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Chapter 3 Job Order Costing

Chapter 3 Job Order Costing. A company produces many units of a single product. One unit of product is indistinguishable from other units of product. The identical nature of each unit of product enables assigning the same average cost per unit. Types of Product Costing Systems.

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Chapter 3 Job Order Costing

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  1. Chapter 3Job Order Costing

  2. A company produces many units of a single product. • One unit of product is indistinguishable from other units of product. • The identical nature of each unit of product enables assigning the same average cost per unit. Types of Product Costing Systems ProcessCosting Job-orderCosting

  3. A company produces many units of a single product. • One unit of product is indistinguishable from other units of product. • The identical nature of each unit of product enables assigning the same average cost per unit. Types of Product Costing Systems ProcessCosting Job-orderCosting Example companies:1. Weyerhaeuser (paper manufacturing)2. Reynolds Aluminum (refining aluminum ingots) 3. Coca-Cola (mixing and bottling beverages)

  4. Many different products are produced each period. • Products are manufactured to order. • The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job. Types of Product Costing Systems ProcessCosting Job-orderCosting

  5. Many different products are produced each period. • Products are manufactured to order. • The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job. Types of Product Costing Systems ProcessCosting Job-orderCosting Example companies:1. Boeing (aircraft manufacturing)2. Bechtel International (large scale construction) 3. Walt Disney Studios (movie production)

  6. Pop Quiz  Which of the following companies would be likely to use job-order costing rather than process costing? a. Scott Paper Company for Kleenex. b. Architects. c. Heinz for ketchup. d. Caterer for a wedding reception. e. Builder of commercial fishing vessels.

  7. Materials Requisition Form

  8. Employee Time Ticket

  9. Job Cost Sheet

  10. Application of Overhead(From Word Document)

  11. Practice with Overhead • Actual manufacturing overhead $340,000 • Budgeted machine hours 10,000 • Budgeted direct labor hours 20,000 • Budgeted direct labor rate $14 • Budgeted manufacturing oh $364,000 • Actual machine hours 11,000 • Actual direct labor hours 18,000 • Actual direct labor rate $15 • POHR - Machine hours • POHR - direct labor hours • POHR - direct labor dollars

  12. Pop Quiz  Job WR53 at NW Fab, Inc. required $200 of direct materials and 10 direct labor hours at $15 per hour. Estimated total overhead for the year was $760,000 and estimated direct labor hours were 20,000. What would be recorded as the cost of job WR53? a. $200. b. $350. c. $380. d. $730.

  13. Fisher Company(From Word Document)

  14. Problems of Overhead Application The difference between the overhead cost applied to Work in Process and the actual overhead costs of a period is referred to as either underapplied or overapplied overhead. Underapplied overhead exists when the amount of overhead applied to jobs during the period using the predetermined overhead rate is less than the total amount of overhead actually incurred during the period. Overapplied overhead exists when the amount of overhead applied to jobs during the period using the predetermined overhead rate is greater than the total amount of overhead actually incurred during the period.

  15. Overhead Application Example RoseCo applies overhead based on direct- labor hours. Total estimated overhead for the year is $640,000. Total estimated labor cost is $1,400,000 and total estimated labor hours are 160,000. What is RoseCo’s predetermined overhead rate?

  16. Overhead Application Example RoseCo’sactual overhead for the year was $650,000 and a total of 170,000 direct-labor hours were worked. Using RoseCo’s predetermined overhead rate of $4.00 per direct-labor hour, how much overhead was applied to all of RoseCo’s jobs during the year?

  17. Overhead Application Example RoseCo’sactual overhead for the year was $650,000 and a total of 170,000 direct-labor hours were worked. Using RoseCo’s predetermined overhead rate of $4.00 per direct-labor hour, how much overhead was applied to all of RoseCo’s jobs during the year? RoseCo has overappliedoverhead for the yearby $30,000. What willRoseCo do? SOLUTION Applied Overhead = POHR × Actual Direct Labor Hours Applied Overhead = $4.00 per DLH × 170,000 DLH = $680,000

  18. $30,000may be allocatedto these accounts. $30,000 may beclosed directly to cost of goods sold. Work inProcess FinishedGoods Cost of Goods Sold Cost of Goods Sold Overapplied and Underapplied Manufacturing Overhead OR RoseCo’s Method

  19. Overapplied and Underapplied Manufacturing Overhead - Summary

  20. Pop Quiz  Tiger, Inc. had actual manufacturing overhead costs of $1,210,000 and a predetermined overhead rate of $4.00 per machine hour. Tiger, Inc. worked 290,000 machine hours during the period. Tiger’s manufacturing overhead is a. $50,000 overapplied.b. $50,000 underapplied.c. $60,000 overapplied.d. $60,000 underapplied.

  21. May be more complex but . . . Multiple Predetermined Overhead Rates To this point, we have assumed that there is a single predetermined overhead rate called a plantwide overhead rate. Large companies often use multiple predetermined overhead rates. May be more accurate because it reflects differences across departments.

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