Chapter 4
Job Order Costing
Cost object is a job or batch
When is it most appropriate?
Actual, Normal, and Standard Costing
How does ABC fit in with Job Order Costing?
Job cost sheet, materials requisitions, time tickets.
Actual versus Normal costing --- Overhead application
Estimating and applying overhead using a predetermined overhead rate
(POHR)
Example 1
Over- and under-applied overhead
Disposition of over- and under-applied overhead
Example 3
Service Industries
Operation costing
Example 2
Example 1
Powell Company uses a job costing system. During the month of May, Powell spent most of its
time on job A50, which was started late in April. Following information are cost for job A50,
other May costs, and relevant annual estimates.
Materials issued:
80% for Direct Use on job A50 and
20% for Indirect Use through May
Labor:
Direct Labor for job A50
(300 DLH @ $20 per DLH)
Indirect Labor for May
Other May Costs:
Depreciation (70% Factory and 30% Administrative)
Other (70% Factory and 30% Administrative)
Overhead Cost Driver: Direct Labor Hours (DLH)
Estimated Annual Overhead
Estimated Annual DLH
Markup -- as a percent of cost
$ 5,000
6,000
310
1,000
700
21,000
3,000
40%
Required:
(1) What is the overhead to be applied for May to job A50 upon completion on May 15?
(2) What are total manufacturing costs for May for job A50?
(3) Assuming that the May 1 work-in-process inventory for job A50 was $400, how much
would finished goods inventory increase as a result of the completion of this job on May 15?
(4) What is the profit on job A50 when it is sold on May 15?
(5) Calculate the under- or over-applied overhead for May.
Example 2
Riverside Company manufactures two sizes of T-shirts, medium and large. Both sizes go through
cutting, assembling and finishing departments. The company uses operation costing.
Riverside Company's conversion costs applied to products for June were: Cutting
Department $60,000, Assembling Department $60,000, and Finishing Department $30,000. June
had no beginning or ending work-in-process inventory.
The quantities and direct materials costs for June follow:
Job No.
601
602
Size
Medium
Large
Quantity
10,000
20,000
Direct Materials
$50,000
110,000
Each T-shirt, regardless of size, required the same cutting, assembling and finishing
operations.
Required:
(1) Compute both unit cost and total cost for each shirt sizes produced in June.
Example 3
The Zaf Radiator Company uses a normal-costing system with a single manufacturing
overhead cost pool and machine-hours as the cost-allocation base. The following data are
for 2001:
Budgeted manufacturing overhead
Overhead allocation base
Budgeted machine-hours
Manufacturing overhead incurred
Actual machine-hours
$4,800,000
Machine-hours
80,000
$4,900,000
75,000
Machine-hours data and the ending balances (before proration of under- or overallocated
overhead) are as follows:
Cost of goods sold
Finished goods
Work in process
Actual
Machine-Hours
60,000
11,000
4,000
End of Year 2001
Balance
$8,000,000
1,250,000
750,000
a. Compute the budgeted manufacturing overhead rate for 2001. (5 points)
b. Compute the under- or overallocated manufacturing overhead of Zaf Radiator in 2001
and determine how much should be allocated to Cost of Goods Sold, Finished Goods,
and Work in process if the allocation is prorated on the ending balances (before
proration) in the three accounts
Tyson Company uses a job costing system that applies factory overhead on
the basis of direct labor-hours. No job was in process on February 1. During
the month of February, the company worked on these three jobs. During the
month, the company completed and transferred Job A23 to the finished
goods inventory at the cost of $82,500. Jobs C76 and G15 were not
completed and remain in work in process at the cost of $148,650 at the end
of the month. Actual factory overhead costs during the month totaled
$48,600.
Direct labor ($8/hour)
Direct materials
Overhead applied
A23
$24,000
$42,000
?
Job Number
C76
?
$61,000
$24,750
G15
$8,800
?
$6,050
Norton Associates is an advertising agency in Columbus, Ohio. The
company's controller estimated that it would incur $325,000 in overhead
costs for 2007. Because the overhead costs of each project change in direct
proportion to the amount of direct professional hours incurred, the controller
decided that overhead should be applied on the basis of professional hours.
the controller estimated 25,000 professional hours for the year. During
October, Norton incurred the following costs to make a 20-second TV
commercial for Central Ohio Bank. Actual overhead costs to make the
commercial totaled $14,700. The industry customarily bills customers at 150
percent of total cost.
Direct Materials
Direct professional hours
Cost per professional hour
Estimated overhead costs
Estimated professional hours
Actual overhead costs for commercial
$32,000
1,200
$50
$325,000
25,000
$16,500
Billing rate on cost
150%
Compute the predetermined overhead rate
What is the total amount of the bill that Norton will send Central Ohio Bank?
Purchased direct materials and indirect
materials with the following summary of
receiving reports:
Material A
Material B
Indirect Materials
TOTAL:
$16,000
$12,000
$3,000
$31,000
Issued direct materials and indirect materials with this
summary of requisition forms:
Material A
Material B
Subtotal:
Indirect Materials
TOTAL:
Job X
Job Y
TOTAL
$6,000
$2,000
$8,000
$15,000
$7,000
$22,000
$21,000
$9,000
$30,000
$42,000
$72,000
Factory labor incurred is summarized by
these time tickets:
Job X
Job Y
Indirect Labor
TOTAL:
$16,000
$12,000
$28,000
$56,000
Factory utilities, factory depreciation, and
factory insurance incurred is summarized
by these factory vouchers, invoices, and
cost memos:
Utilities
Depreciation
Insurance
TOTAL:
$3,000
$18,000
$2,500
$23,500
Facts and Figures about Colbert Company March 2007 Jobs:
Job X
Job Y
Predetermined
Machine Hour
Rate:
$46
$46
Machine Hours:
1,300
900
Status:
Completed
In Process
Ship Date:
March
NA
Gross Margin:
20%
NA
1. Calculate the amount of overapplied or underapplied overhead and state
whether the cost of goods sold account will be increased or decreased by
the adjustment.
2. Calculate the total manufacturing cost for Job X and Job Y for March
2004.