Chapter 4
Job Order Costing
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4-1
Building-Block Concepts
of Costing Systems
Cost object
Direct costs
of a cost object
Indirect costs
of a cost object
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4-2
Building-Block Concepts
of Costing Systems
Cost Assignment
Direct
Costs
Cost Tracing
Indirect
Costs
Cost Allocation
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Cost
Object
4-3
Building-Block Concepts
of Costing Systems
Cost pool
Cost allocation base
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4-4
Difference between Job-Costing and
Process-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
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4-5
Seven-step
approach to job costing
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4-6
Seven-Step Approach
to 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.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4-7
Seven-Step Approach
to Job Costing
Step 5:
Compute the rate per unit.
Step 6:
Compute the indirect costs.
Step 7:
Compute the total cost of the job.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4-8
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
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4-9
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.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4 - 10
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
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4 - 11
General Approach to Job Costing
Step 7:
Direct materials
Direct labor
Factory overhead
Total
$50.000
19.000
13.125
$82.125
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4 - 12
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 the gross margin percentage?
$32.675 ÷ $114.800 = 28,5%
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4 - 13
Source Documents
Job cost record
Materials requisition record
Labor time record
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4 - 14
Normal costing
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).
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4 - 15
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
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4 - 16
Normal Costing
What is the cost of Job 650 under normal costing?
Direct materials
Direct labor
Factory overhead
Total
$50.000
19.000
12.500
$81.500
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4 - 17
Consider product variety
and different cost allocation bases
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4 - 18
A manufacturing company is planning to produce
a batch of 100 special products (Order A) and
a batch of 50 special products (Order B). Indirect
manufacturing overhead cost is 60.000. This is
allocated based on direct material costs.
Direct material costs ($)
Direct labor costs ($)
Direct manufacturing overhead costs $
Order A
200.000
40.000
45.000
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Order B
400.000
60.000
95.000
4 - 19
Product A
Indirect cost allocation rate: 60.000/600.000 = 0,1
Manufacturing overhead (indirect): $200.000*0,1 = $20.000
Direct material costs: $200.000
Direct labor cost: $40.000
Manufacturing overhead (direct): $45.000
Total cost = 20.000+200.000+40.000+45.000 = $305.000
Unit cost = 305.000/100 = $3.050
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4 - 20
Product B
Indirect cost allocation rate: 60.000/600.000 = 0,1
Manufacturing overhead (indirect): $400.000*0,1 = $40.000
Direct material costs: $400.000
Direct labor cost: $60.000
Manufacturing overhead (direct): $95.000
Total cost = 40.000+400.000+60.000+95.000 = $595.000
Unit cost = 595.000/50 = $11.900
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4 - 21
Answer-2-34. Income statement and schedule of cost of goods
manufactured.
Howell Corporation
Income Statement for the Year Ended December 31, 2011
(in millions)
Revenues
Cost of goods sold:
Beginning finished goods, Jan. 1, 2011
Cost of goods manufactured (below)
Cost of goods available for sale
Ending finished goods, Dec. 31, 2011
Gross margin
Marketing, distribution, and customer-service costs
Operating income
$950
$ 70
645
715
55
660
290
240
$ 50
Howell Corporation
Schedule of Cost of Goods Manufactured
for the Year Ended December 31, 2011
(in millions)
Direct materials costs:
Beginning inventory, Jan. 1, 2011
Purchases of direct materials
Cost of direct materials available for use
Ending inventory, Dec. 31, 2011
Direct materials used
Direct manufacturing labor costs
Indirect manufacturing costs:
Indirect manufacturing labor
Plant supplies used
Plant utilities
Depreciation––plant, building, and equipment
Plant supervisory salaries
Miscellaneous plant overhead
Manufacturing costs incurred during 2011
Add beginning work-in-process inventory, Jan. 1, 2011
Total manufacturing costs to account for
Deduct ending work-in-process, Dec. 31, 2011
Cost of goods manufactured
$ 15
325
340
20
$320
100
60
10
30
80
5
35
220
640
10
650
5
$645
ANSWER-3-18
1.a) SP = 1.500*0,06 = 90$
VCU = 43$
CMU = 90-43=47$
FC = 23.500$
Q = FC/CMU = 23.500/47 = 500
1.b) Q = (FC+TOI)/CMU = (23.500+17.000)/47 = 861,7 (862)
2.a) SP = 1.500*0,06 = 90$
VCU = 40$
CMU= 90-40 = 50$
FC = 23.500$
Q = 23.500/50 = 470
2.b) Q = (FC+TOI)/CMU = (23.500+17.000)/50 = 810
3.a) SP = 60$
VCU = 40$
CMU = 60-40 = 20$
FC = 23.500$
Q = 23.500/20 = 1.175
3.b) Q = (FC+TOI)/CMU = (23.500+17.000)/20 = 2.025
4.a) SP = 60+5 = 65$
VCU = 40$
CMU= 65-40 = 25$
FC = 23.500$
Q = 23.500/25 = 940
4.b) Q = (FC+TOI)/CMU = (23.500+17.000)/25 = 1.620
Solution 4-18
1.
Budgeted indirect cost rate
=
Budgeted indirect costs
Budgeted direct labor - hours
=
$8,000,000
160,000hours
= $50 per direct labor-hour
Actual indirect cost rate
=
Actual indirect costs
Actual direct labor - hour
=
$6,888,000
164,000hours
= $42 per direct labor-hour
These rates differ because both the numerator and the denominator in the two calculations are
different—one based on budgeted numbers and the other based on actual numbers.
2a.
Normal costing
Direct costs
Direct materials
Direct labor
Indirect costs
Assembly support ($50  900; $50  1,010)
2b.
Total costs
Actual costing
Direct costs
Direct materials
Direct labor
Indirect costs
Assembly support ($42  900; $42  1,010)
Total costs
Laguna Model
Mission Model
$106,450
36,276
142,726
$127,604
41,410
169,014
45,000
45,000
$187,726
50,500
50,500
$219,514
$106,450
36,276
142,726
$127,604
41,410
169,014
37,800
37,800
$180,526
42,420
42,420
$211,434
3.
Normal costing enables Anderson to report a job cost as soon as the job is completed,
assuming that both the direct materials and direct labor costs are known at the time of use/work.
Once the 900 direct labor-hours are known for the Laguna Model (June 2004), Anderson can
compute the $187,726 cost figure using normal costing. Anderson can use this information to
manage the costs of the Laguna Model job as well as to bid on similar jobs later in the year. In
contrast, Anderson has to wait until the December 2004 year-end to compute the $180,526 cost
of the Laguna Model using actual costing.
The following overview diagram summarizes Anderson Construction’s job-costing system.
1
INDIRECT
COST
POOL

COST
ALLOCATION
BASE

COST OBJECT:
RESIDENTIAL
HOME

DIRECT
COSTS

Assembly
Support
Direct
Labor-Hours
Indirect Costs
Direct Costs
Direct
Materials
Direct
Manufacturing
Labor
2