PENGEKOSAN PRODUCTION OPERATION topic3 job costing
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PENGEKOSAN PRODUCTION OPERATION topic3 job costing
- 2. Distinguish between job order costing and process costing 2Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
- 3. Cost accounting systems accumulate cost information in order to measure how much it costs to produce each unit of product. 2 costing systems; Job order costing & Process costing Both systems: i. Accumulate the costs incurred to make the product ii.Assign costs to the product 3Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
- 4. 4 Cost Assignment Direct Costs Indirect Costs Cost Tracing Cost Allocation Cost Object Cost Allocation Base
- 5. 5 Job-costing system Process-costing system Distinct units of a product or service Produce many units of a Single product for long period
- 6. Job Order Costing Process Costing For companies that manufacture batches of unique products or specialized services ◦ Accounting firms ◦ Music studios ◦ Building contractors ◦ Health-care providers Accumulates cost per batch or job More prevalent with service-based economies and ERP systems For companies that produce identical units through a series of processes ◦ Large producer of similar goods Accumulates cost of each process needed to complete the produce 6
- 7. 7 Step 1: Identify the chosen cost object. Step 2: Identify the direct costs of the job. Step 3: Select the cost-allocation bases. Step 4: Identify the indirect costs.
- 8. 8 Step 5: Compute the overhead rate per unit. Step 6: Compute the indirect costs. Step 7: Compute the total cost of the job.
- 9. 9 A manufacturing company is planning to sell a batch of 25 special machines (Job 650) to a retailer for $114,800.
- 10. 10 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 1: The cost object is Job 650. Step 2: Direct costs are: Direct materials = $50,000 Direct manufacturing labor = $19,000 Step 4: Manufacturing overhead costs were $65,100.
- 11. 11 Step 5: Actual indirect cost rate is $65,100 2,480 = $26.25 per machine-hour. Step 6: $26.25 per machine-hour 500 hours = $13,125 Step 7: Direct materials $50,000 Direct labor 19,000 Factory overhead 13,125 Total Cost $82,125
- 12. Record materials and labor in a job order costing system 12
- 13. A company uses job cost record to accumulate the costs of each job’s: Direct materials Direct labor Manufacturing overhead A job cost record/sheet is a form prepared for a job that records the materials, labor and manufacturing overhead charged to that job. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 13
- 14. Job Cost Record Job No. Customer Name and Address Job Description Date Promised Date Started Date Completed Direct Materials Direct Labor Overhead Costs Applied Date Requisi- tion No. Amount Time Ticket No. Amount Date Rate Amount Cost Summary Materials Labor Overhead Totals Total Job Cost 14
- 15. 15 Direct materials Direct labor Manufacturing overhead Job 1 Job Cost Record Work in process inventory Costs incurred in Job 1 Finished goods inventory Costs of Completed Job 1 Cost of goods sold Costs of Job 1’s output when sold Ledger accounts
- 16. 16 GENERAL JOURNAL DATE DESCRIPTION REF DEBIT CREDIT Materials inventory Accounts payable Subsidiary Materials Ledger Card Item No. ________ Description _________________________ Date Received Used Balance Units Cost Total Units Cost Total Units Cost Total Purchases
- 17. 17 GENERAL JOURNAL DATE DESCRIPTION REF DEBIT CREDIT Work in process inventory Manufacturing overhead Materials inventory Subsidiary Materials Ledger Card Item No. ________ Description _________________________ Date Received Used Balance Units Cost Total Units Cost Total Units Cost Total Requisitioned Direct materials Indirect materials Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
- 18. Item no. Item Quantity Unit cost Amount MATERIALS REQUISITION NO. _____ Date: _______ Job No. _____ 18 Is a detailed source document that specifies the type and quantity of materials as well as cost of materials used for particular job. Used to authorize the use of materials on a job
- 19. 19 Materials inventory Material Purchases Direct Materials Direct Materials Cost flow for Materials Indirect materials Indirect Materials Manufacturing overhead Work in process
- 20. Job Cost Record Job No. Customer Name and Address Job Description Date Promised Date Started Date Completed Direct Materials Direct Labor Overhead Costs Applied Date Requisi- tion No. Amount Time Ticket No. Amount Date Rate Amount Cost Summary Materials Labor Overhead Totals Total Job Cost 20
- 21. 21 GENERAL JOURNAL DATE DESCRIPTION REF DEBIT CREDIT Manufacturing wages Wages payable Includes both direct and indirect labor Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
- 22. LABOR TIME RECORD Employee ___________ No. ______ Job _______ Time: Started: ___________ Rate: ____________ Stopped: __________ Cost of Labor Elapsed: __________ Charged to Job $___________ Employee: _J K___________ Supervisor: M . M orley 22 J. Khan K13 J9738 800 1500 7 hours $11.25 $78.75 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
- 23. 23 GENERAL JOURNAL DATE DESCRIPTION REF DEBIT CREDIT Work in process inventory Manufacturing overhead Manufacturing wages Zeroes out Manufacturing wages accounts Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
- 24. 24 Work in process Incurred Direct Materials Manufacturing wages Accounting for Labor Manufacturing overhead Actual Overhead Costs Indirect Labor Direct Labor Direct Labor Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
- 25. Record overhead in a job order costing system 25Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
- 26. 26 GENERAL JOURNAL DATE DESCRIPTION REF DEBIT CREDIT Manufacturing overhead Accumulated depreciation Manufacturing overhead Cash Manufacturing overhead Property taxes payable Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
