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4. job order cost systems

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  • 1. Universidad Cuauhtémoc Campus Aguascalientes Job Order Cost Systems Análisis de Costos Maestría en Administración
  • 2. Job Order Cost Systems 1 Manufacturing Cost Terms 2 Cost Accounting System 3 Flow of Manufacturing Cost
  • 3. Manufacturing Cost Terms
  • 4. Factory Overhead Direct Materials Direct Labor Product Costs The cost of materials that are an integral part of the product. The cost of labor directly involved in converting material into the product. Manufacturing costs other than direct materials and direct labor.
  • 5. Cost Accounting Systems Job order cost system Provides a separate record for the cost of each quantity of product that passes through the factory. Process cost system System in which costs are accumulated for each of the departments or processes within the factory. *Note that the examples in this presentation use the job order cost accounting system.
  • 6. The costs of converting the materials into finished products consists of direct labor and factory overhead. These two costs combined are often referred to as conversion costs.
  • 7. Flow of Manufacturing Costs PRINTING PLANT Job 73 Work in Process Inventory •Direct Labor •Factory Overhead MATERIALS STOREROOM Materials Inventory
  • 8. Flow of Manufacturing Costs CAMPUS BOOKSTORE Cost of Goods Sold Finished Goods Inventory WAREHOUSE Job 69 Job 70
  • 9. Flow of Manufacturing Costs Materials received are inspected by the Receiving Department. Once inspected, a receiving report is prepared showing the quantity received and its condition. Receiving Report No. 196
  • 10. Flow of Manufacturing Costs Invoice The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. Receiving Report No. 196
  • 11. Flow of Manufacturing Costs Invoice a. Materials 10 500 00 Accounts Payable 10 500 00 Materials purchased during December. Receiving Report No. 196
  • 12. Flow of Manufacturing Costs The Materials account is a controlling account. A separate account for each type of material is maintained in a subsidiary materials ledger. Invoice Receiving Report No. 196
  • 13. MATERIALS LEDGER ACCOUNT MATERIAL: No. 23 Paper ORDER POINT: 1,000 lbs. RECEIVED ISSUED BALANCE Rec. Mat. Report Req. Unit No. Quantity Amount No. Quantity Amount Date Quantity Amount Price Dec. 1 1,200 $ 6,000 $5.00 672 400 $ 2,000 4 800 4,000 5.00 Receiving Report No. 196 196 1,500 $10,500 8 800 4,000 5.00 1,500 10,500 7.00 First-in, first-out Direct Materials
  • 14. MATERIALS LEDGER ACCOUNT MATERIAL: No. 23 Paper ORDER POINT: 1,000 lbs. RECEIVED ISSUED BALANCE Rec. Mat. Report Req. Unit No. Quantity Amount No. Quantity Amount Date Quantity Amount Price Dec. 1 1,200 $ 6,000 $5.00 672 400 $ 2,000 4 800 4,000 5.00 196 1,500 $10,500 8 800 4,000 5.00 1,500 10,500 7.00 Later, Materials Requisition Number 704 is prepared for Job No. 72 requisitioning 1,800 units of No. 23 paper. to Materials Requisition Direct Materials 704 1,800 11,000 12 500 3,500 7.00
  • 15. MATERIALS REQUISITIONS REQUISITION NO. 704 JOB NO. 72 Quantity Unit Description Issued Price Amount No. 23 paper 800 $5.00 $ 4,000 1,000 7.00 7,000 Total issued $11,000 from Materials Ledger Account to Job Cost Sheet Direct Materials
  • 16. Job 72 4,000 units of Algebra Direct materials Direct Labor Factory Overhead from Materials Requisition $11,000 The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. b. Work in Process 11 000 00 Materials 11 000 00 Materials requisitioned to Job 72. Direct Materials
  • 17. Direct Labor TIME TICKET Job 72 Time Tickets No. 6311 Employee Name S. Andrews Date Dec. 26, 2006 Work Description Printing Job No. 72 Start Finish Hours Hourly Time Time Worked Rate Cost 9:00 12:00 3 $15.00 $45.00 1:00 6:00 5 15.00 75.00 Total Cost $120.00 Approved by _____________________________A. M. December Job 72 (500 hours) for a total cost of $7,500 to Job Cost Sheet
  • 18. Direct Labor Job 72 4,000 units of Algebra Direct materials $11,000 Direct Labor Factory Overhead from Time Tickets 7,500 The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. c. Work in Process 7 500 00 Wages Payable 7 500 00 Factory labor used in production of Job 72.
