Cost Accounting, Chapter 4 11ch04

(1)

Job Order

Costing

Job Order

Costing

(2)

Learning Objective 1

Describe the building-block

concepts of costing systems.

(3)

Building-Block Concepts

of Costing Systems

Building-Block Concepts

of Costing Systems

Cost object

Direct costs of a cost object

(4)

Building-Block Concepts

of Costing Systems

Building-Block Concepts

of Costing Systems

Cost Assignment Direct Costs Indirect Costs Cost Tracing Cost Allocation Cost Object

(5)

Building-Block Concepts

of Costing Systems

Building-Block Concepts

of Costing Systems

Cost pool

(6)

Learning Objective 2

Distinguish between job

costing and process costing.

(7)

Job-Costing and

Process-Costing Systems

Job-Costing and

Process-Costing Systems

Job-costing system Process-costing system Distinct units of a product

Masses of identical or similar units of

(8)

Learning Objective 3

Outline a seven-step

(9)

Seven-Step Approach

to Job Costing

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:

(10)

Seven-Step Approach

to Job Costing

Seven-Step Approach

to Job Costing

Step 5:

Compute the rate per unit. Step 6:

Compute the indirect costs. Step 7:

(11)

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:

(12)

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:

(13)

General Approach to Job Costing

Step 5:

Actual indirect cost rate is

$65,100 ÷ 2,480 = $26.25 per machine-hour. Step 6:

(14)

General Approach to Job Costing

Step 7:

Direct materials $50,000 Direct labor 19,000 Factory overhead 13,125

(15)

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?

(16)

Source Documents

Job cost record

Materials requisition record Labor time record

(17)

Learning Objective 4

Distinguish actual costing

from normal costing.

(18)

Costing Systems

Actual costing is a system that uses actual costs to determine the cost of individual jobs.

It allocates indirect costs based on the actual indirect-cost rate(s) times the actual quantity

(19)

Costing Systems

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).

(20)

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

(21)

Normal Costing

What is the cost of Job 650 under normal costing? Direct materials $50,000

Direct labor 19,000 Factory overhead 12,500 Total $81,500

(22)

Learning Objective 5

Track the flow of costs

in a job-costing system.

(23)

Transactions

Purchase of materials and other manufacturing inputs Conversion into work in process inventory

(24)

Transactions

$80,000 worth of materials (direct and indirect) were purchased on credit.

Materials Control

1. 80,000 1. 80,000 Accounts Payable

(25)

Transactions

Materials costing $75,000 were sent to the manufacturing plant floor.

$50,000 were issued to Job No. 650 and $10,000 to Job 651.

$15,000 of indirect materials were issued. What is the journal entry?

(26)

Transactions

Work in Process Control:

Job No. 650 50,000 Job No. 651 10,000 Factory Overhead Control 15,000

(27)

Transactions

Materials

Control

1. 80,000 2. 75,000

Work in Process Control

2. 60,000 Manufacturing

Overhead

(28)

Transactions

Total manufacturing payroll for the period was $27,000.

Job No. 650 incurred direct labor costs of $19,000 and Job No. 651 incurred

direct labor costs of $3,000.

$5,000 of indirect labor was also incurred. What is the journal entry?

(29)

Transactions

Work in Process Control:

Job No. 650 19,000 Job No. 651 3,000 Manufacturing Overhead Control 5,000

(30)

Transactions

Wages Payable

Control

3. 27,000

Work in Process Control 2. 60,000 3. 22,000 Manufacturing Overhead Control

(31)

Transactions

Wages payable were paid.

Wages Payable Control

4. 27,000 4. 27,000 Cash

Control Wages Payable Control 27,000

Cash Control 27,000

(32)

Transactions

Assume that depreciation for the period is $26,000.

Other manufacturing overhead incurred amounted to $19,100.

(33)

Transactions

Manufacturing Overhead Control 45,100 Accumulated Depreciation

Control 26,000

Various Accounts 19,100 What is the balance of the Manufacturing

(34)

Transactions

$62,000 of overhead was allocated to the

various jobs of which $12,500 went to Job 650. Work in Process Control 62,000

Manufacturing Overhead Control 62,000 What are the balances of the control accounts?

(35)

Transactions

Manufacturing Overhead

Control

Work in Process Control

2. 15,000 3. 5,000 5. 45,100 Bal. 3,100

2. 60,000 3. 22,000 6. 62,000 Bal. 144,000 6. 62,000

(36)

Transactions

The cost of Job 650 is: Job 650

2. 50,000 3. 19,000 6. 12,500 Bal. 81,500

(37)

Transactions

Jobs costing $104,000 were completed and

transferred to finished goods, including Job 650. What effect does this have on the control accounts?

