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Job Order Cost Accounting

Job Order Cost Accounting. Chapter. 19. Learning objectives. Job Order Costing Accounting System Job Order Cost Flows and Reports Overhead and Overhead Application Adjust Overapplied and Underapplied Overhead Job Order Accounting Typical Journal Entries. Process Costing. Job Costing.

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Job Order Cost Accounting

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  1. Job OrderCost Accounting Chapter 19

  2. Learning objectives • Job Order Costing Accounting System • Job Order Cost Flows and Reports • Overhead and Overhead Application • Adjust Overapplied and Underapplied Overhead • Job Order Accounting Typical Journal Entries

  3. ProcessCosting JobCosting Job Order Costing Accounting System- Job Order Manufacturing Chapter 20 • Used for production of large, unique, high-cost items. • Built to order rather than mass produced. • Many costs can be directly traced to each job.

  4. ProcessCosting JobCosting Job Order Manufacturing Chapter 20 Typical job order cost applications: • Special-order printing • Building construction Also used in service industry • Hospitals • Law firms

  5. Job Order Costing Accounting System- Events in Job Order Costing Receive orders from customers. Begin production with material & Labor. Predict Cost. Negotiate Price Schedule Job. Orderraw materials. Schedulejobs.

  6. Events in Job Order Costing Direct Materials Cost of GoodsSold Job B15 Job B16 Goods in Process Job B15 Job B16 Job B17 Job B18 Job B19 Indirect FinishedGoods Job B15 Job B16 Job B17 Allocate FactoryOverhead Indirect Direct Labor

  7. Let’s investigate 2. Job Order Cost Flows and Reports- Job Order Cost Documents The primary document for tracking the costs associated with a given job is the job cost sheet.

  8. Job Cost Sheet Exh. 19-2

  9. Amaterials requisitionis used to authorize the use of materials on a job. Let’s see one 2. Job Order Cost Flows and Reports- Job Cost Sheet (Direct Material) Exh. 19-2

  10. C. Luther M. Batemen C. Luther Materials Requisition Exh. 19-5

  11. C. Luther M. Batemen C. Luther Exh. 20-5 Materials Requisition Properauthorization Cost of material is charged toJob B15.

  12. Pre-printed, sequentially numberedform. C. Luther Type and quantity of material charged to Job B15. M. Batemen C. Luther Exh. 20-5 Materials Requisition

  13. C. Luther The materials requisition form also serves as the source document for recording material usage in the accounting records. M. Batemen C. Luther Exh. 20-5 Materials Requisition

  14. Materials Ledger Card Exh. 19-4

  15. Job Cost Sheet (Direct Material) Exh. 19-2

  16. Job Order CostingTypical Accounting Entries (Direct & Indirect Material)

  17. Accumulate direct labor costs by means of a work record, such as atime ticket, for each employee. Let’s see one 2. Job Order Cost Flows and Reports - Job Cost Sheet (Direct Labor) Exh. 19-2

  18. Labor Time Ticket Exh. 19-7 C. Luther

  19. Job Cost Sheet (Direct Labor) Exh. 19-2

  20. Job Order CostingTypical Accounting Entries

  21. Assignmanufacturing overhead to jobs using apredetermined overhead rate based on direct labor cost. Let’s do it 2. Job Order Cost Flows and Reports - Job Cost Sheet (Factory Overhead) Exh. 19-2

  22. Job Cost Sheet (Factory Overhead) Exh. 19-2

  23. Estimated total manufacturingoverhead cost for the coming period POHR = Estimated total direct labor costsfor the coming period $200,000 $125,000 POHR = = 160% of direct labor $ Predetermined OverheadAllocation Rate Formula Road Warriors uses a predetermined overhead rate (POHR) based on direct labor cost to apply overhead to jobs.

  24. Job Order CostingTypical Accounting Entries

  25. Let’s summarize the document flow we have been discussing in a job-order costing system. 2. Job Order Cost Flows and Reports - Cost Flows and Documents Job Cost CostingDocument Flow Summary

  26. Job Cost Sheets Job Cost Sheets Job Cost Sheets Job Cost Sheets Factory Overhead Account Cost Flows and Documents Exh. 19-3 The materials requisition indicates the cost ofdirect materialsto charge tojobsand the cost ofindirect materials to charge to overhead. Direct materials Materials Ledger Cards Materials Ledger Cards Materials Ledger Cards MaterialsRequisition Indirect materials

  27. Cost Flows and Documents Job Cost CostingDocument Flow Summary Exh. 19-6 Direct Labor Employee time tickets indicate the cost of direct laborto charge tojobsand the costofindirect labor to charge to overhead. Job Cost Sheets Job Cost Sheets Job Cost Sheets Job Cost Sheets Employee Time Ticket Employee Time Ticket Employee Time Ticket Employee Time Ticket Factory Overhead Account Indirect Labor

  28. Let’s examine the cost flows in a job order system.We will useT-accounts and start withmaterials. 2. Job Order Cost Flows and Reports -Summary of Cost Flows

