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Job
Costing
Presentation
To Teach Job Costing
Objective 1
Job order costing
Process costing
Cost Systems
• There are two basic systems used by
manufacturers to assign costs to thei...
Chopping Mixing and Canning
Process Costing Example
• Laxmi Foods Company produces a garlic
flavored tomato sauce.
• Produ...
$20,000 ÷ 100,000 = $0.20/pint
Process Costing Example
• Assume that Laxmi incurred $20,000 in
the Mixing and Canning proc...
Job Costing
• It is used by a manufacturer who produces
products as individual units or in distinct
batches or jobs.
Job Costing Example
• Ram, Sham, and Co. is a small furniture
manufacturing business in Texas.
• They received an order fo...
$500 ÷ 10 = $50/chair
Job Costing Example
• Total cost for the job was $500.
• How much was the cost per chair?
Job Costing
• Job cost record is a document used to
accumulate the costs of a job.
Job Number: J9738 Date Promised: 9/11/06
Customer: Miami Motors Date Started: 8/03/06
Job Description: 300 automobile engi...
Material
Requisition
Number Description Quantity Rate Amount
47624 Bar steel 720 lbs $11.50 $ 8,280
stock 3”
A35161 Subass...
Dates Number Hours Rate Amount
8/2,3,4,5 M16 24 $28 $ 672
8/2,3,4,5 M18, M19, M20 64 $26 1,664
8/6,7,8,9,10 A25, A26, A27 ...
Manufacturing Overhead Amount
118 machine hours @ $40 per hour $ 4,720
269 direct labor hours @ 36 per hour 9,684
Total ov...
Total cost $39,237
Number of units produced 300
Cost per unit $130.79
Job Cost Record Example
Trace Materials and
Labor in a
Manufacturer’s
Job Costing System.
Objective 2
Materials Cost
• Companies using job costing often use a
perpetual system to account for direct
materials.
• A materials r...
Materials Cost Example
• Alec Clothing Co. purchased raw materials
on account for $15,000.
• Materials costing $10,000 wer...
Indirect materials
Direct materials
15,000 10,000
2,000
8,000
Materials Inventory WIP Inventory
Manufacturing Overhead
Mat...
Labor Costs
• Labor costs are accumulated using the
payroll register and time records.
• Labor time records identify the e...
Labor Cost Example
• The company incurred $30,000 of
manufacturing wages for all jobs.
• Assume that $25,000 can be traced...
Indirect labor
Direct labor
30,000 30,000
5,000
25,000
Manufacturing Wages WIP Inventory
Manufacturing Overhead
Labor Cost...
Allocate Manufacturing
Overhead in a
Manufacturer’s Job Costing
System
Objective 3
Manufacturing Overhead
(Deprec.-Plant and Equipment) 20,000
Accumulated Depreciation
(Plant and Equipment) 20,000
To recor...
Estimated overhead ÷ Estimated base = Rate
Manufacturing Overhead Rate
• At the beginning of the year, a
predetermined man...
Six Steps in Allocating
Manufacturing Overhead Cost
1 Estimate total overhead for the period.
2 Select an overhead allocat...
Six Steps in Allocating
Manufacturing Overhead Cost
5 Obtain actual quantities of the overhead
allocation base.
6 Allocate...
$243,000 ÷ 4,500 = $54
Manufacturing Overhead
Example
• Alec Clothing Co.’s total estimated
overhead for the year equals $...
Work-in-Process Inventory 10,800
Manufacturing Overhead 10,800
To record overhead applied to Job 51
Manufacturing Overhead...
Account for Completion and
Sales of Finished Goods, and
Adjust for Under-or-
Overapplied Manufacturing
Overhead
Objective 4
Accounting for Finished Goods,
Sales, and Cost of Goods Sold
• As jobs are completed they are transferred
to finished good...
Direct materials $30,000
Direct labor 4,000
Manufacturing overhead 10,800
$44,800
Work in Process
44,800
Finished Goods
44...
Accounts Receivable 74,800
Sales Revenue 74,800
Cost of Goods Sold 44,800
Finished Goods Inventory 44,800
To record sale o...
Work in Process
44,800
Finished Goods
44,800 44,800
Cost of Goods Sold
44,800
Accounting for Finished Goods,
Sales, and Co...
Disposing of Underallocated or
Overallocated Overhead
• Suppose that the company incurred
$232,000 of actual manufacturing...
Disposing of Underallocated or
Overallocated Overhead
• How much overhead was allocated to the
various jobs?
• 4,000 direc...
Manufacturing Overhead
232,000 216,000
16,000
Cost of Goods Sold
16,000
0
Disposing Underallocated
Overhead to Cost of Goo...
Disposing Overallocated
Overhead to Cost of Goods Sold
• Assume the opposite situation in which allocated
overhead is $232...
Manufacturing Overhead
216,000 232,000
16,000
0
Cost of Goods Sold
16,000
Disposing Overallocated
Overhead to Cost of Good...
Assign
Noninventoriable
Costs in Job Costing.
