Job Order         CostingKHALID AZIZ 0322-3385752
Learning Objective 1Describe the building-blockconcepts of costing systems.KHALID AZIZ 0322-3385752
Building-Block Concepts        of Costing SystemsCost object                Direct costs              of a cost object    ...
Building-Block Concepts      of Costing Systems         Cost AssignmentDirect      Cost TracingCosts                      ...
Building-Block Concepts   of Costing Systems Cost pool                Cost allocation baseKHALID AZIZ 0322-3385752
Learning Objective 2  Distinguish between jobcosting and process costing.KHALID AZIZ 0322-3385752
Job-Costing and       Process-Costing Systems Job-costing             Process-costing   system                    systemDi...
Learning Objective 3   Outline a seven-step approach to job costing.KHALID AZIZ 0322-3385752
Seven-Step Approach      to Job Costing                Step 1:   Identify the chosen cost object.                Step 2: I...
Seven-Step Approach      to Job Costing              Step 5:    Compute the rate per unit.              Step 6:    Compute...
General Approach to Job CostingA manufacturing company is planning to sella batch of 25 special machines (Job 650) to a   ...
General Approach to Job Costing                   Step 3: The cost allocation base is machine-hours.     Job 650 used 500 ...
General Approach to Job Costing                     Step 5:            Actual indirect cost rate is Rs65,100 ÷ 2,480 = Rs2...
General Approach to Job Costing                   Step 7:Direct materials             Rs50,000Direct labor                ...
General Approach to Job Costing   What is the gross margin of this job?  Revenues                   Rs114,800  Cost of goo...
Source Documents          Job cost record    Materials requisition record        Labor time recordKHALID AZIZ 0322-3385752
Learning Objective 4Distinguish actual costing  from normal costing.KHALID AZIZ 0322-3385752
Costing Systems  Actual costing is a system that uses actualcosts to determine the cost of individual jobs.It allocates in...
Costing SystemsNormal costing is a method that allocates indirect costs based on the budgeted  indirect-cost rate(s) times...
Normal CostingAssume that the manufacturing company budgets $60,000 for total manufacturing overhead costs           and 2...
Normal CostingWhat is the cost of Job 650 under normal costing?        Direct materials      Rs50,000        Direct labor ...
Learning Objective 5   Track the flow of costs  in a job-costing system.KHALID AZIZ 0322-3385752
TransactionsPurchase of materials and other manufacturing inputs       Conversion into work in process inventory          ...
Transactions Rs80,000 worth of materials (direct and   indirect) were purchased on credit.      Materials           Accoun...
TransactionsMaterials costing Rs75,000 were sent to the        manufacturing plant floor. Rs50,000 were issued to Job No. ...
TransactionsWork in Process Control:Job No. 650                50,000Job No. 651                10,000Factory Overhead Con...
Transactions      Materials        Work in Process      Control               Control1. 80,000 2. 75,000   2. 60,000   Man...
Transactions      Total manufacturing payroll for        the period was Rs27,000.  Job No. 650 incurred direct labor costs...
TransactionsWork in Process Control:Job No. 650                      19,000Job No. 651                       3,000Manufact...
Transactions  Wages Payable       Work in Process    Control                Control         3. 27,000   2. 60,000         ...
Transactions       Wages payable were paid.Wages Payable Control   27,000  Cash Control                    27,000   Wages ...
Transactions  Assume that depreciation for the        period is Rs26,000.   Other manufacturing overhead  incurred amounte...
TransactionsManufacturing Overhead Control   45,100  Accumulated Depreciation  Control                                 26,...
Transactions   Rs62,000 of overhead was allocated to thevarious jobs of which Rs12,500 went to Job 650.Work in Process Con...
TransactionsManufacturing Overhead    Work in Process       Control                Control2.   15,000 6. 62,000    2.    6...
Transactions     The cost of Job 650 is:             Job 650    2. 50,000    3. 19,000    6. 12,500    Bal. 81,500KHALID A...
Transactions   Jobs costing Rs104,000 were completed and transferred to finished goods, including Job 650.What effect does...
