermined overhead rates.overhead rates.
May be more May be more complex but . . .complex but . . .May be more May be more complex but . . .complex but . . .
May be more accurate because it reflects differences across departments.
May be more accurate because it reflects differences across departments.
Job-Order Costing in Service Companies
Job-order costing is used in many Job-order costing is used in many difference types of service companies.difference types of service companies.
Job-order costing is used in many Job-order costing is used in many difference types of service companies.difference types of service companies.
Specific orders - contract costing
• Contract costing is ‘a method of costing for specific orders in which costs are attributed to individual long-term contracts’ (Collis and Hussey, 2007, p. 262)
• Mainly used by businesses in the following sectors– Construction (eg large housing projects, office block and other
commercial/industrial premises)
– Civil engineering (eg roads, tunnels, bridges and dams)
Output Costing
Service / function Costing
Exercise 1
In a particular period, for the whole production process at Factory W, a total of 15,000 direct machine hours and 12,000 direct labour hours were used with total budgeted overhead amounted to RM120,000. Production involves a very machine intensive process. In order to complete Job X at Factory W, direct materials required is RM60 per unit. Direct labour rate per hour is RM30. Job X required 10 machine hours and 4 direct labour hours. Required: Calculate the cost of Job X.
Exercise 2
With reference to Exercise 1, if the production
process is labour intensive instead, what is the
new cost of Job X ?
Exercise 3
Total budgeted overhead is RM200,000. Job X Job Y Job Z
No. of units 1000 500 250
Direct materials
RM50 per unit
RM80 per unit
RM100 per unit
Direct labour hours per unit
1.5 3 4
Direct machine hours
1800 1200 2000
Exercise 4
Question 1 - Time related pay
An employee’s basic week is 40 hours at a rate of pay of RM4 per hour. Overtime is paid at time and a half. The employees actually works 45 hours for a particular week.
Required:What is the total wage cost for this employee for the week?
Question 2 – Piece rate with guarantee
Jones is paid RM3.00 for every unit he produces. He has a weekly guarantee wage of RM600.
Required:
What is his weekly wage if he produces:1. 220 units
2. 180 units
Exercise 5
Exercise 6
Exercise 7
Exercise 8
THE ENDTHE END
ADVISE & REMINDER: Now, your reading time….it’s your responsibility to read relevant chapter in the main text and related chapters in the additional recommended references !