Job Order Costing
Chapter 19
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1
Objective 1
Distinguish between job order
costing and process costing
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2
Cost Systems
• There are two basic systems used by
manufacturers to assign costs to their
products:
– Job order costing
• Used by companies that produce unique products
or specialized services
• Costs are accumulated by jobs
– Process costing
• Used by companies that produce identical units
• Costs are accumulated by each process that is
needed to complete a product
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3
S19-1
a. A manufacturer of plywood would use
process costing.
b. A manufacturer of wakeboards would use
process costing.
c. A manufacturer of luxury yachts would use
job costing.
d. A professional services firm would use
job costing.
e. A landscape garden contractor would use
job costing.
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4
Objective 2
Record materials and labor in a
job order costing system
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5
Cost Flow
Indirect
Materials
Direct
Work in
Process
Indirect
Factory Allocate
Overhead
Labor
Direct
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Finished
Goods
Cost of
Goods
Sold
6
Accounting for Materials
Raw Materials
Material
Direct
Purchases Material
Indirect
Material
Work in Process
Direct
Material
Manufacturing Overhead
Actual
Overhead
Costs
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7
S19-3
GENERAL JOURNAL
DATE
DESCRIPTION
REF
DEBIT
Materials inventory – canvas
Accounts payable
70,000
Materials inventory – thread
Accounts payable
1,000
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CREDIT
70,000
1,000
8
S19-3
SUBSIDIARY MATERIALS LEDGER RECORD
Item No._________
C865
Description: ______________________
Canvas (black)
Received
Date
Units
Cost
7/10
7000
$10
Used
Mat
Req No
Total
Units
Cost
Balance
Total
70,000
Units
Cost
Total
7000
$10
70,000
SUBSIDIARY MATERIALS LEDGER RECORD
Item No._________
T444
Description: ______________________
Thread (black)
Received
Date
Units
Cost
7/10
50
$20
Used
Total
Mat
Req No
Units
Cost
Balance
Total
1,000
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Units
Cost
Total
50
$20
1,000
9
Materials Requisition
• Used to authorize the use of materials
on a job
• Serves as source document for
recording material usage
MATERIALS REQUISITION NO. 8966
_____
Date: _______
8/03
Item no. Item
C865
Black canvas
T444
Black thread
Total
Quantity
6,300
15
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Job No. _____
562
Unit cost Amount
$10
63,000
$20
300
63,300
10
S19-3
GENERAL JOURNAL
DATE
DESCRIPTION
REF
Work in process inventory
Materials inventory-canvas
(for direct materials)
Manufacturing overhead
Materials inventory-thread
(for indirect materials)
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DEBIT
CREDIT
63,000
63,000
300
300
11
S19-3
Raw Materials
Beginning bal 35,000
Purchases
70,000
1,000 63,300
Ending bal
Requisitioned
42,700
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12
Job Cost Record
•Subsidiary ledger to
Job Cost Record
Job No. 562
Customer Name and Address Happy Campers
Job Description 2,000 backpacks
Date Promised
Date Started
Direct Materials
Direct Labor
Time
RequisiTicket
Date
tion No.
Amount
No.
Amount
8/03
8966
work in process
inventory
•A separate record is
kept for each job in
process
Date Completed
Overhead Costs Applied
Date
Rate
Amount
63,000
Overall Cost Summary
Materials
Labor
Overhead
Total Job Cost
Totals
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13
Accounting for Labor
Manufacturing Wages
Incurred
Direct
Labor
Indirect
Labor
Work in Process
Direct
Material
Direct
Labor
Manufacturing Overhead
Actual
Overhead
Costs
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14
Labor Time Ticket
LABOR TIME RECORD
J. Khan
Employee ___________
Job J9738
_______
Time:
800
Started: ___________
1500
Stopped: __________
7 hours
Elapsed: __________
Employee: _J K ___________
K13
No. ______
Rate: ____________
$11.25
Cost of Labor
$78.75
Charged to Job $___________
Supervisor: M. Morley
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15
S19-5
GENERAL JOURNAL
DATE
DESCRIPTION
REF
DEBIT
Manufacturing wages
Wages payable
($600 + $900 + $75,000)
76,500
Work in process
Manufacturing overhead
Manufacturing wages
75,900
600
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CREDIT
76,500
76,500
16
Objective 3
Record overhead in a job order
costing system
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17
Accounting for Manufacturing
Overhead
Manufacturing Overhead
Overhead
Actual
Overhead Applied to
Work in
Costs
Process
Work in Process
Direct
Material
Direct
Labor
Overhead
Actual manufacturing overhead costs are debited to the account –
indirect labor, indirect materials, plant utilities, depreciation expense
on plant assets, etc. Because these costs can not be traced directly
to a particular job, an overhead application rate is used to allocate
overhead to each job in a systematic way
Predetermined Manufacturing
Overhead Rate
Total estimated manufacturing overhead costs
Total estimated quantity of the manufacturing
overhead allocation base
At the beginning of the year, the overhead rate is determined so that
the cost of a job can be computed when the job is completed instead
of waiting until the end of the year
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19
Allocate Manufacturing Overhead
Predetermined manufacturing overhead x Actual
quantity of the allocation based used by each
job
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20
E19-19 1.
