Job Order
Costing
Job Order
Costing
Learning Objective 1
Building-Block Concepts
of Costing Systems
Building-Block Concepts
of Costing Systems
Cost object
Direct costs of a cost object
Building-Block Concepts
of Costing Systems
Building-Block Concepts
of Costing Systems
Building-Block Concepts
of Costing Systems
Building-Block Concepts
of Costing Systems
Cost pool
Learning Objective 2
Job-Costing and
Process-Costing Systems
Job-Costing and
Process-Costing Systems
Job-costing system Process-costing system Distinct units of a productLearning Objective 3
Outline a seven-step
Seven-Step Approach
to Job Costing
Seven-Step Approach
to Job Costing
Step 1:
Identify the chosen cost object. Step 2:
Identify the direct costs of the job. Step 3:
Seven-Step Approach
to Job Costing
Seven-Step Approach
to Job Costing
Step 5:
Compute the rate per unit. Step 6:
Compute the indirect costs. Step 7:
General Approach to Job Costing
General Approach to Job Costing
A manufacturing company is planning to sell a batch of 25 special machines (Job 650) to a
retailer for $114,800. Step 1:
The cost object is Job 650. Step 2:
General Approach to Job Costing
General Approach to Job Costing
Step 3:
The cost allocation base is machine-hours. Job 650 used 500 machine-hours.
2,480 machine-hours were used by all jobs. Step 4:
General Approach to Job Costing
General Approach to Job Costing
Step 5:
Actual indirect cost rate is
$65,100 ÷ 2,480 = $26.25 per machine-hour. Step 6:
General Approach to Job Costing
General Approach to Job Costing
Step 7:
Direct materials $50,000 Direct labor 19,000 Factory overhead 13,125
General Approach to Job Costing
What is the gross margin of this job? Revenues $114,800 Cost of goods sold 82,125 Gross margin $ 32,675 What is the gross margin percentage?
Source Documents
Source Documents
Job cost record
Materials requisition record
Learning Objective 4
Costing Systems
Costing Systems
Actual costing is a system that uses actual costs to determine the cost of individual jobs.
It allocates indirect costs based on the actual indirect-cost rate(s) times the actual quantity
Costing Systems
Costing Systems
Normal costing is a method that allocates indirect costs based on the budgeted
Normal Costing
Normal Costing
Assume that the manufacturing company budgets $60,000 for total manufacturing overhead costs
and 2,400 machine-hours.
What is the budgeted indirect-cost rate? $60,000 ÷ 2,400 = $25 per hour
Normal Costing
Normal Costing
What is the cost of Job 650 under normal costing? Direct materials $50,000
Learning Objective 5
Transactions
Transactions
Purchase of materials and other manufacturing inputs
Conversion into work in process inventory
Transactions
Transactions
$80,000 worth of materials (direct and indirect) were purchased on credit.
Materials Control
1. 80,000 1. 80,000 Accounts Payable
Transactions
Materials costing $75,000 were sent to the manufacturing plant floor.
$50,000 were issued to Job No. 650 and $10,000 to Job 651.
Transactions
Transactions
Work in Process Control:
Job No. 650 50,000 Job No. 651 10,000 Factory Overhead Control 15,000
Transactions
Transactions
Materials Control
1. 80,000 2. 75,000
Work in Process Control
2. 60,000
Manufacturing Overhead
Transactions
Total manufacturing payroll for the period was $27,000.
Job No. 650 incurred direct labor costs of $19,000 and Job No. 651 incurred
direct labor costs of $3,000.
Transactions
Transactions
Work in Process Control:
Job No. 650 19,000 Job No. 651 3,000 Manufacturing Overhead Control 5,000
Transactions
Transactions
Wages PayableControl
3. 27,000
Work in Process Control 2. 60,000 3. 22,000 Manufacturing Overhead Control
Transactions
Transactions
Wages payable were paid.
