JOB ORDER COSTING

Comparison of Job-Order and Process Costing

Process or joborder costing?

Characteristics of Job-Order Costing

Wide-variety of services or products that are

quite distinct from each other

Cost accumulated by job

Unit cost computed by dividing total job

costs by units produced on that job

Characteristics of Process Costing

Produce large quantities of similar or

homogeneous products
Cost accumulated by process or department

for a given period of time

Unit cost computed by dividing process costs

of period by the units produced in the period

Process or job-order costing?

Exxon oil refinery Coca Cola plant

Process Process

Custom home builder Job order Shop for customizing vans Job order Television repair shop Job order Job order

Campbell soup plant Process

Advertising agency
Law firm Job order

Job-Order Costing
Job 425 Job 426 Job 427 Total

Beginning balance $58,600 $51,300 $ 0 $109,900 Current costs: Direct materials 4,800 3,600 23,500 31,900 Direct labor 6,000 9,000 10,000 25,000 Applied overhead 2,400 3,600 4,000 10,000 Total $71,800 $67,500 $37,500 $176,800

This information is used to determine the total cost of goods manufactured.

Johnson Leathergoods

Job-Order Cost Sheet

A job-cost sheet is a
Job Cost Sheet
Direct Materials

July 1 3

100 lbs. @ $ 0.25 = $ 25 75 oz. @ $1.40 = 105

Direct Labor

July 1 3

3 hrs. @ $10.00 = $ 30 7 hrs @ $10.00 = 70

document used to accumulate the cost for a specific job in a job-cost system

Factory Overhead

July 7 10 dlh x $2

$ 20

Johnson Leathergoods
Unit Cost Direct materials Direct labor Applied Overhead Total cost number of units Unit cost

$1,000 1,080 240 $2,320 20 $ 116

Johnson Leathergoods
Date
Department Job Description January 11, 2004 Assembly Briefcase Quantity Cost/Unit Total Cost

Material Requisition Number 12

Buckles

10

$30

$300

Authorized Signature

Jim Lawson

Material Requisition Form

Johnson Leathergoods
Employee Number 4 Name Ed Wilson Date January 12, 2003
Job Time Ticket Number 8

Start Time Stop Time Total Time Hourly Rate Amount Job Number

8:00 10:00 11:00 1:00

10:00 11:00 12:00 5:00

2 1 1 4

$9 9 9 9

$18 9 9 36

Backpacks Briefcases Backpacks Backpacks

Authorized Signature

Jim Lawson Department Supervisor Job Time Ticket

Through the Accounts

Johnson Leathergoods

Summary of Materials Cost Flows

Materials Account Beginning balance Purchases Direct material used Ending balance $0 2,500 1,500 1,000 Job Order Cost Sheet Job: 10 Briefcases Direct materials Direct labor Overhead applied Total cost Number of units Unit cost $500

Job Order Cost Sheet Job: 20 Backpacks Direct materials Direct labor Overhead applied Total cost Number of units Unit cost 1,000

20

10

Summary of Direct Labor Cost Flows

Wages Payable Direct hours x wage rate Total direct labor 170 x $9 1,530 Job Order Cost Sheet Job: 10 Briefcases Direct materials $ Direct labor Overhead applied Total cost Number of units Unit cost

Job Order Cost Sheet Job: 20 Backpacks Direct materials $ 1,000 Direct labor 1,080 Overhead applied Total cost Number of units 20 Unit cost

500 450

10

Accounting for Overhead

Actual overhead costs are never assigned directly to jobs. Overhead is applied using a predetermined overhead rate. $9,600 Estimated Overhead Overhead rate = Estimated Direct 4,800 Labor Hours = $2 per direct labor hour
Functional Approach

Accounting for OverheadUsing ABC

Estimated Overhead ($) for Each Driver Purchasing Machining Expected Demand for Each Driver 100 2,800

$3,000 Purchase orders 4,200 Machine hours

Other

2,400 Direct labor hours

4,800

$3,000 100 = $30 per purchase order $4,200 2,800 = $1.50 per machine hour $2,400 4,800 = $0.50 per direct labor hour

Accounting for OverheadUsing ABC

Backpacks: Purchase orders Machine hours Direct labor hours Briefcases: Purchase orders Machine hours Direct labor hours

3 60 120

1 30 50

Accounting for OverheadUsing ABC

Purchasing: 3 orders x $30 1 order x $30 Machining: 60 hours x $1.50 30 hours x $1.50 Other: 120 DLH x $0.50 50 DLH x $0.50 Total overhead applied

$ 90 $30 90 45

60
$240 25 $100

Summary of Overhead Cost Flows

Actual Overhead Lease $200 Utilities 50 Equipment depreciation 100 Indirect labor 65 Total actual overhead $415 Applied Overhead Direct labor hours 170 Overhead rate x $2 Total applied overhead $340

Job Order Cost Sheet Job: 20 Backpacks Direct materials $1,000 Direct labor 1,080 Overhead applied 240 Total cost Number of units 120 x $2 Unit cost

Job Order Cost Sheet Job: 10 Briefcases Direct materials $500 Direct labor 450 Overhead applied 100 Total cost Number of units 50 x $2 Unit cost

Summary of Overhead Cost Flows

Actual Overhead Lease Utilities Equipment depreciation Indirect labor Total actual overhead Job Order Cost Sheet Job: 20 Backpacks Direct materials Direct labor Overhead applied Total cost Number of units Unit cost $200 50 100 65 $415 Applied Overhead Direct labor hours Overhead rate Total applied overhead

