The Sterling Company Department B Cost of Production Report For the month of January Quantity Schedule: Units received

from preceding department Units Units Units Units transferred to finished goods still in process lost in process (Normal Spoilage 9000 5%) lost in process (Abnormal Spoilage 1,000 - 450) 9,000 2,000 450 550 ------Total Cost $84,000 -------$18,000 $45,600 -------$63,600 -------$147,600 =======

12,000 ======

Cost Charged to the Department: Cost from preceding department: Transferred in during the month (12,000 units) Cost added by the department: Materials Labor and factory 0verhead Total cost added Total cost to be accounted for Cost Accounted for as Follows: Transferred to finished goods [(9,000 $13) + (450* $11)] Transferred to Factory Overhead (550** $11) Work in process - ending inventory: Cost from preceding department (2000 $7.00) Labor and factory overhead (2,000 70% $4) Total cost accounted for

12,000 ====== Unit Cost $7.00 -----$2.00 $4.00 -----$6.00 -----$13.00 ===== $121,950 6,050

$14,000 5,600 --------

19,600 ------$147,600 ======

*Normal spoilage **Abnormal spoilage

Additional Computations
Equivalent Production: Materials = 9,000 units Labor and factory overhead = 9,000 + (2,000 70%) + 450 + 550 Unit Costs: Materials = $18,000 / 9,000 = $2.00 per unit Labor and factory overhead = $45,600 / 11,400 = $4.00 per unit

2. Solution:
1.
Forge Machine Works Job Order Cost Sheet--Job 642 Direct labor Applied factory overhead Date (Week of) Hours Rate Cost Date (Week of) Hours Rate Cost 9/20 180 $6.20 $1,116 9/20 180 $3.50 $630 9/26 140 7.30 1,022 9/26 140 3.50 490 ---------$2,138 ====== ---------$1,120 ======

Direct materials Date Issued Amount 9/14 $1,200 9/20 662 9/22 480 -------$2,342 =====

2.
Sales Price of job 642, contracted with a markup of 40% of cost: Direct materials Direct labor Applied factory overhead Total factory cost Markup 40% of cost $2,342 2,138 1,120 $5,600 2,240 ------$7,840 =====

3.
Process Costing Process costing is a method of allocating manufacturing cost to products to determine an average cost per unit. It is used by companies which mass produce identical or similar products. Since every unit is essentially the same, each unit receives the same manufacturing input as every other unit. Refineries, paper mills, and food processing companies are examples of businesses which use process costing. Similarities between job order and process costing include: Both systems have the same basic purposeto calculate unit cost Both systems use the same manufacturing accounts The flow of costs through the manufacturing accounts is basically the

Same However, there are some important differences between job order and processing costing as described below.

Job Order Costing

Each job is different Costs are accumulated by job Costs are captured on a job cost sheet Unit costs are computed by job

Process Costing
All products are identical Costs are accumulated by department Costs are accumulated on a department production report Unit costs are computed by department

Note that the production report consists of three parts as follows: 1. A quantity schedule which shows the flow of units through the department and a computation of equivalent units 2. A computation of costs per equivalent unit 3. A reconciliation of all cost flows into and out of the department

What Is Job-Order Costing?

Job-order costing is a cost system that is used to accumulate costs by jobs. These jobs could also be called batches, as each job is generally a batch of similar products. Each batch should be individualized in some way to make it differentiated from other batches for it to be a separate job. If batches were all identical, another type of costing would be more appropriate.

job order costing system is used in situations where many different products are produced each period. For example clothing factory would typically made many different types of jeans for both men and women during a month. In a job order costing system, costs are traced to the jobs and then the costs of the job are divided by the number of units in the job to arrive at an average cost per unit. Job order costing system is also extensively used in service industries. Hospitals, law firms, movie studios, accounting firms, advertising agencies and repair shops all use a variety of job order costing system to accumulate costs for accounting and billing purposes. The details here deal with a manufacturing firm, the same concept and procedures are used by many service organizations.

The record keeping and cost assignment problems are more complex in a job order costing system when a company sells many different products and services than when it has only a single product or service. Since the products are different, the costs are typically different. Consequently, cost records must be maintained for each distinct product or job. For example an attorney in a large criminal law practice would ordinarily keep separate records of the costs of advising and defending each of her clients. And a clothing factory would keep separate track of the costs of filling orders for particular styles, sizes, and colors of jeans. A job order costing system requires more effort than a process costing system. Companies classify manufacturing costs into three broad categories:(1) direct materials, (2) direct labor, (3) manufacturing overhead. (See manufacturing and non-manufacturing costs page)