  29. DirectMaterial DirectMaterial Indirect Material ActualOverheadCosts Summary of Cost Flows Exh. 19-11 Material Purchases

  30. Next let’s addlabor costs andapplied factory overhead to the job order cost flows. Are you with me? Summary of Cost Flows

  31. DirectLabor Indirect Labor DirectLabor Overhead When Actual Applied factory factoryoverhead overhead ActualOverheadCosts OverheadApplied to Work inProcess / = an adjustment is needed.We will look at how to accomplish this later. Summary of Cost Flows Flow of All Job Order Costs Exh. 19-11 DirectMaterial Incurred

  32. Now let’s complete the goods and sell them. Still with me? Summary of Cost Flows

  33. Cost ofGoodsMfd. Cost ofGoodsMfd. Cost ofGoodsSold Cost ofGoodsSold Summary of Cost Flows Exh. 19-11 DirectMaterialDirectLaborOverhead

  34. Predetermined Overhead Rate Factory Overhead Account Job Cost Sheets 3. Overhead and Overhead Application Job Cost CostingDocument Flow Summary Exh. 19-6 Indirect Material Indirect Labor Vouchers Factory Overhead Account: Temporary Account, accumulate cost until allocated to Jobs Overhead is not directly associate with specific jobs Allocate estimated overhead to jobs with predetermined overhead rate Adjusting Entries

  35. Tell me again how we use the POHR to assign overhead to jobs. We multiply the POHRtimes the number ofactivity units (direct labor cost for Road Warriors)incurred for the job. Overhead Application

  36. I don’t get it!Show me an example. We multiply the POHRtimes the number ofactivity units (direct labor cost for Road Warriors)incurred for the job. Overhead Application

  37. Question If FishCo budgets overhead at $200,000 andestimates its activity to be 25,000 direct labor hours for 2005, what is the POHR per direct labor hour? a. $10.00 per hour b. $ 6.00 per hour c. $ 8.00 per hour d. $12.00 per hour

  38. Question If FishCo budgets overhead at $200,000 andestimates its activity to be 25,000 direct labor hours for 2005, what is the POHR per direct labor hour? a. $10.00 per hour b. $ 6.00 per hour c. $ 8.00 per hour d. $12.00 per hour Estimated Overhead Estimated Activity $200,000 25,000 hours POHR = $8.00 per hour

  39. Question If FishCo actually worked 24,000 direct labor hours for 2005, what amount of overhead would be assigned to jobs in goods in process? a. $200,000 b. $192,000 c. $208,000 d. $196,000

  40. 24,000 hours × $8.00 per hour = $192,000 Question If FishCo actually worked 24,000 direct labor hours for 2005, what amount of overhead would be assigned to jobs in goods in process? a. $200,000 b. $192,000 c. $208,000 d. $196,000

  41. Overhead is notincurred uniformlyduring the year. Actual overhead ratemight vary from month to month. Predetermined ratemakes it possible toestimate job costs sooner. Overhead and Overhead Application Reasons for using apredetermined overhead rate

  42. The POHR is basedon estimates. What happens ifactual results differfrom the estimates? The result will be eitherunderappliedoroverappliedoverhead and wewill adjust Cost of Goods Sold at the end of the period. Here, let me show you. 4. Adjusting of Overapplied & Underapplied Overhead

  43. Overhead is overapplied. Actualoverheadcostsincurred Overheadapplied toWork in Process (POHR × Activity) Adjusting of Overapplied & Underapplied Overhead

  44. Overhead is underapplied. Overheadapplied toWork in Process (POHR × Activity) Actualoverheadcostsincurred Adjusting of Overapplied & Underapplied Overhead

  45. Adjusting of Overapplied and Underapplied Overhead Adjusting Cost of Goods Sold for underapplied or overapplied overhead

  46. Question FishCo had actual manufacturing overhead costs of $180,000. FishCo applied $192,000 of manufacturing overhead to jobs based on a POHR of $8.00 per direct labor hour. FishCo’s manufacturing overhead is: a. $12,000 overapplied. b. $12,000 underapplied. c. $96,000 overapplied. d. $96,000 underapplied.

  47. Question FishCo had actual manufacturing overhead costs of $180,000. FishCo applied $192,000 of manufacturing overhead to jobs based on a POHR of $8.00 per direct labor hour. FishCo’s manufacturing overhead is: a. $12,000 overapplied. b. $12,000 underapplied. c. $96,000 overapplied. d. $96,000 underapplied.

  48. Question The difference between FishCo's actual and applied overhead will result inan adjustment thatdecreasescost of goods sold. a. True b. False

  49. Question The difference between FishCo's actual and applied overhead will result inan adjustment thatdecreasescost of goods sold. a. True b. False If overhead is overapplied, cost of goods sold is too high. The adjustment will decrease cost of goods sold.

  50. Let’s look at the accounting journal entries for a job order cost system. We’ll omit the numbers so that we can focus on accounts. 5. Job Order Costing - Typical Accounting Entries

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