Total estimated manufacturing overhead costs
Total estimated quantity of the manufacturing
overhead allocation base
$100,000 / $80,000 = $1.25 per direct labor dollar
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21
E19-19 2.
Amount to allocate to the job:
$1.25 x $64,000 = $80,000
GENERAL JOURNAL
DATE
DESCRIPTION
REF
Work in process
Manufacturing overhead
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DEBIT
CREDIT
80,000
80,000
22
E19-19 3.
Manufacturing Overhead
Actual Overhead 83,000
Balance
80,000 Overhead Applied
3,000
Since the overhead rate is an estimate, it is not surprising that there is a
balance remaining in the manufacturing overhead account.
If the account has a debit balance, actual costs were greater than applied
amounts – manufacturing overhead is underapplied.
If the account has a credit balance, actual costs were less than the amount
applied – manufacturing overhead is overapplied.
In this exercise, there is a $3,000 debit balance….overhead is underapplied
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23
E19-19 4.
GENERAL JOURNAL
DATE
DESCRIPTION
REF
Cost of goods sold
Manufacturing overhead
DEBIT
CREDIT
3,000
3,000
As long as the balance is immaterial, close the manufacturing
overhead account against cost of goods sold
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24
Objective 4
Record completion and sales of
finished goods and the adjustment for
under- or overallocated overhead
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25
Accounting for Finished Goods
Work in Process
•Direct Material
•Direct Labor
•Manufacturing
Overhead
Cost of
Goods
Manufactured
Finished Goods
Cost of
Cost of
Goods
Goods Sold
Manufactured
Cost of Goods Sold
Cost of
Goods
Sold
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26
P19-34B
Materials
17,000
Work in process
Job 90- 44,000
Finished goods
61,000
GENERAL JOURNAL
DATE
a.
b.
DESCRIPTION
REF
DEBIT
Accounts payable
Cash
81,000
Marketing & general expense
Cash
22,000
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CREDIT
81,000
22,000
27
P19-34B
Materials
17,000
55,000
Work in process
Job 90- 44,000
Finished goods
61,000
GENERAL JOURNAL
DATE
c.
d.
DESCRIPTION
REF
Cash
Accounts receivable
Materials inventory
Accounts payable
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DEBIT
CREDIT
195,000
195,000
55,000
55,000
28
P19-34B
Materials
17,000 49,000
55,000
Work in process
44,000
42,000
Finished goods
61,000
GENERAL JOURNAL
DATE
e.
DESCRIPTION
REF
Work in process-job 90
Work in process-job 91
Manufacturing overhead
Materials inventory
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DEBIT
CREDIT
4,000
38,000
7,000
49,000
29
P19-34B
Job Cost Record
Job No. 91
Customer Name and Address Wicom Company
Job Description components
Date Promised
Date Started
Direct Materials
Direct Labor
Time
RequisiTicket
Date
tion No.
Amount
No.
Amount
e.
8966
Date Completed
Overhead Costs Applied
Date
Rate
Amount
38,000
Overall Cost Summary
Materials
Labor
Overhead
Total Job Cost
Totals
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30
P19-34B
Materials
17,000 49,000
55,000
Work in process
44,000
42,000
Finished goods
61,000
GENERAL JOURNAL
DATE
f.
DESCRIPTION
REF
DEBIT
Manufacturing wages
Wages payable
56,000
Wages payable
Cash
50,500
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CREDIT
56,000
50,500
31
P19-34B
Materials
17,000 49,000
55,000
Work in process
44,000
42,000
34,000
Finished goods
61,000
GENERAL JOURNAL
DATE
g.
