Job Order Costing2

7/27/2019 Job Order Costing2

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Chapter 5

Job Order Costing

Cost Accounting

Foundations and EvolutionsKinney and RaibornSeventh Edition


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Job Order or Process CostingJob Order

Small quantities Batches of

identifiable,tailor-made

products

User-specificservices

Tracks costs byjob


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Job Order or Process CostingJob Order

Small quantities Batches of

identifiable,tailor-made

products

User-specificservices

Tracks costs byjob

Process

Large quantities

Homogeneous

goods Tracks costs by

batch of goods bydepartment


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Job Order Costing Ajob is a single unit or group of units

identifiable as being produced to distinct

customer specifications

A job can be a Client

Engagement Project

Contract


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Product Costing

Cost identification Cost measurement

Product cost assignment


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Methods of Product Costing

Cost Accumulation System defines cost object

method of assigning costs to production

Valuation Methodspecifies

how product costs will be measured


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Six Possibilities

Job Order

Actual Normal

Standard

Process

Actual

Normal

Standard

V

A

L M

U EA T

T H

I O

O D

N

COST ACCUMULATION

SYSTEM


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Valuation Methods

Actual Actual direct material

Actual direct labor

Actual overhead

Normal

Actual direct material

Actual direct labor

Predetermined overhead

Standard Standard direct material

Standard direct labor

Standard overhead

The

Difference


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Job Order Costing System

Each job is a cost object Costs are accumulated for each job

A job can consist of one or more units of

output

There is a subsidiary ledger for each job


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Job Order Costing System

WIP ControlJ ob 2J ob 1 J ob 3

J ob 1 + J ob 2 + J ob 3 = WIP Control

WIP Subsidiary Ledger

= Job 1 100Job 2 200

Job 3 500Total 800

100 200 500


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Material Requisition Form

Tracks who is responsible for materials Verifies flow of materials from warehouse to

department to job

Journal entryWork in Process Inventory (direct material)

Factory Overhead Control (indirect material)

Raw Material Inventory


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Materials Requisition Form

Date ___________________ No. 341Job No. _________________

Authorized by ___________

Department _______________Issued by _________________Inspected by _______________

Item Part Unit of Quantity Quantity Unit Total

No. No. Descrip. Measure Required Issued Cost Cost

Received by _____________


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Job Order Cost Sheet

All financial information about a job direct material (from material requisition)

direct labor (from time sheets or labor tickets)

applied overhead

budgeted cost information

When job is complete, use job order costsheet to analyze actual costs compared to

budgeted costs


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Job Order Cost Sheet

Customer ____________ Job No. 315

Starting Date _________ Job Description ____________

Completion Date ______ Contract Price _____________

MaterialsDate Ref# Amount Direct LaborDate Ref # Amount Overhead AppliedDate Ref# Amount

Total Materials _________

Total Labor _________ Total Cost of Job

Total OH Applied _________ ========


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Employee Time Sheet

Time worked on each job


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Employee Time Sheet

Time worked on each job Journal entry

Work in Process Inventory (direct labor)

Factory Overhead Control (indirect labor)

Salaries and Wages Payable


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Employee Time SheetEmployee Name _______________

Employee No. _______________

Department _______________

For week ending

_______

Start Stop TotalType of Work Job No. Time Time Day Hours

Employee Signature Supervisor s Signature


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Manufacturing Overhead

Factory Overhead ControlActual Overhead Applied Overhead

Journal Entry

Work in Process InventoryApplied Factory Overhead

Applied Factory OverheadFactory Overhead Control


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Completion of a Job

Move job cost sheet from WIPsubsidiary to Finished Goods subsidiary

Journal entry

Finished Goods Inventory

Work in Process Inventory


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Sale Journal entry

Accounts Receivable

Sale

Cost of Goods SoldFinished Goods Inventory

Matches revenuesand expenses on

the incomestatement


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Job Order Costing and Technology

Automate data collection and data entry Accounting software includes job costing

modules Share information using intranet


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Journal Entries

Materials WIP-J ob 1 FG

CGSWIP-J ob 2Accts Pay Overhead

W & Sal Pay

WIP consists of job cost sheets


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Purchase Materials on Account (a)



W & Sal Paya

a


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Use Materials Requisition to

Request Materials for Jobs (b)



W & Sal Paya

a

b

bb

Direct materials to WIPIndirect materials to Overhead

b


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Record Labor from Employee Time

Sheets (c)



W & Sal Paya

a

b

bb

Direct labor to WIPIndirect labor to Overhead

bc

cc

c


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Apply Overhead(d)



W & Sal Paya

a

b

bb

b c

cc

c

d

d

d


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Complete Job 1 (e)



W & Sal Paya

a

b

bb

b c

cc

c

d

d

d

e e


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Sell Job (f,g)



W & Sal Paya

a

b

bb

b c

cc

c

d

d

d

e e

Accts Rec Sales

f

f

gg


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Standard Cost System

Actual cost Normal cost

Standard cost Predetermined norms (or standards) for

materials, labor, and overhead

Compare actual costs to standard costs -

difference is a variance


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Management Use of

Job Order Costing Systems

Estimate future job costs Establish realistic bids and selling prices

Develop budgets and standards

Compare actual costs to estimated costs

Furnish performance evaluation

information based on profitability of jobs


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Product and Material LossesProduction processes may result in losses in

direct material or partially completedproducts.

- shrinkage

- production errors


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Product and Material Losses Shrinkage - inherent in the manufacturing

process, and modifying the manufacturingprocess to reduce or eliminate shrinkage may

be difficult, impossible, or not cost-beneficial Evaporation

Leakage

Oxidation


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Product and Material Losses Production errors by humans or machines

cause loss of units through rejection atinspection point for failure to meet standards

or specifications Defects - can be economically reworked

and sold Spoilage - cannot be economically

reworked


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Product and Material Losses

If units do not meet quality specs, they maybe reworked to meet product specs or sold

as irregulars.

Rework cost is a product or period cost

depending on whether the rework relates to

defective production that is considerednormal or abnormal.


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Product and Material Losses

Normal loss falls within a tolerance levelthat is expected during production

Abnormal loss any loss in excess of the

set expectation level

* The difference between normal and

abnormal loss is determined bymanagement.


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Product and Material LossesAccounting for lost units depends on 2

issues:1. Is the loss generally incurred for most

jobs, or is it specifically identified with aparticular job?

2. Is the loss considered normal orabnormal?


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Normal Loss

Anticipated on all jobs Include cost when calculating predetermined

overhead application rate

Include cost less the estimated disposal value

Specific to a job

Applied to the specific job

Include cost less the estimated disposal value


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Abnormal Spoilage

Period cost includes cost of abnormalloss less any disposal value


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Product and Material LossesNormal

Loss

Abnormal

Loss

Loss for

most jobs

Loss identified

with aspecific job

In overheadrate Period cost

Charge tospecific job Period cost

Documents

Job Order Costing2