Objective 5
Job Costing in a
Nonmanufacturing Company
• How is direct labor traced to individual
jobs in a nonmanufacturing company?
•...
80,000 ÷ 2,000 = $40
Job Costing in a
Nonmanufacturing Company
• Assuming a 40-hour workweek and 50
workweeks in each year...
Advertising $ 15,000
Depreciation 6,000
Maintenance 12,000
Office rent 60,000
Office support 47,000
Travel 20,000
Total in...
160,000 ÷ 8,000 = $20
Job Costing in a
Nonmanufacturing Company
• Assume that they estimate that the
musicians will work 8...
Direct Labor: 25 hours × $40 = $1,000
Indirect costs: 25 hours × $20 = 500
Total costs: $1,500
Job Costing in a
Nonmanufac...
Thanks
www.svtuition.org
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Job costing Tutorial

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Job costing Tutorial

  1. 1. Job Costing Presentation
  2. 2. To Teach Job Costing Objective 1
  3. 3. Job order costing Process costing Cost Systems • There are two basic systems used by manufacturers to assign costs to their products:
  4. 4. Chopping Mixing and Canning Process Costing Example • Laxmi Foods Company produces a garlic flavored tomato sauce. • Production of the sauce requires two major processes:
  5. 5. $20,000 ÷ 100,000 = $0.20/pint Process Costing Example • Assume that Laxmi incurred $20,000 in the Mixing and Canning process to mix 100,000 pints of tomato sauce. • What is the Mixing and Canning cost per pint?
  6. 6. Job Costing • It is used by a manufacturer who produces products as individual units or in distinct batches or jobs.
  7. 7. Job Costing Example • Ram, Sham, and Co. is a small furniture manufacturing business in Texas. • They received an order for 10 chairs from a customer in Kansas City.
  8. 8. $500 ÷ 10 = $50/chair Job Costing Example • Total cost for the job was $500. • How much was the cost per chair?
  9. 9. Job Costing • Job cost record is a document used to accumulate the costs of a job.
  10. 10. Job Number: J9738 Date Promised: 9/11/06 Customer: Miami Motors Date Started: 8/03/06 Job Description: 300 automobile engine valves Engineering Design Number: JJJ-100 Job Cost Record Example
  11. 11. Material Requisition Number Description Quantity Rate Amount 47624 Bar steel 720 lbs $11.50 $ 8,280 stock 3” A35161 Subassemblies 290 units $38.00 11,020 Total direct materials cost: $19,300 Job Cost Record Example
  12. 12. Dates Number Hours Rate Amount 8/2,3,4,5 M16 24 $28 $ 672 8/2,3,4,5 M18, M19, M20 64 $26 1,664 8/6,7,8,9,10 A25, A26, A27 120 $18 2,160 8/6,7,8,9,10 A32, A34, A35 61 $17 1,037 Total direct labor cost: 269 $5,533 Job Cost Record Example
  13. 13. Manufacturing Overhead Amount 118 machine hours @ $40 per hour $ 4,720 269 direct labor hours @ 36 per hour 9,684 Total overhead cost: $14,404 Job Cost Record Example
  14. 14. Total cost $39,237 Number of units produced 300 Cost per unit $130.79 Job Cost Record Example
  15. 15. Trace Materials and Labor in a Manufacturer’s Job Costing System. Objective 2
  16. 16. Materials Cost • Companies using job costing often use a perpetual system to account for direct materials. • A materials requisition is used to request transfer of materials to the production floor.
  17. 17. Materials Cost Example • Alec Clothing Co. purchased raw materials on account for $15,000. • Materials costing $10,000 were requisitioned for production. • Of this total, $2,000 was indirect materials.
  18. 18. Indirect materials Direct materials 15,000 10,000 2,000 8,000 Materials Inventory WIP Inventory Manufacturing Overhead Materials Cost Example
  19. 19. Labor Costs • Labor costs are accumulated using the payroll register and time records. • Labor time records identify the employee, the amount of time spent, and the cost charged to each job.
  20. 20. Labor Cost Example • The company incurred $30,000 of manufacturing wages for all jobs. • Assume that $25,000 can be traced directly to the jobs and $5,000 is for indirect labor.
  21. 21. Indirect labor Direct labor 30,000 30,000 5,000 25,000 Manufacturing Wages WIP Inventory Manufacturing Overhead Labor Cost Example
  22. 22. Allocate Manufacturing Overhead in a Manufacturer’s Job Costing System Objective 3
  23. 23. Manufacturing Overhead (Deprec.-Plant and Equipment) 20,000 Accumulated Depreciation (Plant and Equipment) 20,000 To record plant and equipment depreciation Manufacturing Overhead Costs • The company incurred $20,000 of plant equipment depreciation.
  24. 24. Estimated overhead ÷ Estimated base = Rate Manufacturing Overhead Rate • At the beginning of the year, a predetermined manufacturing overhead application rate is computed. • This rate is used to apply overhead to all jobs completed during the year.
