Chapter 19
JOB ORDER COST
ACCOUNTING
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
19 - 2
C1
COST ACCOUNTING SYSTEMS
Process
Costing
Job
Costing
Chapter 20
Used for production of large, unique, or
high-cost items.
Built to order rather than mass produced.
Many costs can be directly traced to each job.
19 - 3
C1
JOB ORDER PRODUCTION
Process
Costing
Job
Costing
Chapter 20
Typical job order cost applications:
Special-order printing
Building construction
Also used in service industry
Hospitals
Law firms
19 - 4
C1
EVENTS IN JOB ORDER COSTING
Receive order
from
customer.
Predict cost
to complete
job.
Schedule
production of
the job.
Negotiate a sales price
and decide whether to
pursue the job.
19 - 5
JOB ORDER PRODUCTION
ACTIVITIES
C1
Indirect
Materials
Direct
Indirect
Factory Allocate
Overhead
Labor
Direct
Goods in
Process
Finished
Goods
Cost of
Goods
Sold
19 - 6
C2
JOB ORDER COST DOCUMENTS
The primary
document for
tracking the costs
associated with a
given job is the job
cost sheet.
sheet
Let’s investigate
19 - 7
C2
JOB COST SHEET
Road Warriors Job Cost Sheet
Customer
Carroll Connor
Job No.
B15
Address 1542 High Point Dr. Portland, Oregon
Job Description Level I Alarm System on Ford Expedition
Date promised 3/15/11 Date started 3/3/11
Date completed
Direct Materials
Date
Req.
Cost
Total
Direct Labor
Date
Ticket
Cost
Total
Remarks
Factory Overhead
Date
Rate
Cost
Total
Cost Summary
Direct Materials
Direct Labor
Factory Overhead
Total Cost
19 - 8
C2
JOB COST SHEET
Road Warriors Job Cost Sheet
Customer
Carroll Connor
Job No.
B15
Address 1542 High Point Dr. Portland, Oregon
Job Description Level I Alarm System on Ford Expedition
Date promised 3/15/11 Date started 3/3/11
Date completed
Direct Materials
Date
Req.
Cost
Total
A materials requisition
is used
the
Direct
Labor to authorize
Factory Overhead
Date
Ticket
Date
Rate
use ofCostmaterials
on aCost
job.
Total
Remarks
Total
Cost Summary
Let’s
see one
Direct Materials
Direct Labor
Factory Overhead
Total Cost
19 - 9
P1
MATERIALS REQUISITION
Road Warriors Materials Requisition No. R-4705
Job No. B15
Material Stock No.
Date 3-7-11
M-347
Material Description
Alarm system wiring
Quantity Requested
1
Quantity Provided
Filled By
Remarks
1
M. Bateman
Requested By
Date Provided
Received By
C. Luther
3-7-11
C. Luther
19 - 10
P1
MATERIALS REQUISITION
Proper
authorization
Cost of material is
charged to Job B15.
Road Warriors Materials Requisition No. R-4705
Job No. B15
Material Stock No.
Date 3-7-11
M-347
Material Description
Alarm system wiring
Quantity Requested
1
Quantity Provided
Filled By
Remarks
1
M. Bateman
Requested By
Date Provided
Received By
C. Luther
3-7-11
C. Luther
19 - 11
P1
MATERIALS REQUISITION
Type and quantity of material
charged to Job B15.
Pre-printed, sequentially
numbered form
Road Warriors Materials Requisition No. R-4705
Job No. B15
Material Stock No.
Date 3-7-11
M-347
Material Description
Alarm system wiring
Quantity Requested
1
Quantity Provided
Filled By
Remarks
1
M. Bateman
Requested By
Date Provided
Received By
C. Luther
3-7-11
C. Luther
19 - 12
P1
MATERIALS REQUISITION
Road Warriors Materials Requisition No. R-4705
Job No. B15
Material Stock No.
Date 3-7-11
M-347
Material Description
Alarm system wiring
Quantity Requested
1
Requested By
C. Luther
The materials
form
also serves
Quantity
Provided 1requisition
Date
Provided
3-7-11
as
Filled
Received
By C.material
theBy
source
document for
recording
M. Bateman
Luther
usage in the accounting records.
Remarks
19 - 13
P1
MATERIALS LEDGER CARD
Road Warriors Materials Ledger Card
Item
Alarm sys. wiring
Maximum Qty.
5 units
Stock No.
M-347
Minimum Qty. 1 unit
Location
Bin137
Reorder Qty. 2 units
Received
Issued
Balance
Rec.
Unit Total Req.
Unit Total
Unit Total
Date Rep. Units Cost Cost No. Units Cost Cost Units Cost Cost
1
$225 $225
3/4/11 C7117 2
$225 $450
3
$225 $675
3/7/11
R4705 1 $225 $225
2
$225 $450
19 - 14
P1
JOB COST SHEET
Road Warriors Job Cost Sheet
Customer
Carroll Connor
Job No.
