Job Order Costing - PowerPoint PPT Presentation

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Job Order Costing

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  1. Job Order Costing Chapter 4

  2. Describe the building-block concepts of costing systems. Learning Objective 1

  3. Building-Block Conceptsof Costing Systems Cost object Direct costs of a cost object Indirect costs of a cost object

  4. Building-Block Conceptsof Costing Systems Cost Assignment Direct Costs Cost Object Cost Tracing Indirect Costs Cost Allocation

  5. Building-Block Conceptsof Costing Systems Cost pool Cost allocation base


  6. Distinguish between job costing and process costing. Learning Objective 2

  7. Job-Costing andProcess-Costing Systems Job-costing system Process-costing system Distinct units of a product or service Masses of identical or similar units of a product or service

  8. Outline a seven-step approach to job costing. Learning Objective 3

  9. Seven-Step Approachto 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.

  10. Seven-Step Approachto Job Costing Step 5: Compute the rate per unit. Step 6: Compute the indirect costs. Step 7: Compute the total cost of the job.

  11. General Approach to Job Costing A manufacturing company is planning to sell a batch of 25 special machines (Job 650) to a retailer for $114,800. Step 1: The cost object is Job 650. Step 2: Direct costs are: Direct materials = $50,000 Direct manufacturing labor = $19,000

  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 $65,100.

  13. General Approach to Job Costing 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

  14. General Approach to Job Costing Step 7: Direct materials $50,000 Direct labor 19,000 Factory overhead 13,125 Total $82,125

  15. General Approach to Job Costing What is the gross margin of this job? Revenues $114,800 Cost of goods sold 82,125 Gross margin $ 32,675 What is thegross margin percentage? $32,675 ÷ $114,800 = 28.5%

  16. Source Documents Job cost record Materials requisition record Labor time record

  17. Distinguish actual costing from normal costing. Learning Objective 4

  18. Costing Systems Actual costing is a system that uses actual costs to determine the cost of individual jobs. It allocates indirect costs based on the actual indirect-cost rate(s) times the actual quantity of the cost-allocation base(s).

  19. Costing Systems Normal 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).

  20. Normal Costing Assume that the manufacturing company budgets $60,000 for total manufacturing overhead costs and 2,400 machine-hours. What is the budgeted indirect-cost rate? $60,000 ÷ 2,400 = $25 per hour How much indirect cost was allocated to Job 650? 500 machine-hours × $25 = $12,500

  21. Normal Costing What is the cost of Job 650 under normal costing? Direct materials $50,000 Direct labor 19,000 Factory overhead 12,500 Total $81,500

  22. Track the flow of costs in a job-costing system. Learning Objective 5

  23. Transactions Purchase of materials and other manufacturing inputs Conversion into work in process inventory Conversion into finished goods inventory Sale of finished goods

  24. Transactions $80,000 worth of materials (direct and indirect) were purchased on credit. Materials Control Accounts Payable Control 1. 80,000 1. 80,000

  25. Transactions Materials costing $75,000 were sent to the manufacturing plant floor. $50,000 were issued to Job No. 650 and $10,000 to Job 651. $15,000 of indirect materials were issued. What is the journal entry?

  26. Transactions Work in Process Control: Job No. 650 50,000 Job No. 651 10,000 Factory Overhead Control 15,000 Materials Control 75,000

  27. Transactions Materials Control 1. 80,000 2. 75,000 Work in Process Control 2. 60,000 Manufacturing Overhead Control 2. 15,000 Job 650 2. 50,000

  28. Transactions Total manufacturing payroll for the period was $27,000. Job No. 650 incurred direct labor costs of $19,000 and Job No. 651 incurred direct labor costs of $3,000. $5,000 of indirect labor was also incurred. What is the journal entry?