DESCRIPTION
REF
Work in process-job 90
Work in process-job 91
Manufacturing overhead
Manufacturing wages
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DEBIT
CREDIT
6,000
28,000
22,000
56,000
32
P19-34B
Job Cost Record
Job No. 91
Customer Name and Address Wicom Company
Job Description components
Date Promised
Date Started
Direct Materials
Direct Labor
Time
RequisiTicket
Date
tion No.
Amount
No.
Amount
e.
g.
8966
Date Completed
Overhead Costs Applied
Date
Rate
Amount
38,000
T523
28,000
Overall Cost Summary
Materials
Labor
Overhead
Total Job Cost
Totals
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33
P19-34B
Materials
17,000 49,000
55,000
Work in process
44,000
42,000
34,000
Finished goods
61,000
GENERAL JOURNAL
DATE
h.
DESCRIPTION
REF
Manufacturing overhead
Accumulated depreciation,
plant & equipment
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DEBIT
CREDIT
7,500
7,500
34
P19-34B
Materials
17,000 49,000
55,000
Work in process
44,000
42,000
34,000
40,800
Finished goods
61,000
GENERAL JOURNAL
DATE
i.
DESCRIPTION
REF
Work in process-job 90
Work in process-job 91
Manufacturing overhead
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DEBIT
CREDIT
7,200
33,600
40,800
35
P19-34B
Job Cost Record
Job No. 91
Customer Name and Address Wicom Company
Job Description components
Date Promised
Date Started
Direct Materials
Direct Labor
Time
RequisiTicket
Date
tion No.
Amount
No.
Amount
e.
g.
8966
Date Completed
Overhead Costs Applied
Date
Rate
Amount
120%
33,600
38,000
T523
28,000
i.
Overall Cost Summary
Materials
Labor
Overhead
Total Job Cost
Totals
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36
P19-34B
Materials
17,000 49,000
55,000
DATE
j.
Work in process
44,000 61,200
42,000
34,000
40,800
Finished goods
61,000
61,200
GENERAL JOURNAL
Job 90:
REF
DEBIT
CREDIT
In process,DESCRIPTION
beginning
$44,000
Finished
goods added
inventory
61,200
Direct materials
4,000
Direct
labor
added
6,000 61,200
Work
in process-job
90
Overhead applied (6,000 x 120%)
7,200
$61,200
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37
P19-34B
Materials
17,000 49,000
55,000
Work in process
44,000 61,200
42,000
34,000
40,800
Finished goods
61,000
61,200 61,200
GENERAL JOURNAL
DATE
k.
DESCRIPTION
REF
Accounts receivable
Sales revenue
Cost of goods sold
Finished goods inventory
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DEBIT
CREDIT
125,000
125,000
61,200
61,200
38
P19-34B
Manufacturing overhead
was overapplied by
Manufacturing overhead$4,300
e. 7,000 i. 40,800
g.22,000
h. 7,500
4,300 Bal 4,300
Bal
0
GENERAL JOURNAL
DATE
l.
DESCRIPTION
REF
Manufacturing overhead
Cost of goods sold
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DEBIT
CREDIT
4,300
4,300
39
P19-34B
Materials
17,000 49,000
55,000
23,000
Work in process
44,000 61,200
42,000
34,000
40,800
99,600
Finished goods
61,000
61,200 61,200
61,000
Compare the balance in work in
process with the total costs
accumulated so far on Job 91
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40
The costs to track are direct labor and indirect
costs. A predetermined indirect cost allocation
rate is computed in the same way the
manufacturing overhead allocation rate is
determined
Objective 5
Calculate unit costs for a service
company
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41
E19-22
1. Direct labor cost rate:
$2,550,000 / 17,000 hrs = $150
Indirect cost allocation rate:
Office rent
Support staff salaries
Utilities
Total
$300,000
900,000
330,000
$1,530,000
Rate: $1,530,000 / $2,550,000 = 60%
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42
E19-22
2. Predicted cost of job:
Direct labor (220 hrs x $150)
Indirect cost allocation
($33,000 x 60%)
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$33,000
19,800
$52,800
43
E19-22
3. Bid:
Cost
Desired profit (50%)
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$52,800
26,400
$79,200
44
End of Chapter 19
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45