B15
Address 1542 High Point Dr. Portland, Oregon
Job Description Level I Alarm System on Ford Expedition
Date promised 3/15/11 Date started 3/3/11
Date completed
Direct Materials
Date
Req.
Cost
3/7/11 R-4705 $ 225
Total
Direct Labor
Date
Ticket
Cost
Total
Remarks
Factory Overhead
Date
Rate
Cost
Total
Cost Summary
Direct Materials
Direct Labor
Factory Overhead
Total Cost
$ 225
19 - 15
P2
JOB COST SHEET
Road Warriors Job Cost Sheet
Customer
Carroll Connor
Job No.
B15
Accumulate
Address 1542 High Point Dr. Portland, Oregon
direct labor
Job Description Level I Alarm System on Ford Expedition
Date promised 3/15/11 Date started 3/3/11
Date completed
costs by
Direct Materials
Date
Req.
Cost
3/7/11 R-4705 $ 225
Total
Direct Labor
Date
Ticket
Cost
Total
Remarks
Factory
Overheadof
means
Date
Rate
Cost
Total
a
work record,
such as a time
ticket, for each
employee.
Cost Summary
Direct Materials
Direct Labor
Let’s
Factory Overhead
Total Cost
$ 225
see one
19 - 16
P2
LABOR TIME TICKET
Road Warriors Time Ticket No. L-3479
Job No.
B15
Date
Employee Name
T. Zeller
3/8/11
Employee Number
3969
TIME AND RATE INFORMATION:
Start Time
Elapsed Time
Approved By
Remarks
9:00
3.0
Finish Time
12:00
Hourly Rate
$20.00
C. Luther
Total Cost
$60.00
19 - 17
P2
JOB COST SHEET
Road Warriors Job Cost Sheet
Customer
Carroll Connor
Job No.
B15
Address 1542 High Point Dr. Portland, Oregon
Job Description Level I Alarm System on Ford Expedition
Date promised 3/15/11 Date started 3/3/11
Date completed
Direct Materials
Date
Req.
Cost
3/7/11 R-4705 $ 225
Total
Direct Labor
Date
Ticket
Cost
3/8/11 L-3479 $ 60
Total
Remarks
$
Factory Overhead
Date
Rate
Cost
60 Total
Cost Summary
Direct Materials
Direct Labor
Factory Overhead
Total Cost
$ 225
60
19 - 18
P3
JOB COST SHEET
Road Warriors Job Cost Sheet
Customer
Carroll Connor
Job No.
B15
Address 1542 High Point Dr. Portland, Oregon
Job Description Level I Alarm System on Ford Expedition
Date promised 3/15/11 Date started 3/3/11
Date completed
Direct Materials
Date
Req.
Cost
3/7/11 R-4705 $ 225
Total
Direct Labor
Date
Ticket
Cost
3/8/11 L-3479 $ 60
Total
$
Factory Overhead
Date
Rate
Cost
60
Allocate
manufacturing overhead
to jobs using
Remarks
Cost Summary
overhead rate
a predetermined
Direct Materials
$ 225
Direct Labor
Factory Overhead
Total Cost
60
Let’s do$ it-
$ 285
19 - 19
P3
JOB COST SHEET
Road Warriors Job Cost Sheet
Customer
Carroll Connor
Job No.
B15
Address 1542 High Point Dr. Portland, Oregon
Job Description Level I Alarm System on Ford Expedition
Date promised 3/15/11 Date started 3/3/11
Date completed
Direct Materials
Date
Req.
Cost
3/7/11 R-4705 $ 225
Total
Direct Labor
Factory Overhead
Date
Ticket
Cost
Date
Rate
Cost
3/8/11 L-3479 $ 60 3/08/11
160% $ 96
Total
Remarks
$
60 Total
Cost Summary
Direct Materials
Direct Labor
Factory Overhead
Total Cost
$
96
$ 225
60
$ 96
$ 381
19 - 20
P3
PREDETERMINED OVERHEAD
RATE
Road Warriors uses a predetermined
overhead rate (POHR) based on direct
labor cost to apply overhead to jobs.
POHR =
POHR =
Estimated total manufacturing
overhead cost for the coming period
Estimated total direct labor costs
for the coming period
$200,000
$125,000
= 160% of direct labor $
19 - 21
JOB ORDER COST FLOWS AND
REPORTS
Let’s summarize
the document
flow we have
been discussing
in a job-order
costing system.
19 - 22
P1
Material Cost Flows and Documents
The materials
requisition
indicates the cost
of direct
materials
to charge to
jobs
and the cost of
indirect materials
to charge to
overhead.
Direct
materials
Job Cost
Job
Cost
Job
Cost
Sheets
Job
Cost
Sheets
Sheets
Sheets
Materials
Materials
Ledger
Cards
Materials
Ledger
Cards
Materials
Ledger Cards
Requisition
Indirect
materials
Factory
Overhead
Account
19 - 23
P2
Labor Cost Flows and Documents
Direct
Employee time
Labor
tickets indicate
the cost of
Employee Time
direct labor
Employee
Time
Ticket
Employee
Time
to charge to Employee
Ticket
Time
Ticket
jobs
Ticket
and the cost
of indirect labor
to charge to
Indirect
Labor
overhead.
