Job Order Cost System

Module 5ACG 2071

Created by M. MariFall 2007-1

Cost Accounting Systems Job order cost

Provides separate record of the cost of each quantity of the product that passes through the factory

Process cost system Costs are accumulated

for each of the department or processes within the factory

Job Order Accounting A major aim is to determine the cost of

producing each job or job lot. Job sheet

Is a separate record maintained for each job While a job is being manufactured, its

accumulated costs are kept in Goods in Process Inventory

When job is finished , costs are transferred to Finished Goods Inventory

Purchase of MaterialsDate Account Debit Credit

Raw materials inventory XX

Accounts payable XX

Example Purchased $8,000

worth of materials for use in production on account

Date

Account PR Debit Credit

Raw materials inventory $8,000

Accounts payable $8,000

Requisition of Materials

Date Account Debit Credit

Work in process Total direct materials used

Factory overhead Total indirect materials used

Materials inventory Total materials used

Example 2 Material usage is shown below, record the

material used

Job # Materials

125 $4,500

126 $4,250

127 $4,000

128 $3,500

129 $3,000

Indirect $2,000

TOTAL $21,250

Example 2Date

Account Debit Credit

Work in process $19,250

Factory overhead 2,000

Raw materials inventory $21,250

Factory LaborDate Account PR Debit Credit

Good in process Direct labor

Factory overhead Indirect labor

Wages payable Total labor costs

Example 3

Job # Labor Direct labor hours

125 $5,000 200

126 $4,900 175

127 $4,500 150

128 $4,000 125

129 $3,500 100

Indirect $1,500

TOTAL $23,400 830

To the right, you will find a distribution of labor costs between jobs. Please record the labor used.

Example 3Date Account Debit Credit

Work in process $21,900

Factory overhead 1,500

Wages payable $23,400

Factory Overhead CostsDate Account PR Debit Credit

Factory overhead Total actual overhead costs

Various accounts Total actual overhead costs

Allocating Factory Overhead Cost allocation – the process of assigning factory

overhead costs to a cost object Activity Base – measure used to allocate factory

overhead

Predetermined factory overhead rate =Predetermined factory overhead rate =

Estimated total factory overhead costsEstimated total factory overhead costs Estimated Activity BaseEstimated Activity Base

Examples Example 4: The corporation estimates FO at $500,000

for the next period. The corporation uses direct labor hours as its activity base and estimates 50,000 total direct labor hours

Predetermined rate = Estimated FO CostsEstimated activity base

= $500,000 50,000 DLH

= $10 per direct labor hourSo factory overhead is applied at rate of $10 for each

hour of direct labor charged to the job.

Examples Factory overhead costs are $500,000 for the next

period. Factory overhead is determined as a percentage of direct labor costs. If direct labor costs is $750,000, what is the factory overhead rate?

Predetermined rate = Est. Factory overheadEst. Activity Base

= $500,000$750,000

= 67%Factory overhead is applied at a rate of 67% of direct labor

costs. For each dollar of direct labor charged to the job, 67 cents is charged to factory overhead.

Applying Factory Overhead The factory overhead

account is applied based on the predetermined rate.

Date Account PR Debit Credit

Work in process Total factory overhead applied

Factory overhead

Total factory overhead applied

Example 6

Job # Mtrls Labor DL hr FO

125 4500 5000 230

126 4250 4900 175

127 4000 4500 150

128 3500 4000 125

129 3000 3500 100

Indirect 2000 1500

Totals 21250 23400 780

Below is the manufacturing information for Bunny. Factory overhead rate is $50 per direct labor hour. Record the application of factory overhead to the jobs listed below.

Example 6Job # DLhr FO

125 230 230 X $50 per direct labor hour = $11,500

126 175 175 x $50 = $8,750

127 150 150 x $50 = $7,500

128 125 125 x $50 = $6,250

129 100 100 x $50 = $5,000

Indirect

Totals 780 $39,000$39,000

Example 6Date Account PR Debit Credit

Goods in process $39,000

Factory overhead $39,000

Example 7 Taxon Corporation applies factory overhead at the

rate of 75% of direct labor costs. Record the application using the following information:

Job #

Labor Factory

125 $5000 $5,000 x 75% = $3,750

126 $4900 $4,900 X 75% = $3,675

127 $4500 $4,500 X 75% = $3,375

128 $4000 $4,000 X 75% = $3,000

129 $1500 $1,500 X 75% = $1,125

TOTAL $14,925$14,925

Example 7Dat

eAccount PR Debit Credit

Goods in process $14,925

Factory overhead $14925

Factory Overhead

Debit Credit

Factory Overhead AccountFactory Overhead Account

Actual factory overhead costs greater than estimated and applied factory overhead costs

Actual factory overhead costs less than estimated and applied factory overhead costs

Disposal of Factory Overhead

Since Factory overhead is an EXPENSE account, it must be closed at the end of the period.

The balance of the account is closed into COST OF GOODS SOLD

Date Account PR

Debit Credit

Cost of Goods Sold Debit if underapplied by the balance in the account

Credit if overapplied by the balance in the account

Factory overhead

Debit if overapplied by the balance in the account

Credit if underapplied by the balance in the account

Example Example 7: The balance in the factory

overhead account is $50,000, the corporation applies $60,000 to work in process. Record the disposal of the balance.

The factory overhead account has a credit balance of $10,000 after the entry to apply factory overhead to work in process.

Example

Date Account Debit Credit

Factory overhead $10,000

Cost of goods sold $10,000

Factory overhead

Debit

$50,000

Actual factory overhead costs

Credit

$60,000

Factory overhead costs applied

$10,000 balance

Over-applied factory overhead

Example Example 7: The balance in the factory

overhead account is $100,000, the corporation applies $95,000 to work in process. Record the disposal of the balance.

The factory overhead account has a debit balance of $5,000 after the entry to apply factory overhead to work in process.

Example

Date Account Debit Credit

Cost of goods sold $5,000

Factory overhead $5,000

Factory overhead

Debit

$100,000

Actual factory overhead costs

Credit

$95,000

Factory overhead costs applied

$5,000 balanceUnder-applied factory overhead

Transfer of Finished GoodsDate Account Debit Credit

Finished goods Total manufacturing costs

Work in process Total manufacturing costs

Example 9:

Job Mtrl Labor FO Total

125 $4500 $5000 $6900 $16400

126 $4250 $4900 $5250 $14400

127 $000 $4500 $4500 $13000

Total $43,800

Suppose that jobs 125, 126, and 127 are completed. Record their transfer to finished goods inventory.

Transfer to Finished GoodsDat

eAccount PR Debit Credit

Finished goods inventory $43,800

Goods in process $43,800

The jobs are kept in Finished Goods Inventory until they are sold to the customer. Then they are transferred to Cost of Goods Sold

Transferred to COGS Date Account PR Debit Credit

Cost of goods sold Total cost

Finished goods Total costs

Example Using the information in example 7 above,

assume that jobs 125 which costs $16,400 to manufacture has been sold for $75,000 on account. Record the entry.

Date Account PR Debit Credit

Accounts receivable $75,000

Sales $75,000

Cost of goods sold $16,400

Finished goods $16,400