Transactions    Work in Process       Finished Goods       Control                Control2.   60,000 7. 104,000   7. 104,0...
Transactions       Job 650 was sold for Rs114,800.          What is the journal entry?Accounts Receivable Control 114,800 ...
TransactionsWhat is the balance in the Finished Goods            Control account?   Rs104,000 – Rs81,500 = Rs22,500Assume ...
TransactionsMarketing and Administrative Costs   19,000  Salaries Payable Control               19,000     KHALID AZIZ 032...
Transactions    Direct Materials Used         Rs60,000+   Direct Labor and Overhead     Rs84,000–   Cost of Goods Manufact...
Transactions    Cost of Goods Manufactured    Rs104,000–   Ending Finished Goods Inventory Rs22,500=   Cost of Goods Sold ...
Learning Objective 6  Account for end-of-periodunderallocated or overallocated      indirect costs using     alternative m...
End-Of-Period Adjustments Manufacturing          ManufacturingOverhead Control       Overhead AppliedBal. 65,100          ...
End-Of-Period Adjustments    How was the allocated overhead determined?2,480 machine-hours × Rs25 budgeted rate = Rs62,000...
End-Of-Period AdjustmentsActual manufacturing overhead costs of Rs65,100are more than the budgeted amount of Rs60,000.  Ac...
End-Of-Period Adjustments Approaches to disposing underallocated      or overallocated overhead:1. Adjusted allocation rat...
Adjusted Allocation           Rate Approach Actual manufacturing overhead (Rs65,100) exceeds manufacturing overhead alloca...
Adjusted Allocation          Rate ApproachThe manufacturing company could increase the manufacturing overhead allocated to...
Proration ApproachBasis to prorate under- or overallocated overhead:    – total amount of manufacturing overhead          ...
Proration Approach “A”    Assume the following manufacturing      overhead component of year-end         balances (before ...
Proration Approach “A”Manufacturing Overhead       Finished Goods             65,100 62,00022,500                         ...
Proration Approach “B”   Ending balances of Work in Process, Finished Goods, and Cost of Goods SoldWork in Process        ...
Proration Approach “B”Manufacturing Overhead       Finished Goods             65,100 62,00022,500                         ...
Immediate Write-off to Cost of   Goods Sold ApproachManufacturing Overhead  65,100 62,000                3,100            ...
Learning Objective 7     Apply variations           from     normal costing.KHALID AZIZ 0322-3385752
Variations of Normal CostingHome Health budget includes the following:     Total direct labor costs: Rs400,000       Total...
Variations of Normal CostingWhat is the budgeted direct labor cost rate?       Rs400,000 ÷ 16,000 = Rs25 What is the budge...
Variations of Normal CostingSuppose a patient uses 25 direct labor-hours.Assuming no other direct costs, what is the      ...
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Job order

  1. 1. Job Order CostingKHALID AZIZ 0322-3385752
  2. 2. Learning Objective 1Describe the building-blockconcepts of costing systems.KHALID AZIZ 0322-3385752
  3. 3. Building-Block Concepts of Costing SystemsCost object Direct costs of a cost object Indirect costs of a cost object KHALID AZIZ 0322-3385752
  4. 4. Building-Block Concepts of Costing Systems Cost AssignmentDirect Cost TracingCosts Cost ObjectIndirect Cost Allocation Costs KHALID AZIZ 0322-3385752
  5. 5. Building-Block Concepts of Costing Systems Cost pool Cost allocation baseKHALID AZIZ 0322-3385752
  6. 6. Learning Objective 2 Distinguish between jobcosting and process costing.KHALID AZIZ 0322-3385752