$170 x $2 $340

$1,000 1,080 240 20

Job Order Cost Sheet Job: 10 Briefcases Direct materials Direct labor Overhead applied Total cost Number of units Unit cost

$500 450 100 10

Summary of Finished Goods Cost Flows

Job Order Cost Sheet Job: 20 Backpacks Direct materials Direct labor Overhead applied Total cost Number of units Unit cost Finished Goods Account Backpacks Job Order Cost Sheet Job: 10 Briefcases Direct materials Direct labor Overhead applied Total cost Number of units Unit cost

$1,000 1080 240 $2,320 20 $116

$500 450 100 $1,050

$2,320

Johnson Leathergoods Schedule of Cost of Goods Manufactured For the Month Ended January 31, 2004 Direct materials: Beginning raw materials inventory $ 0 Purchases of raw materials 2,500 Total raw materials available for use $2,500 Ending raw materials 1,000 Total raw materials used Direct labor Overhead: Lease $ 200 Utilities 50 Depreciation 100 Indirect labor 65 $ 415 Continued

$1,500 1,530

Less: Underapplied overhead Overhead applied Current manufacturing costs Add: Beginning work in process Total manufacturing cost Less: Ending work in process Cost of goods manufactured

$ 415 75 340 $3,370 0 $3,370 1,050 $2,320

Statement of Cost of Goods Sold

Beginning finished goods inventory $ 0

Cost of goods manufactured

Cost of goods available for sale Less: Ending finished goods inventory

2,320
$2,320 0

Normal cost of goods sold

Add: Underapplied overhead Adjusted cost of goods sold

$2,320
75 $2,395

Johnson Leathergoods Income Statement For the Month Ended January 31, 2004

Sales Cost of goods sold Gross margin Less selling and administrative expenses: Selling expenses Administrative expenses Net operating income

$3,480 2,395 $1,085 $200 550

750 $ 335

Journal Entries Associated With JobOrder Costing

Johnson Leathergoods

Johnson Leathergoods
1 Materials

The receiving report and the invoice are Accounts Payable used to record the receipt of the merchandise and to control the payment.

2 500 00

2 500 00

1. Materials costing $2,500 were purchased on account.

Johnson Leathergoods
2 Work in Process

The receiving report and the invoice are Materials 1 used to record the receipt of the merchandise and to control the payment.

1 500 00

500 00

2. Materials costing $1,500 were requisitioned for use in production.

Johnson Leathergoods
3 Work in Process

The receiving report and the invoice are Wages Payable used to record the receipt of the 530 00 merchandise and to control the payment.

1 530 00

3. Direct labor costing $1,530 was recognized.

Johnson Leathergoods
4 Work in Process

The receiving report and the invoice are Overhead Control used to record the receipt of the merchandise and to control the payment.

340 00

340 00

4. Overhead was applied to production at the rate of $2 per direct labor hour. A total of 170 direct labor hours were worked.

Johnson Leathergoods
5 Overhead Control

The receiving report and the invoice are Lease Payable used to record the receipt of the Utilities Payable merchandise and to control the payment.
Accumulated Depreciation Wages Payable

415 00

200 00 50 00 100 00 65 00

5. Actual overhead costs of $415 were incurred: lease, $200; utilities, $50; depreciation, $100; accrued wages, $65.

Johnson Leathergoods
6 Finished Goods

The receiving report and the invoice are Work in Process used to record the receipt of the merchandise and to control the payment.

2 320 00

2 320 00

6. The backpacks were completed and transferred to finished goods.

Johnson Leathergoods
7 Cost of Goods Sold

The receiving report and the invoice are Finished Goods used to record the receipt of the merchandise and to control the payment.
3 480 00
Sales Revenue

2 320 00

2 320 00

7 Accounts Receivable

3 480 00

7. The backpacks were sold at cost plus 50 percent.

Johnson Leathergoods
8 Cost of Goods Sold

The receiving report and the invoice are Overhead Control used to record the receipt of the merchandise and to control the payment.

75 00

75 00

8. Underapplied overhead was closed to cost of goods sold.

Johnson Leathergoods
Materials
(1) 2,500

(1) Purchased of materials

Johnson Leathergoods
Materials (1) 2,500 (2) 1,500 Work in Process

(2) 1,500

(2) Issue of materials

Johnson Leathergoods
Work in Process (2) 1,500 (3) 1,530 Wages Payable (3) 1,530

(3) Incurrence of direct labor cost

Johnson Leathergoods
Work in Process (2) 1,500 (3) 1,530 (4) 340 Overhead Control (4) 340

(4) Estimated overhead applied to Work in Process

Johnson Leathergoods
Work in Process (2) 1,500 (3) 1,530 (4) 340 (5) Overhead Control 415 (4) 340

(5) Actual overhead recorded

Johnson Leathergoods
Work in Process (2) 1,500 (6) (3) 1,530 (4) 340 2,320 (6) Finished Goods 2,320

(6) Transfer of Job 1 to finished goods

Johnson Leathergoods
Finished Goods (6) 2,320 (7) 2,320 Cost of Goods Sold (6) 2,320

Accounts Receivable (7) 3,480

Sales Revenue (7) 3,480

(7) Cost of goods sold for Job 1 and revenue from sale on account

Johnson Leathergoods
Overhead Control (5) 415 (4) (8) 340 75 Cost of Goods Sold (7) (8) 2,320 75

(8) Underapplied overhead closed