  25. 25. Six Steps in Allocating Manufacturing Overhead Cost 1 Estimate total overhead for the period. 2 Select an overhead allocation base. 3 Estimate total quantity of the overhead allocation base. 4 Compute the predetermined overhead rate.
  26. 26. Six Steps in Allocating Manufacturing Overhead Cost 5 Obtain actual quantities of the overhead allocation base. 6 Allocate manufacturing overhead by multiplying the predetermined manufacturing overhead rate by the actual quantity of the allocation base that pertains to each job.
  27. 27. $243,000 ÷ 4,500 = $54 Manufacturing Overhead Example • Alec Clothing Co.’s total estimated overhead for the year equals $243,000. • The predetermined overhead rate is based on 4,500 direct labor hours. • What is the predetermined overhead rate?
  28. 28. Work-in-Process Inventory 10,800 Manufacturing Overhead 10,800 To record overhead applied to Job 51 Manufacturing Overhead Example • Assume that Job 51 used 200 direct labor hours. • What is the journal entry to record the manufacturing overhead applied?
  29. 29. Account for Completion and Sales of Finished Goods, and Adjust for Under-or- Overapplied Manufacturing Overhead Objective 4
  30. 30. Accounting for Finished Goods, Sales, and Cost of Goods Sold • As jobs are completed they are transferred to finished goods inventory. • In addition to the overhead applied to Job 51, direct labor was $4,000 and direct materials totaled $30,000. • How much was transferred to Finished Goods Inventory?
  31. 31. Direct materials $30,000 Direct labor 4,000 Manufacturing overhead 10,800 $44,800 Work in Process 44,800 Finished Goods 44,800 Accounting for Finished Goods, Sales, and Cost of Goods Sold
  32. 32. Accounts Receivable 74,800 Sales Revenue 74,800 Cost of Goods Sold 44,800 Finished Goods Inventory 44,800 To record sale of Job 51 Accounting for Finished Goods, Sales, and Cost of Goods Sold • Assume that Job 51 was sold for $74,800. • What are the journal entries?
  33. 33. Work in Process 44,800 Finished Goods 44,800 44,800 Cost of Goods Sold 44,800 Accounting for Finished Goods, Sales, and Cost of Goods Sold
  34. 34. Disposing of Underallocated or Overallocated Overhead • Suppose that the company incurred $232,000 of actual manufacturing overhead during the year, and that actual direct labor hours worked were 4,000. • The actual manufacturing overhead rate would have been $232,000 ÷ 4,000 = $58. • The predetermined rate was $54.
  35. 35. Disposing of Underallocated or Overallocated Overhead • How much overhead was allocated to the various jobs? • 4,000 direct labor hours × $54 = $216,000 • What is the underallocated amount? • $232,000 actual – $216,000 allocated = $16,000
  36. 36. Manufacturing Overhead 232,000 216,000 16,000 Cost of Goods Sold 16,000 0 Disposing Underallocated Overhead to Cost of Goods Sold
  37. 37. Disposing Overallocated Overhead to Cost of Goods Sold • Assume the opposite situation in which allocated overhead is $232,000 and actual overhead is $216,000. • How do we dispose of overallocated overhead? • Debit the Manufacturing Overhead account and credit the Cost of Goods Sold account to decrease the costs that went to the income statement.
  38. 38. Manufacturing Overhead 216,000 232,000 16,000 0 Cost of Goods Sold 16,000 Disposing Overallocated Overhead to Cost of Goods Sold
  39. 39. Assign Noninventoriable Costs in Job Costing. Objective 5
  40. 40. Job Costing in a Nonmanufacturing Company • How is direct labor traced to individual jobs in a nonmanufacturing company? • Employees complete a weekly time record. • Jim, Abby, and Associates is a firm specializing in composing and arranging music parts for different clients. • Musician Judy Lopez’s salary is $80,000 per year.
  41. 41. 80,000 ÷ 2,000 = $40 Job Costing in a Nonmanufacturing Company • Assuming a 40-hour workweek and 50 workweeks in each year gives a total of 2,000 available working hours per year (40 hours × 50 weeks). • What is her hourly rate?
  42. 42. Advertising $ 15,000 Depreciation 6,000 Maintenance 12,000 Office rent 60,000 Office support 47,000 Travel 20,000 Total indirect costs $160,000 Job Costing in a Nonmanufacturing Company • Jim and Abby estimated the indirect costs that will be incurred in 2006.
  43. 43. 160,000 ÷ 8,000 = $20 Job Costing in a Nonmanufacturing Company • Assume that they estimate that the musicians will work 8,000 direct labor hours in 2006. • What is the predetermined indirect cost rate?
  44. 44. Direct Labor: 25 hours × $40 = $1,000 Indirect costs: 25 hours × $20 = 500 Total costs: $1,500 Job Costing in a Nonmanufacturing Company • Records show that Judy Lopez worked 25 hours servicing Los Abuelos Music Co. • What is the total cost assigned to this client?
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