  7. 7. Job-Costing and Process-Costing Systems Job-costing Process-costing system systemDistinct units Masses of identicalof a product or similar units of or service a product or service KHALID AZIZ 0322-3385752
  8. 8. Learning Objective 3 Outline a seven-step approach to job costing.KHALID AZIZ 0322-3385752
  9. 9. Seven-Step Approach to Job Costing 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.KHALID AZIZ 0322-3385752
  10. 10. Seven-Step Approach to Job Costing Step 5: Compute the rate per unit. Step 6: Compute the indirect costs. Step 7: Compute the total cost of the job.KHALID AZIZ 0322-3385752
  11. 11. General Approach to Job CostingA manufacturing company is planning to sella batch of 25 special machines (Job 650) to a retailer for Rs114,800. Step 1: The cost object is Job 650. Step 2:Direct costs are: Direct materials = Rs50,000 Direct manufacturing labor = Rs19,000 KHALID AZIZ 0322-3385752
  12. 12. General Approach to Job Costing 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 4:Manufacturing overhead costs were Rs65,100. KHALID AZIZ 0322-3385752
  13. 13. General Approach to Job Costing Step 5: Actual indirect cost rate is Rs65,100 ÷ 2,480 = Rs26.25 per machine-hour. Step 6:Rs26.25 per machine-hour × 500 hours = Rs13,125 KHALID AZIZ 0322-3385752
  14. 14. General Approach to Job Costing Step 7:Direct materials Rs50,000Direct labor 19,000Factory overhead 13,125Total Rs82,125 KHALID AZIZ 0322-3385752
  15. 15. General Approach to Job Costing What is the gross margin of this job? Revenues Rs114,800 Cost of goods sold 82,125 Gross margin Rs 32,675 What is the gross margin percentage? Rs32,675 ÷ Rs114,800 = 28.5% KHALID AZIZ 0322-3385752
  16. 16. Source Documents Job cost record Materials requisition record Labor time recordKHALID AZIZ 0322-3385752
  17. 17. Learning Objective 4Distinguish actual costing from normal costing.KHALID AZIZ 0322-3385752
  18. 18. Costing Systems Actual costing is a system that uses actualcosts to determine the cost of individual jobs.It allocates indirect costs based on the actualindirect-cost rate(s) times the actual quantity of the cost-allocation base(s). KHALID AZIZ 0322-3385752
  19. 19. Costing SystemsNormal costing is a method that allocates indirect costs based on the budgeted indirect-cost rate(s) times the actual quantity of the cost allocation base(s).KHALID AZIZ 0322-3385752
  20. 20. Normal CostingAssume that the manufacturing company budgets $60,000 for total manufacturing overhead costs and 2,400 machine-hours. What is the budgeted indirect-cost rate? Rs60,000 ÷ 2,400 = Rs25 per hourHow much indirect cost was allocated to Job 650? 500 machine-hours × Rs25 = Rs12,500 KHALID AZIZ 0322-3385752
  21. 21. Normal CostingWhat is the cost of Job 650 under normal costing? Direct materials Rs50,000 Direct labor 19,000 Factory overhead 12,500 Total Rs81,500 KHALID AZIZ 0322-3385752
  22. 22. Learning Objective 5 Track the flow of costs in a job-costing system.KHALID AZIZ 0322-3385752
  23. 23. TransactionsPurchase of materials and other manufacturing inputs Conversion into work in process inventory Conversion into finished goods inventory Sale of finished goods KHALID AZIZ 0322-3385752
  24. 24. Transactions Rs80,000 worth of materials (direct and indirect) were purchased on credit. Materials Accounts Payable Control Control1. 80,000 1. 80,000 KHALID AZIZ 0322-3385752
  25. 25. TransactionsMaterials costing Rs75,000 were sent to the manufacturing plant floor. Rs50,000 were issued to Job No. 650 and Rs10,000 to Job 651.Rs15,000 of indirect materials were issued. What is the journal entry? KHALID AZIZ 0322-3385752
