12. Job Costing
Job
order costing system is
generally used by companies
that manufacture a number of
different products. It is a widely
used
costing
system
in
manufacturing
13. Job cost sheet
document used to record manufacturing costs to compute
and allocate costs to products and services.
A separate job cost sheet is prepared for each individual job.
Includes job number, product name, starting date, completing
date, number of units completed etc.
materials requisition number, cost of direct materials
issued, time tickets, direct labor hours, direct labor rate per
hour and total cost, manufacturing overhead rate per direct
labor or machine hour and total cost etc.
Job cost sheet is not only used to charge cost to jobs but is
also a part of the company‟s accounting record. It is used as a
subsidiary ledger to the work in process account because it
contains all details about the job in process.
15. Pre Determined Overhead Rate (machine hours)
Predetermined overhead rate is computed at the
beginning of the year using projected expenses over
projected hours
Predetermined rate = total projected cost / projected
hours
Manufacturing overhead applied to production =
Actual machine hours × Predetermined overhead
rate
16. Manufacturing Overhead
Manufacturing overhead is applied or added to each job
while it is in process.
There are three kinds of overhead costs consider:
Estimated overhead cost - used only in the predetermined overhead rate calculation
Actual overhead cost which is incurred periodically
throughout the year and debited to the manufacturing
overhead account
Applied overhead cost which is added to jobs in the
work-in-process inventory account throughout the year
and credited to the manufacturing overhead account
17. Manufacturing Overhead
Actual overhead costs flow into the account as they are
incurred
Applied overhead costs flow out of the account as the
jobs flow through the production process.
The account balance may be either underapplied or
overapplied.
Underapplied overhead represents an expense which
must be transferred to cost of goods sold.
Overapplied overhead represents a reduction of expense
charged to jobs which must be transferred to cost of
goods sold.
18. Product Costing Procedures
in Organizations
18/3
7
Process
Costing
Job-order
Costing
Distinct jobs or batches of units.
Mugan
• Costs accumulated separately by job.
•Typical job order cost applications:
• Special-order printing
• Building construction
• Also used in service industry
• Hospitals
• Law firms
Fall 2010
20. Job-Order Costing
20/
37
Raw materials
could be used as
direct or indirect
product cost.
Direct
materials
and labor
Part of the
job cost
Materials
Requisition and
Time tickets
An employee’s
time may be either
direct or indirect.
Mugan
Indirect
materials
and labor
Manufacturing
Overhead
Control
Account
Fall 2010
22. Job-Order Cost Sheet
22/
37
XYZ Job-Order Cost Sheet
Job Number A - 143
Department A4
Item Steel water tank
Direct Materials
Req. No. Amount
MR 1041 $ 1,200
Direct Labor
Manufacturing Overhead
Ticket Hours Amount Hours
Rate
Amount
20
8
$ 160
8
6
48
Cost Summary
Direct Materials
Direct Labor
Manufacturing Overhead
Total Cost
Unit Cost
Mugan
Date Initiated 17 September 2008
Date Completed
17-Nov-08
Units Completed
2
$
1,200
Units Shipped
Date Number Balance
$
160
48
1408
704
11/17/08
1
1
Fall 2010
23. Job-Order System Cost Flows
23/
37
Salaries and
Wages Payable
Direct
Labor
Indirect
Labor
Mfg. Overhead
Mugan
Actual Applied
Indirect
Overhead
Materials Applied to
Indirect
Work in
Labor
Process
Work-in-Process
(Job Cost Sheet)
Direct
Materials
Direct
Labor
Overhead
Applied
If actual and applied
manufacturing overhead
are not equal, a year-end
adjustment is required.
Fall 2010
24. Job-Order System Cost Flows
24/
37
Work-in-Process
(Job Cost Sheet)
Direct
Materials
Direct
Labor
Overhead
Applied
Cost of
Goods
Mfd.
Finished Goods
Cost of
Goods
Mfd.
Cost of
Goods
Sold
Cost of Goods Sold
Cost of
Goods
Sold
Mugan
Fall 2010
25. Sample Problem
The RC manufacturing company uses job order costing
system. The company uses machine hours to apply
overhead cost to jobs. At the beginning of Y1, the
company estimated that 150,000 machine hours would
be worked and $900,000 overhead cost would be
incurred during Y1.
Materials were requisitioned for use in
production, $760,000 ($720,000 direct materials and
$40,000 indirect materials).
Direct labor, $150,000; indirect labor, $220,000;
RC manufacturing company worked 160,000 machine
hours. Manufacturing overhead was applied to
production.
26. Sales commission, $180,000; and administrative
salaries, $400,000.
Sales travel costs were $34,000.
Utility costs incurred in the factory, $86,000.
Advertising expenses were $360,000.
Depreciation for the year was $700,000 ($560,000
relates to factory and $140,000 relates to selling and
administrative activities).
Insurance expired during the year, $20,000 ($14,000
relates to factory operations and $6,000 relates to selling
and administrative activities).
Goods costing $1,800,000 were completed during the
year.
The goods costing $1,740,000 were sold to customers for
$3,000,000.
29. Process Costing
one method for
collecting and
assigning manufacturing costs to
the units produced. Processing cost
is used when nearly identical units
are mass produced.
30. Processing Departments
an organizational unit where work is
performed on a product and where
materials, labor, or overhead costs are
added to the product.
31. Product Costing Procedures
in Organizations
31/3
7
Process
Costing
Job-order
Costing
Typical process cost applications:
Paint manufacturer
Mugan
Petrochemical refinery
Paper mill
Fall 2010
32. Process Costing
32/
37
Identical units of product are produced
in a continuous flow through a series of
manufacturing steps or processes.
Costs are assigned to completed units transferred
out of the process and to incomplete units
remaining in the process.