- 27. Actual overhead costs are debited to the Manufacturing overhead account Overhead costs are essential to production Must be assigned to specific jobs to determine full cost A predetermined overhead rate is used 27Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
- 28. 28 Total estimated manufacturing overhead costs Total estimated quantity of the manufacturing overhead allocation base Primary cost driver of overhead costs Examples: Direct labor hours Direct labor cost Machine hours
- 29. 29 Allocated manufacturing overhead cost Actual quantity of allocation base used on the job Predetermined manufacturing overhead application rate Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
- 30. Work in process Direct Materials Accounting for Manufacturing Overhead Manufacturing overhead Actual Overhead Costs Overhead Allocated Overhead Allocated Direct Labor 30Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
- 31. Record completion and sales of finished goods and the adjustment for under- or overallocated overhead 31
- 32. 32 Work in process •Direct Materials •Direct Labor •Manufacturing Overhead Finished goods Cost of Goods Manufactured Cost of goods sold Cost of Goods Sold Cost of Goods Sold Accounting for Finished Goods Cost of Goods Manufactured
- 33. 33 Manufacturing overhead Actual costs Applied to jobs If actual costs are greater, overhead is underallocated If amount applied to jobs is greater, overhead is overallocated Adjusting Under- or Overallocated Manufacturing Overhead
- 34. The underallocated or overallocated overhead amount is closed to Cost of goods sold 34 GENERAL JOURNAL DATE DESCRIPTION DEBIT CREDIT Cost of goods sold Manufacturing overhead If underallocated, Cost of goods sold increases GENERAL JOURNAL DATE DESCRIPTION DEBIT CREDIT Manufacturing overhead Cost of goods sold If overallocated, Cost of goods sold decreases
- 35. Calculate unit costs for a service company 35
- 36. Have no inventory Managers need to know the cost of jobs to set prices 36 Cost of Job X $1,000 Standard markup of 40% 400 Sale price of Job X $1,400
- 37. Often service companies largest cost is labor Employees keep track of time spent on each client or job ◦ Manually using a time record ◦ Automated system 37 Hourly rate to the employer Employee’s annual salary 2,000 work hours per year
- 38. 38 Hourly direct labor costs Direct labor costs Direct labor hours $2,150,000 14,000 hours $153.57
- 39. 39 Predetermined indirect cost allocation rate Expected indirect costs Expected direct labor hours Office rent $260,000 Support staff 850,000 Utilities 350,000 Total $1,460,000 $1,460,000 14,000 hours $104.29
- 40. 40 $153.57 Hourly direct labor costs Predetermined indirect cost allocation rate $104.29 Service cost per hour $257.86 $257.86 260 hours $67,044
- 42. 42
Editor's Notes
- The first learning objective is to distinguish between job order costing and process costing.
- Some companies manufacture batches of unique products or specialized services. A job order costing system accumulates costs for each batch, or job. Accounting firms, music studios, health-care providers, building contractors, and furniture manufacturers are examples of companies that use job order costing systems. For example, Dell makes personal computers based on customer orders (see the “Customize” button on Dell’s Web site). As we move to a more service-based economy and with the advent of ERP systems, job order costing has become more prevalent.Other companies produce identical units through a series of production steps or processes. A process costing system accumulates the costs of each process needed to complete the product. This method is used primarily by large producers of similar goods.Both job order and process costing systems:• Accumulate the costs incurred to make the product• Assign costs to the productsAccountants use cost tracing to assign directly traceable costs, such as direct materials and direct labor, to the product. They use a technique—cost allocation—to assign manufacturing overhead and other indirect costs to the product. Let’s see how a job order costing system works for a manufacturing company.
- The second learning objective is to record materials and labor in a job order costing system.
- A job cost record is shown here. It assigns the cost of the direct materials, direct labor, and manufacturing overhead to a job.
- The job order costing system tracks costs as raw materials moved from the storeroom to the production floor to finished products. This illustration diagrams the flow of costs through a job order costing system. Let us consider how a manufacturer uses job order costing. Often, each customer order is a separate job. A job cost record is used to accumulate the costs of each job’s:• Direct materials• Direct labor• Manufacturing overheadThe company starts the job cost record when work begins on the job. As costs are incurred, the company adds costs to the job cost record. For jobs started but not yet finished, the job cost records show the Work in process inventory. When a job is finished, the company totals the costs and transfers costs from Work in process inventory to Finished goods inventory. When the job’s units are sold, the costing system moves the costs from Finished goods inventory, an asset, to Cost of goods sold, an expense.
- When materials are purchased, an entry is made debiting the Materials inventory account and crediting Accounts payable (if purchased on credit). Materials inventory is a general ledger account. Most companies use a subsidiary ledger for materials. The subsidiary materials ledger includes a separate record for each type of material. The balance of the Materials inventory account in the general ledger should always equal the sum of the balances in the subsidiary materials ledger.