Wages Payable Control
4. 27,000 4. 27,000 Cash
Control Wages Payable Control 27,000
Cash Control 27,000
Transactions
Transactions
Assume that depreciation for the period is $26,000.
Other manufacturing overhead incurred amounted to $19,100.
Transactions
Transactions
Manufacturing Overhead Control 45,100 Accumulated Depreciation
Control 26,000
Various Accounts 19,100 What is the balance of the Manufacturing
Transactions
Transactions
$62,000 of overhead was allocated to the
various jobs of which $12,500 went to Job 650. Work in Process Control 62,000
Transactions
Transactions
Manufacturing Overhead Control
Work in Process Control
2. 15,000 3. 5,000 5. 45,100 Bal. 3,100
Transactions
Transactions
The cost of Job 650 is:
Job 650 2. 50,000
Transactions
Transactions
Jobs costing $104,000 were completed and
Transactions
Transactions
Transactions
Transactions
Job 650 was sold for $114,800. What is the journal entry?
Accounts Receivable Control 114,800
Revenues 114,800 Cost of Goods Sold 81,500
Transactions
Transactions
What is the balance in the Finished Goods Control account?
$104,000 – $81,500 = $22,500
Assume that marketing and administrative salaries were $9,000 and $10,000.
Transactions
Transactions
Marketing and Administrative Costs 19,000
Transactions
Transactions
Direct Materials Used $60,000
Direct Labor and Overhead $84,000
Ending WIP Inventory $40,000 Cost of Goods Manufactured $104,000
–
Transactions
Transactions
Cost of Goods Manufactured $104,000
Ending Finished Goods Inventory $22,500
Cost of Goods Sold $81,500
=
Learning Objective 6
Account for end-of-period
underallocated or overallocated
indirect costs using
End-Of-Period Adjustments
End-Of-Period Adjustments
Underallocated indirect costs Overallocated indirect costs Manufacturing
Overhead Control Bal. 65,100
Manufacturing
End-Of-Period Adjustments
End-Of-Period Adjustments
How was the allocated overhead determined?
End-Of-Period Adjustments
End-Of-Period Adjustments
Actual manufacturing overhead costs of $65,100 are more than the budgeted amount of $60,000.
End-Of-Period Adjustments
End-Of-Period Adjustments
Approaches to disposing underallocated or overallocated overhead:
1. Adjusted allocation rate approach 2. Proration approaches
Adjusted Allocation
Rate Approach
Adjusted Allocation
Rate Approach
Actual manufacturing overhead ($65,100) exceeds manufacturing overhead allocated
($62,000) by 5%. 3,100 ÷ 62,000 = 5%
Adjusted Allocation
Rate Approach
Adjusted Allocation
Rate Approach
The manufacturing company could increase the manufacturing overhead allocated to
each job by 5%.
Manufacturing overhead allocated to Job 650 under normal costing is $12,500.
$12,500 × 5% = $625
Proration Approach
Proration Approach
Basis to prorate under- or overallocated overhead: – total amount of manufacturing overhead
allocated (before proration)
Proration Approach “A”
Proration Approach “A”
Assume the following manufacturing overhead component of year-end
balances (before proration):
Proration Approach “A”
Proration Approach “B”
Proration Approach “B”
Proration Approach “B”
Immediate Write-off to Cost of
Goods Sold Approach
Immediate Write-off to Cost of
Goods Sold Approach
Manufacturing Overhead
Learning Objective 7
Variations of Normal Costing
Variations of Normal Costing
Home Health budget includes the following: Total direct labor costs: $400,000
Total indirect costs: $96,000
Variations of Normal Costing
Variations of Normal Costing
What is the budgeted direct labor cost rate? $400,000 ÷ 16,000 = $25
Variations of Normal Costing
Variations of Normal Costing
Suppose a patient uses 25 direct labor-hours. Assuming no other direct costs, what is the
cost to Home Health?
Direct labor: 25 hours × $25 = $625 Indirect costs: 25 hours × $6 = 150