Mugan
Fall 2010
33. Process Costing
33/
37
Costs are accumulated for a period of time for
products in work-in-process inventory.
Equivalent units is a concept expressing these
partially completed products as a smaller
number of fully completed products.
Mugan
Fall 2010
35. Equivalent Units
35/
37
Two one-half completed products are
equivalent to one completed product.
+
=
So, 8,000 units 70 percent complete
are equivalent to 5,600 complete units.
Mugan
Fall 2010
37. Equivalent Units Question
37/
37
For the current period, Ames started 15,000
units and completed 10,000 units, leaving
5,000 units in process 30 percent complete.
How many equivalent units of production did
Ames have for the period?
a. 10,000
b. 11,500
c. 13,500
d. 15,000
Mugan
Fall 2010
38. Equivalent Units Question
38/
37
For the current period, Ames started 15,000
units and completed 10,000 units, leaving
5,000 units in process 30 percent complete.
How many equivalent units of production did
Ames have for the period?
a. 10,000
10,000 units + (5,000 units × .30)
b. 11,500
= 11,500 equivalent units
c. 13,500
d. 15,000
Mugan
Fall 2010
39. Similarities between Job-Order and
Process Costing
Both systems have the same basic purposes—to
assign material, labor, and manufacturing overhead
costs to products and to provide a mechanism for
computing unit product costs.
Both systems use the same basic manufacturing
accounts, including Manufacturing Overhead, Raw
Materials, Work in Process, and Finished Goods.
The flow of costs through the manufacturing
accounts is basically the same in both systems.
42. Batch Costing
The identification and assignment of
costs
related
to
producing
a
set amount of goods. This includes all
fixed and variable costs for producing
the batch. The unit cost of a batch of
goods can be calculated by dividing the
batch cost by the number of units
produced.
43. Batch Costing
In Batch Costing, a lot of similar units which
comprise the batch may be used as a cost unit for
ascertainment of cost.
Separate Cost Sheet is maintained for each batch by
assigning a batch number.
Cost per unit of product is determined by dividing
the total cost of a batch by the number of units of
that batch.
Batch costing is used in number drug
industries, ready made garment
industries, electronic componentsmanufacture, TV
sets, radio etc.
44. Batch Costing
“the form of specific order costing which applies
where similar articles are manufactured in batches
either for sale or for use within the company”-ICMA
This system to be utilized when a firm manufacture
products in readily identifiable batches or definite
lots.
“A batch is a cost unit which consist of a group of
similar articles, which maintain its identity
throughout one or more stages of production”
45. Features
Variant of job costing
Job costing is tailored to meet the customers‟
specifications whereas batch costing produced
inventory for future sale to customers.
Furniture making, Small tool making, clothing &
toys and food processing undertakings.
47. Contract Costing
A way of providing a cost for
especially large and long term
projects that will usually be
performed over a number of
accounting periods.
48. Contract Costing
Variant of job costing,
Applies to construction works,
Individual cost unit (individual jobs)& cost centre
(department or process),
52. With service-based
costing, organizations calculate the full
cost of their products and services.
They propose a budget that includes
not just the expected "keep the lights
on" services, but also the many things
clients have requested.
53. Full Service Cost
Direct costs (labor and vendor costs specific to
that project or service) are straightforward to assign
to services.
Indirect Costs:
Unbillable time
External indirect costs
Internal indirect costs
Overhead
54. Group Work
Which method for assigning costs to products would
be more appropriate in each of the following cases?
a) Cruise ship builder
b) Cornflakes factory
c) Law firm
d) Dentists office
e) Beverage bottling company
55. Group Work
ABC Company uses job-order costing. It incurred the
following costs for job M301: 20 pounds of raw materials
(all direct) were issued to be used for job M301 at a cost
of $7/pound.
Three people were assigned to work on Job M301 at a
rate of $12 per hour. Records show that a total of 25
direct labor-hours were worked on Job M301.
Manufacturing overhead is applied based on direct laborhours. At the beginning of the year, estimated total
manufacturing overhead was $450,000 and the total
direct labor hours incurred would be 50,000.
Required: Determine the cost assigned to Job M301.
56. Group Work
Company XYZ makes custom motor boats. It incurred
the following costs for the just completed job B011. 500
pounds of direct materials were used at a cost per pound
of $25. The job cost sheet indicates that a total of 90
direct labor-hours incurred on job B011. The workers
were paid at a rate of $18 per hour. The company applies
overhead based on machine hours. At the beginning of
the year, it was estimated that the total amount of
overhead would be $180,000 and a total of 30,000
machine hours would be incurred. Job B011 required 150
machine hours.
Required: Determine the total cost assigned to Job B011.
57. Home Assignment
Taken from a cocktail store:
Sales: US$ 1,750,000.00
Juice inventory cost : US$
45,000.00
Cocktails: US$5,000.00
Cups:
US$ 2,500.00
Inventory Purchases (same
number of inventory per
purchase)
January US$ 200.00
April
US$ 300.00
July
US$ 250.00
October US$ 400.00
Barista salaries: US$ 35,000.00
Electricity:
US$ 1,000.00
Machines Purchased: US$
150,000.00
Vehicles purchased: US$
20,000.00
Water:
US$ 500.00
Advertising US$ 7,500.00
Freight US$ 5,000.00
Retainer Accountant US$
6,000.00
Admin officer US$7,500.00
58. Required
Classify the different type of costs given in the case
Recommend and explain at least 2 different costing
methods applicable to the company
59. Topics for Research
Cost measurement:
o absorption and marginal costing;
o traditional overhead absorption
o activity-based costing;
o stock valuation methods
(FIFO, LIFO, AVCO, standard
costing)
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