- When materials are used, direct material costs go directly into the Work in process inventory account. Indirect materials are debited to Manufacturing overhead. Materials inventory is reduced for the amount of materials taken from storage.
- For both direct materials and indirect materials, the production team completes a document called a materials requisition to request the transfer of materials to the production floor.
- This diagram summarizes the flow of costs through the ledger accounts impacted by purchases and use of materials.
- A job cost record is shown here. It assigns the cost of the direct materials, direct labor, and manufacturing overhead to a job.
- We record manufacturing wages by debiting an account called Manufacturing wages. Wages payable is credited. This entry includes the costs of both direct labor and indirect labor.
- Each employee completes a labor time record for each job on which he or she works. The labor time record shows the time spent on the job and the rate of pay. The labor records are combined for each job, and the total is added to the job cost sheet.
- Accounting for labor costs requires the company to:• assign labor cost to individual jobs.• transfer labor cost out of the Manufacturing wages account and into Work in process inventory (for direct labor) and into Manufacturing overhead (for indirect labor).This journal entry zeroes out the Manufacturing wages account and shifts the labor cost to the Work in process and Manufacturing overhead accounts.
- T-accounts demonstrate how labor costs flow through the accounts. When manufacturing wages are incurred, the account is debited. When labor costs are allocated between direct and indirect portions, the direct costs increase Work in process, while the indirect costs increase Manufacturing overhead.
- The third learning objective shows how to record overhead in a job order costing system.
- All manufacturing overhead costs are accumulated as debits to a single general ledger account—Manufacturing overhead. In addition to indirect materials and indirect labor, companies incur several types of overhead costs. The first entry records any depreciation on the manufacturing plant and its assets. The second entry is for any cash outlay for overhead costs, such as utilities or repairs. The third entry records property taxes on the factory land, building, and plant assets.
- Actual overhead costs are accumulated on the debit side of the Manufacturing overhead account in the accounting records. But how do overhead costs get assigned to individual jobs? Overhead includes a variety of costs that the company cannot trace to individual jobs. For example, it is impossible to say how much of the cost of plant utilities is related to a specific job Yet manufacturing overhead costs are as essential as direct materials and direct labor, so overhead costs need to be assigned to specific jobs. Otherwise, each job would not bear its fair share of the total cost.
- To allocate overhead to jobs, the application rate is multiplied by the actual quantity of allocation base used on the job. So, if the overhead application rate is based on direct labor hours, the rate is multiplied by the direct labor hours used on each job.
- The fourth learning objective is to record completion and sales of finished goods and the adjustment for under- or overallocated overhead.
- During the year, manufacturers:• debit Manufacturing overhead for actual overhead costs.• credit Manufacturing overhead for amounts allocated to Work in process inventory.The total debits to the Manufacturing overhead account rarely equal the total credits. Why? Because firms allocate overhead to jobs using a predetermined allocation rate that is based on estimates. The predetermined allocation rate represents the expected relationship between overhead costs and the allocation base. A remaining debit balance of Manufacturing overhead represents underallocated overhead because the manufacturing overhead allocated to Work in process inventory is less than actual overhead cost incurred. (If it had been overallocated instead, Manufacturing overhead would have a credit balance.)
- Accountants adjust underallocated and overallocated overhead at year-end, when closing the Manufacturing overhead account. Closing the account means zeroing it out, so when overhead is underallocated, a credit to Manufacturing overhead is needed to bring the account balance to zero. The debit side of the entry is to Cost of goods sold.
- Service firms have no inventory. These firms incur only noninventoriable costs. But their managers still need to know the costs of different jobs in order to set prices for their services.
- Often, service costs’ most significant cost is direct labor. How do service firms trace direct labor to individual jobs? In some companies, employees can fill out a weekly time record. Software totals the amount of time spent on each job. For automated services like Web-site design, employees enter the client number when they start on the client’s job. Software records the time elapsed until the employee signs off that job. The amount of direct labor charged to the client is computed by determining the employee’s hourly rate. This is done by dividing the employee’s annual salary by the 2,000 work hours per year (40 hours per week x 50 weeks per year)—assuming a 2-week per-year vacation.
- Exercise 2-23 provides practice in determining unit cost for a service company. A consulting firm incurred $2.15 million in direct labor costs for 14,000 hours. This means direct labor costs are $153.57 (rounded) per hour.
- Indirect costs of the firm include rent, support staff salaries, and utilities. These total $1.46 million. This total is divided by the direct labor hours. The result is $104.29 per direct labor hour allocation rate for indirect costs.
- Client Manufacturing, is inviting several consultants to bid for work. Our company estimates that this job will require about 260 direct labor hours. Given this information, the estimated cost of this job is $67,044 (rounded).
- If our company company wants to earn a profit that equals 55% of the job’s cost, how much should she bid for the Client manufacturing job? If we multiply the cost by 1 plus the profit percent (1.55 or 155%), we end up with $103,918. Given this is an estimate, it is common to round up.