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  1. Job Costing Chapter 3

  2. Objective 1 Distinguish between job order costing and process costing

  3. Cost Systems • Process costing • Assigns costs to large numbers of identical units • Track costs by departments or processes • Job costing • Assigns costs to specific unit or small batch of products • Track costs by job

  4. Job Costing • Used by companies that produce goods or services to meet customers’ specifications • Examples: building construction, custom furniture, accounting firms, health care, mail order catalogs

  5. S3-1 • A manufacturer of plywood • A manufacturer of wakeboards c. A manufacturer of luxury yachts d. A professional services firm e. A landscape garden contractor process costing process costing job costing job costing job costing

  6. Direct Indirect FinishedGoods Allocate Indirect Cost of GoodsSold Direct Cost Flow Materials FactoryOverhead Work in Process Labor

  7. Cost Flow Direct Materials Direct Labor Manufacturing Overhead Cost of GoodsSold Work in Process FinishedGoods

  8. Objective 2 Record materials and labor in a manufacturer’s job costing system

  9. Accounting for Materials Work in Process Raw Materials DirectMaterial DirectMaterial Material Purchases Indirect Material Manufacturing Overhead ActualOverheadCosts

  10. S3-2 Materials inventory – canvas 70,000 Accounts payable 70,000 Materials inventory – thread 1,100 Accounts payable 1,100

  11. C865 Canvas (black) Canvas (black) 7000 7000 7/10 $10 70,000 $10 70,000 T444 Thread (black) 55 1,100 7/10 $20 55 1,100 $20 S3-3

  12. Materials Requisition • Used to authorize the use of materials on a job • Serves as source document for recording material usage 8966 8/03 562 C865 Black canvas 6,300 $10 63,000 T444 Black thread 14 $20 280 Total 63,280

  13. S3-3 Work in process inventory 63,000 Materials inventory-canvas 63,000 (for direct materials) Manufacturing overhead 280 Materials inventory-thread 280 (for indirect materials)

  14. S3-3 Raw Materials Beginning bal 35,680 Purchases 70,000 1,100 63,280 Requisitioned Ending bal 43,500

  15. Job Cost Record 562 Happy Campers 2,000 backpacks 8966 63,000 8/03

  16. Accounting for Labor Manufacturing Wages Work in Process DirectLabor DirectMaterial Incurred Indirect Labor DirectLabor Manufacturing Overhead ActualOverheadCosts

  17. Labor Time Ticket J. Khan K13 J9738 800 $11.25 1500 7 hours $78.75

  18. S3-4 Manufacturing wages 77,500 Wages payable 77,500 ($600 + $900 + $76,000) Work in process 76,000 Manufacturing overhead 1,500 Manufacturing wages 77,500

  19. Objective 3 Allocate manufacturing overhead in a manufacturer’s job costing system

  20. Accounting for Manufacturing Overhead Manufacturing Overhead Work in Process OverheadApplied to Work inProcess DirectMaterial ActualOverheadCosts DirectLabor Overhead

  21. Predetermined Manufacturing Overhead Rate Total estimated manufacturing overhead costs Total estimated quantity of the manufacturing overhead allocation base

  22. Allocate Manufacturing Overhead Predetermined manufacturing overhead x Actual quantity of the allocation based used by each job

  23. E3-20 1. Total estimated manufacturing overhead costs Total estimated quantity of the manufacturing overhead allocation base $97,800 / $61,125 = $1.60 per direct labor dollar

  24. E3-20 2. Amount to allocate to the job: $1.60 x $63,900 = $102,240 Work in process 102,240 Manufacturing overhead 102,240

  25. E3-20 3. Manufacturing Overhead Actual Overhead 104,600 102,240 Overhead Applied Balance 2,360

  26. E3-20 4. Cost of goods sold 2,360 Manufacturing overhead 2,360

  27. Objective 4 Account for completion and sales of finished goods and close manufacturing overhead

  28. Accounting for Finished Goods Work in Process Finished Goods • Direct Material • Direct Labor • Manufacturing Overhead Cost of GoodsManufactured Cost of GoodsManufactured Cost of Goods Sold Cost of Goods Sold Cost ofGoodsSold

  29. E3-17 a. Advertising expense 3,400 Cash 3,400 b. Manufacturing wages 16,000 Cash 16,000 c. Raw materials inventory 14,750 Accounts payable 14,750

  30. E3-17 d. Work in process inventory 7,000 Manufacturing overhead 3,000 Raw materials inventory 10,000 e. Work in process inventory 10,500 Manufacturing overhead 4,500 Manufacturing wages 15,000

  31. E3-17 f. Manufacturing overhead 18,900 Accumulated depreciation, plant 13,000 Prepaid insurance 1,700 Property tax payable 4,200

  32. E3-17 g. Work in process inventory 21,000 Manufacturing overhead 21,000 h. Finished goods inventory 33,000 Work in process inventory 33,000

  33. E3-17 i. Accounts receivable 23,000 Sales revenue 23,000 Cost of goods sold 11,000 Finished goods inventory 11,000

  34. Objective 5 Assign noninventoriable costs in job costing

  35. Predetermined Indirect Cost Allocation Rate Expected indirect costs ÷ Expected cost allocation base

  36. E3-23 1. Direct labor cost rate: $2,669,000 / 17,000 hrs = $157 Indirect cost allocation rate: Office rent $350,000 Support staff salaries 1,194,300 Utilities 324,000 Total $1,868,300 Rate: $1,868,300 / $2,669,000 = 70%

  37. E3-23 2. Predicted cost of job: Direct labor (220 hrs x $157) $34,540 Indirect cost allocation ($34,540 x 70%) 24,178 $58,718

  38. E3-23 3. Bid: Cost $58,718 Desired profit (50%) 29,359 $88,077

  39. End of Chapter 3