  • 19. When indirect material is used or depreciation of factory equipment is recorded, a cost account (rather than an expense account) needs to be charged. All manufacturing costs except direct materials and direct labor fall into this category. d. Factory Overhead 4 600 00 Factory overhead incurred. Materials 500 00 Wages Payable 2 000 00 Utilities Payable 900 00 Accumulated Depreciation 1 200 00 Factory Overhead
  • 20. A firm can’t wait until the end of the fiscal year to price a product, so overhead must be estimated (or applied) using this formula. Estimated total factory overhead costs Estimated activity base Predetermined factory overhead rate = Factory Overhead
  • 21. An activity base is chosen for the denominator of the formula that is relevant to overhead and can be realistically measured. There are several possibilities for Goodwell Printers. Activity base possibilities 1. Direct labor hours 2. Direct labor dollars 3. Machine hours 4. Direct materials Factory Overhead
  • 22. Goodwell Printers estimates factory overhead costs to be $50,000 and chooses direct labor hours as its activity base. Factory Overhead
  • 23. Management estimated that 10,000 direct labor hours would be used during the fiscal period. This allowed for a predetermined factory overhead rate to be calculated. Estimated total factory overhead costs Estimated direct labor hours $50,000 10,000 direct labor hours = $5 per direct labor hours Factory Overhead
  • 24. TIME TICKET Job 72 Time Tickets No. 6311 Employee Name B. Andrews Date Dec. 26, 2006 Work Description Printing Job No. 72 Start Finish Hours Hourly Time Time Worked Rate Cost 9:00 12:00 3 $15.00 $45.00 1:00 6:00 5 15.00 75.00 Total Cost $120.00 Approved by _____________________________A. M. Job 72 required 500 direct labor hours. December Job 72 (500 hours) for a total cost of $2,500 Factory Overhead
  • 25. Job 72 4,000 units of Algebra Direct materials Direct Labor Factory Overhead 500 hours x $5 $11,000 7,500 The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. d. Work in Process 2 500 00 Factory Overhead 2 500 00 Factory overhead applied to Job 72. 2,500 Total job cost $21,000 Factory Overhead
  • 26. Completion of Jobs The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. g. Finished Goods 10 250 00 Work in Process 10 250 00 Job 71 completed in December. Job 71 1,000 units of American History Direct materials Direct Labor Factory Overhead 2,000 3,500 1,750 Total job cost $10,250 Balance $ 3,000 Job 71 was started in November and competed in December.
  • 27. FINISHED GOODS LEDGER ITEM: American History Manufactured Shipped Balance Job Ship Order Order Unit No. Quantity Amount No. Quantity Amount Date Quantity Amount Price Sale of Product Sold 2,000 American History textbooks on account, $28,000. Dec. 1 2,000 $ 20,000 $10.00
  • 28. Completion of Jobs The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. g. Finished Goods 10 250 00 Work in Process 10 250 00 Job 71 completed in December. Job 71 1,000 units of American History Direct materials Direct Labor Factory Overhead 2,000 3,500 1,750 Total job cost $10,250 Balance $ 3,000 Job 71 was started in November and competed in December.
  • 29. The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. h. Cost of Goods Sold 20 000 00 Finished Goods 20 000 00 Cost of 2,000 American History textbooks sold. Entry to remove books from inventory. The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. i. Accounts Receivable 28 000 00 Sales 28 000 00 Revenue received from textbooks sold. Entry to record sale on account. Sale of Product
  • 30. FINISHED GOODS LEDGER ITEM: American History Manufactured Shipped Balance Job Ship Order Order Unit No. Quantity Amount No. Quantity Amount Date Quantity Amount Price Dec. 1 2,000 $ 20,000 $10.00 643 2,000 $20,000 9 --- --- --- 71 1,000 $10,250 31 1,000 10,250 10.25 Transfer to Finished Goods Job 71 is transferred to finished goods.
  • 31. EXAMPLES OF PERIOD COSTS SELLING EXPENSES  Advertising expenses  Sales salaries expenses  Commission expenses
  • 32. EXAMPLES OF PERIOD COSTS ADMINISTATIVE EXPENSES  Office salaries expenses  Office supplies expenses  Depreciation expense— office buildings and office equipment
  • 33. Goodwell Printers Income Statement For the Month Ended December 31, 2006 Sales $28,000 Cost of goods sold 20,000 Gross profit $ 8,000 Selling and admin. expenses: Sales salaries expense $2,000 Office salaries expense 1,500 Total selling and admin. expenses 3,500 Income from operations $ 4,500
  • 34. Overview of Job Order Costing Product Costs Costs & Expenses Balance Sheet Direct Labor Direct Labor Factory Overhead Factory Overhead Finished Goods Inventory Cost of goods manufactured Work in Process Inventory Materials Inventory Materials Purchases
  • 35. Cost of Goods Sold Product Costs Period Costs Costs & Expenses Balance Sheet Direct Labor Direct Labor Factory Overhead Factory Overhead Finished Goods Inventory Work in Process Inventory Income Statement Selling and Administrative Selling and Administrative Period costs flow directly to the income statement Overview of Job Order Costing Materials Inventory Materials Purchases
  • 36. Universidad Cuauhtémoc Campus Aguascalientes Questions? Maestría en Administración