JobCost
Cost
Job
Job
Cost
Sheets
Job
Cost
Sheets
Sheets
Sheets
Factory
Overhead
Account
19 - 24
Summary of Cost Flows
Let’s examine the
cost flows in a job
order system.
We will use
T-accounts and
start with
materials.
19 - 25
P1
Summary of Cost Flows
Dr
Cr
Raw Materials
Material
Direct
Purchases Material
Indirect
Material
Dr
Cr
Factory Overhead
Actual
Overhead
Costs
Dr
Cr
Goods in Process
Direct
Material
19 - 26
P2
Summary of Cost Flows
P3
Dr
Cr
Factory Payroll
Incurred
Direct
Labor
Indirect
Labor
Dr
Cr
Factory Overhead
Overhead
Actual
Overhead Applied to
Work in
Costs
Process
Dr
Cr
Goods in Process
Direct
Material
Direct
Labor
Overhead
When
Actual
Applied
factory = factory
overhead
overhead
an adjustment is needed.
We will look at how to
accomplish this later.
/
19 - 27
P3
Summary of Cost Flows
Dr
Cr
Dr
Goods in Process
Direct
Material
Direct
Labor
Overhead
Cr
Finished Goods
Cost of
Goods
Mfd.
Cost of
Goods
Mfd.
Dr
Cr
Cost of Goods Sold
Cost of
Goods
Sold
Cost of
Goods
Sold
19 - 28
P4
OVERHEAD APPLICATION
Tell me again how
we use the POHR to
assign overhead
to jobs.
We multiply the POHR
times the number of
activity units (direct labor
cost for Road Warriors)
incurred for the job.
19 - 29
P4
OVERHEAD APPLICATION
Reasons for using a POHR
(predetermined overhead rate)
Overhead is not
incurred uniformly
during the year.
Actual overhead rate
might vary from
month to month.
Predetermined rate
makes it possible to
estimate job costs sooner.
19 - 30
P4
ADJUSTMENT OF OVERAPPLIED OR
UNDERAPPLIED OVERHEAD
The POHR is based
on estimates.
What happens if
actual results differ
from the estimates?
The result will be either
underapplied or overapplied
overhead and we
will adjust Cost of Goods
Sold at the end of the period.
Here, let me show you.
19 - 31
P4
ADJUSTMENT OF OVERAPPLIED OR
UNDERAPPLIED OVERHEAD
Overhead is
overapplied.
Actual
overhead
costs
incurred
Overhead
applied to
Work in Process
(POHR Activity)
19 - 32
P4
ADJUSTMENT OF OVERAPPLIED OR
UNDERAPPLIED OVERHEAD
Overhead is
underapplied.
Overhead
applied to
Work in Process
Actual
overhead
costs
incurred
(POHR Activity)
19 - 33
P4
ADJUSTMENT OF OVERAPPLIED OR
UNDERAPPLIED OVERHEAD
Adjusting Cost of Goods Sold for
underapplied or overapplied overhead
Cost of Goods
Actual overhead >
applied overhead
Actual overhead <
applied overhead
Overhead is:
Sold is:
Adjustment will:
Underapplied
Too low
Increase Cost
of Goods Sold
Too high
Decrease Cost
of Goods Sold
Overapplied
19 - 34
GLOBAL VIEW
Expensive European sports cars are often built
according to individual customer specifications.
Customers place orders for their dream cars, and then
each car is built to order and shipped to the customer.
19 - 35
A1
PRICING FOR SERVICES
Pricing for services is based on direct labor. Any material
costs are usually incidental and are a part of overhead.
Acme Consulting prepared the following bid for a job
that will require a total of 1,000 hours of direct labor.
Direct Labor:
Consultants (600 hours @ $75)
Research staff (400 hours @ $40)
Total direct labor costs
Overhead:
Consultant related (600 hours @ $50)
Research staff related (400 hours @ $30)
Total overhead cost
Total bid amount
$
45,000
16,000
$
61,000
30,000
12,000
42,000
$ 103,000
19 - 36
ENTRIES FOR JOB ORDER
PRODUCTION COSTS
Let’s look at summary
accounting journal
entries for the job order
cost system at Road
Warriors. The dollar
amounts are from Exhibit
19.12 in your textbook.
19 - 37
P1
ENTRIES FOR JOB ORDER
PRODUCTION COSTS
19 - 38
P1
P2
ENTRIES FOR JOB ORDER
PRODUCTION COSTS
19 - 39
P2
ENTRIES FOR JOB ORDER
PRODUCTION COSTS
19 - 40
P3
ENTRIES FOR JOB ORDER
PRODUCTION COSTS
19 - 41
P3
ENTRIES FOR JOB ORDER
PRODUCTION COSTS
19 - 42
END OF CHAPTER 19