  26. 26. TransactionsWork in Process Control:Job No. 650 50,000Job No. 651 10,000Factory Overhead Control 15,000 Materials Control 75,000 KHALID AZIZ 0322-3385752
  27. 27. Transactions Materials Work in Process Control Control1. 80,000 2. 75,000 2. 60,000 Manufacturing Overhead Control Job 6502. 15,000 2. 50,000 KHALID AZIZ 0322-3385752
  28. 28. Transactions Total manufacturing payroll for the period was Rs27,000. Job No. 650 incurred direct labor costs of Rs19,000 and Job No. 651 incurred direct labor costs of Rs3,000.Rs5,000 of indirect labor was also incurred. What is the journal entry? KHALID AZIZ 0322-3385752
  29. 29. TransactionsWork in Process Control:Job No. 650 19,000Job No. 651 3,000Manufacturing Overhead Control 5,000 Wages Payable 27,000 KHALID AZIZ 0322-3385752
  30. 30. Transactions Wages Payable Work in Process Control Control 3. 27,000 2. 60,000 3. 22,000 Manufacturing Overhead Control Job 6502. 15,000 2. 50,0003. 5,000 3. 19,000 KHALID AZIZ 0322-3385752
  31. 31. Transactions Wages payable were paid.Wages Payable Control 27,000 Cash Control 27,000 Wages Payable Cash Control Control4. 27,000 3. 27,000 4. 27,000 KHALID AZIZ 0322-3385752
  32. 32. Transactions Assume that depreciation for the period is Rs26,000. Other manufacturing overhead incurred amounted to Rs19,100. What is the journal entry?KHALID AZIZ 0322-3385752
  33. 33. TransactionsManufacturing Overhead Control 45,100 Accumulated Depreciation Control 26,000 Various Accounts 19,100 What is the balance of the Manufacturing Overhead Control account? KHALID AZIZ 0322-3385752
  34. 34. Transactions Rs62,000 of overhead was allocated to thevarious jobs of which Rs12,500 went to Job 650.Work in Process Control 62,000 Manufacturing Overhead Control 62,000 What are the balances of the control accounts? KHALID AZIZ 0322-3385752
  35. 35. TransactionsManufacturing Overhead Work in Process Control Control2. 15,000 6. 62,000 2. 60,0003. 5,000 3. 22,0005. 45,100 6. 62,000Bal. 3,100 Bal. 144,000 KHALID AZIZ 0322-3385752
  36. 36. Transactions The cost of Job 650 is: Job 650 2. 50,000 3. 19,000 6. 12,500 Bal. 81,500KHALID AZIZ 0322-3385752
  37. 37. Transactions Jobs costing Rs104,000 were completed and transferred to finished goods, including Job 650.What effect does this have on the control accounts? KHALID AZIZ 0322-3385752
  38. 38. Transactions Work in Process Finished Goods Control Control2. 60,000 7. 104,000 7. 104,0003. 22,0006. 62,000Bal. 40,000 KHALID AZIZ 0322-3385752
  39. 39. Transactions Job 650 was sold for Rs114,800. What is the journal entry?Accounts Receivable Control 114,800 Revenues 114,800Cost of Goods Sold 81,500 Finished Goods Control 81,500 KHALID AZIZ 0322-3385752
  40. 40. TransactionsWhat is the balance in the Finished Goods Control account? Rs104,000 – Rs81,500 = Rs22,500Assume that marketing and administrative salaries were Rs9,000 and Rs10,000. What is the journal entry? KHALID AZIZ 0322-3385752
  41. 41. TransactionsMarketing and Administrative Costs 19,000 Salaries Payable Control 19,000 KHALID AZIZ 0322-3385752
  42. 42. Transactions Direct Materials Used Rs60,000+ Direct Labor and Overhead Rs84,000– Cost of Goods Manufactured Rs104,000= Ending WIP Inventory Rs40,000 KHALID AZIZ 0322-3385752
  43. 43. Transactions Cost of Goods Manufactured Rs104,000– Ending Finished Goods Inventory Rs22,500= Cost of Goods Sold Rs81,500 KHALID AZIZ 0322-3385752
  44. 44. Learning Objective 6 Account for end-of-periodunderallocated or overallocated indirect costs using alternative methods. KHALID AZIZ 0322-3385752
