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Job Order Cost System

Job Order Cost System. Module 5 ACG 2071 Created by M. Mari Fall 2007-1. Job order cost Provides separate record of the cost of each quantity of the product that passes through the factory. Process cost system Costs are accumulated for each of the department or processes within the factory.

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Job Order Cost System

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  1. Job Order Cost System Module 5 ACG 2071 Created by M. Mari Fall 2007-1

  2. Job order cost Provides separate record of the cost of each quantity of the product that passes through the factory Process cost system Costs are accumulated for each of the department or processes within the factory Cost Accounting Systems

  3. Job Order Accounting • A major aim is to determine the cost of producing each job or job lot. • Job sheet • Is a separate record maintained for each job • While a job is being manufactured, its accumulated costs are kept in Goods in Process Inventory • When job is finished , costs are transferred to Finished Goods Inventory

  4. Purchase of Materials

  5. Example • Purchased $8,000 worth of materials for use in production on account

  6. Requisition of Materials

  7. Example 2 • Material usage is shown below, record the material used

  8. Example 2

  9. Factory Labor

  10. Example 3 To the right, you will find a distribution of labor costs between jobs. Please record the labor used.

  11. Example 3

  12. Factory Overhead Costs

  13. Cost allocation – the process of assigning factory overhead costs to a cost object Activity Base – measure used to allocate factory overhead Allocating Factory Overhead Predetermined factory overhead rate = Estimated total factory overhead costs Estimated Activity Base

  14. Example 4: The corporation estimates FO at $500,000 for the next period. The corporation uses direct labor hours as its activity base and estimates 50,000 total direct labor hours Predetermined rate = Estimated FO Costs Estimated activity base = $500,000 50,000 DLH = $10 per direct labor hour So factory overhead is applied at rate of $10 for each hour of direct labor charged to the job. Examples

  15. Factory overhead costs are $500,000 for the next period. Factory overhead is determined as a percentage of direct labor costs. If direct labor costs is $750,000, what is the factory overhead rate? Predetermined rate = Est. Factory overhead Est. Activity Base = $500,000 $750,000 = 67% Factory overhead is applied at a rate of 67% of direct labor costs. For each dollar of direct labor charged to the job, 67 cents is charged to factory overhead. Examples

  16. Applying Factory Overhead • The factory overhead account is applied based on the predetermined rate.

  17. Example 6 Below is the manufacturing information for Bunny. Factory overhead rate is $50 per direct labor hour. Record the application of factory overhead to the jobs listed below.

  18. Example 6

  19. Example 6

  20. Example 7 • Taxon Corporation applies factory overhead at the rate of 75% of direct labor costs. Record the application using the following information:

  21. Example 7

  22. Factory Overhead Factory Overhead Account Debit Credit Underapplied Overapplied Actual factory overhead costs less than estimated and applied factory overhead costs Actual factory overhead costs greater than estimated and applied factory overhead costs

  23. Disposal of Factory Overhead Since Factory overhead is an EXPENSE account, it must be closed at the end of the period. The balance of the account is closed into COST OF GOODS SOLD

  24. Example • Example 7: The balance in the factory overhead account is $50,000, the corporation applies $60,000 to work in process. Record the disposal of the balance. • The factory overhead account has a credit balance of $10,000 after the entry to apply factory overhead to work in process.

  25. Example Factory overhead Credit $60,000 Factory overhead costs applied Debit $50,000 Actual factory overhead costs $10,000 balance Over-applied factory overhead

  26. Example • Example 7: The balance in the factory overhead account is $100,000, the corporation applies $95,000 to work in process. Record the disposal of the balance. • The factory overhead account has a debit balance of $5,000 after the entry to apply factory overhead to work in process.

  27. Example Factory overhead Credit $95,000 Factory overhead costs applied Debit $100,000 Actual factory overhead costs $5,000 balanceUnder-applied factory overhead

  28. Transfer of Finished Goods

  29. Example 9: Suppose that jobs 125, 126, and 127 are completed. Record their transfer to finished goods inventory.

  30. Transfer to Finished Goods The jobs are kept in Finished Goods Inventory until they are sold to the customer. Then they are transferred to Cost of Goods Sold

  31. Transferred to COGS

  32. Example • Using the information in example 7 above, assume that jobs 125 which costs $16,400 to manufacture has been sold for $75,000 on account. Record the entry.

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