  45. 45. End-Of-Period Adjustments Manufacturing ManufacturingOverhead Control Overhead AppliedBal. 65,100 Bal. 62,000 Underallocated indirect costs Overallocated indirect costs KHALID AZIZ 0322-3385752
  46. 46. End-Of-Period Adjustments How was the allocated overhead determined?2,480 machine-hours × Rs25 budgeted rate = Rs62,000 Rs65,100 – Rs62,000 =Rs$3,100 (underallocated) KHALID AZIZ 0322-3385752
  47. 47. End-Of-Period AdjustmentsActual manufacturing overhead costs of Rs65,100are more than the budgeted amount of Rs60,000. Actual machine-hours of 2,480 are more than the budgeted amount of 2,400 hours. KHALID AZIZ 0322-3385752
  48. 48. End-Of-Period Adjustments Approaches to disposing underallocated or overallocated overhead:1. Adjusted allocation rate approach2. Proration approaches3. Immediate write-off to Cost of Goods Sold approach KHALID AZIZ 0322-3385752
  49. 49. Adjusted Allocation Rate Approach Actual manufacturing overhead (Rs65,100) exceeds manufacturing overhead allocated (Rs62,000) by 5%. 3,100 ÷ 62,000 = 5%Actual manufacturing overhead rate is Rs26.25 per machine-hour (Rs65,100 ÷ 2,480) rather than the budgeted Rs25.00. KHALID AZIZ 0322-3385752
  50. 50. Adjusted Allocation Rate ApproachThe manufacturing company could increase the manufacturing overhead allocated to each job by 5%.Manufacturing overhead allocated to Job 650 under normal costing is Rs12,500. Rs12,500 × 5% = Rs625Rs12,500 + Rs625 = Rs13,125, which equals actual manufacturing overhead. KHALID AZIZ 0322-3385752
  51. 51. Proration ApproachBasis to prorate under- or overallocated overhead: – total amount of manufacturing overhead allocated (before proration) – ending balances of Work in Process, Finished Goods, and Cost of Goods Sold KHALID AZIZ 0322-3385752
  52. 52. Proration Approach “A” Assume the following manufacturing overhead component of year-end balances (before proration):Work in Process Rs23,500 38% Finished Goods 26,000 42% Cost of Goods Sold 12,500 20%Total Rs62,000 100% KHALID AZIZ 0322-3385752
  53. 53. Proration Approach “A”Manufacturing Overhead Finished Goods 65,100 62,00022,500 3,100 1,302 0 23,802 Cost of Goods Sold Work in Process 81,500 40,000 620 KHALID AZIZ1,178 0322-3385752 82,120 41,178
  54. 54. Proration Approach “B” Ending balances of Work in Process, Finished Goods, and Cost of Goods SoldWork in Process Rs 40,000 28%Finished Goods 22,500 16%Cost of Goods Sold 81,500 56%Total Rs144,000 100% KHALID AZIZ 0322-3385752
  55. 55. Proration Approach “B”Manufacturing Overhead Finished Goods 65,100 62,00022,500 3,100 496 0 22,996 Cost of Goods Sold Work in Process 81,500 40,000 1,736 868 KHALID AZIZ 0322-3385752 83,236 40,868
  56. 56. Immediate Write-off to Cost of Goods Sold ApproachManufacturing Overhead 65,100 62,000 3,100 0 Cost of GoodsSold 81,500 KHALID AZIZ 0322-3385752 3,100
  57. 57. Learning Objective 7 Apply variations from normal costing.KHALID AZIZ 0322-3385752
  58. 58. Variations of Normal CostingHome Health budget includes the following: Total direct labor costs: Rs400,000 Total indirect costs: Rs96,000Total direct (professional) labor-hours: 16,000 KHALID AZIZ 0322-3385752
  59. 59. Variations of Normal CostingWhat is the budgeted direct labor cost rate? Rs400,000 ÷ 16,000 = Rs25 What is the budgeted indirect cost rate? Rs96,000 ÷ 16,000 = Rs6 KHALID AZIZ 0322-3385752
  60. 60. Variations of Normal CostingSuppose a patient uses 25 direct labor-hours.Assuming no other direct costs, what is the cost to Home Health? Direct labor: 25 hours × Rs25= Rs625 Indirect costs: 25 hours × Rs 6 = 150 Total Rs775 KHALID AZIZ 0322-3385752

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