(38)

Transactions

Work in Process

Control Finished Goods Control 2. 60,000 3. 22,000 6. 62,000 Bal. 40,000 7. 104,000 7. 104,000

(39)

Transactions

Job 650 was sold for $114,800. What is the journal entry?

Accounts Receivable Control 114,800

Revenues 114,800 Cost of Goods Sold 81,500

(40)

Transactions

What is the balance in the Finished Goods Control account?

$104,000 – $81,500 = $22,500

Assume that marketing and administrative salaries were $9,000 and $10,000.

(41)

Transactions

Marketing and Administrative Costs 19,000

(42)

Transactions

Direct Materials Used $60,000 Direct Labor and Overhead $84,000

Ending WIP Inventory $40,000 Cost of Goods Manufactured $104,000

–

=

+

(43)

Transactions

Cost of Goods Manufactured $104,000 Ending Finished Goods Inventory $22,500 Cost of Goods Sold $81,500

=

(44)

Learning Objective 6

Account for end-of-period

underallocated or overallocated

indirect costs using

(45)

End-Of-Period Adjustments

Underallocated indirect costs Overallocated indirect costs Manufacturing

Overhead Control Bal. 65,100

Manufacturing

Overhead Applied Bal. 62,000

(46)

End-Of-Period Adjustments

How was the allocated overhead determined?

2,480 machine-hours × $25 budgeted rate = $62,000 $65,100 – $62,000 = $3,100 (underallocated)

(47)

End-Of-Period Adjustments

Actual manufacturing overhead costs of $65,100 are more than the budgeted amount of $60,000.

Actual machine-hours of 2,480 are more than the budgeted amount of 2,400 hours.

(48)

End-Of-Period Adjustments

Approaches to disposing underallocated

or overallocated overhead: 1. Adjusted allocation rate approach 2. Proration approaches

3. Immediate write-off to Cost of Goods Sold approach

(49)

Adjusted Allocation

Rate Approach

Adjusted Allocation

Rate Approach

Actual manufacturing overhead ($65,100) exceeds manufacturing overhead allocated

($62,000) by 5%. 3,100 ÷ 62,000 = 5%

Actual manufacturing overhead rate is $26.25 per machine-hour ($65,100 ÷ 2,480) rather

(50)

Adjusted Allocation

Rate Approach

Adjusted Allocation

Rate Approach

The manufacturing company could increase the manufacturing overhead allocated to

each job by 5%.

Manufacturing overhead allocated to Job 650 under normal costing is $12,500.

$12,500 × 5% = $625

(51)

Proration Approach

Basis to prorate under- or overallocated overhead: – total amount of manufacturing overhead

allocated (before proration)

– ending balances of Work in Process, Finished Goods, and Cost of Goods Sold

(52)

Proration Approach “A”

Assume the following manufacturing

overhead component of year-end balances (before proration):

Work in Process $23,500 38% Finished Goods 26,000 42% Cost of Goods Sold 12,500 20% Total $62,000 100%

(53)

Proration Approach “A”

Manufacturing Overhead Finished Goods 65,100 62,000 22,500 3,100 1,302 0 23,802 Cost of Goods Sold Work in Process 81,500 40,000 620

(54)

Proration Approach “B”

Ending balances of Work in Process, Finished Goods, and Cost of Goods Sold Work in Process $ 40,000 28% Finished Goods 22,500 16% Cost of Goods Sold 81,500 56% Total $144,000 100%

(55)

Proration Approach “B”

Manufacturing Overhead Finished Goods 65,100 62,000 22,500 3,100 496 0 22,996 Cost of Goods Sold Work in Process 81,500 40,000 1,736

(56)

Immediate Write-off to Cost of

Goods Sold Approach

Immediate Write-off to Cost of

Goods Sold Approach

Manufacturing Overhead

65,100 62,000 3,100 0 Cost of Goods Sold 81,500 3,100 84,600

(57)

Learning Objective 7

Apply variations from

normal costing.

(58)

Variations of Normal Costing

Home Health budget includes the following:

Total direct labor costs: $400,000 Total indirect costs: $96,000

(59)

Variations of Normal Costing

What is the budgeted direct labor cost rate?

$400,000 ÷ 16,000 = $25

What is the budgeted indirect cost rate? $96,000 ÷ 16,000 = $6

(60)

Variations of Normal Costing

Suppose a patient uses 25 direct labor-hours.

Assuming no other direct costs, what is the cost to Home Health?

Direct labor: 25 hours × $25 = $625 Indirect costs: 25 hours × $6 = 150

(61)

End of Chapter 4

(1)

4 - 56

Immediate Write-off to Cost of

Goods Sold Approach

Immediate Write-off to Cost of

Goods Sold Approach

Manufacturing Overhead

65,100 62,000 3,100 0 Cost of Goods Sold 81,500 3,100

(2)

Learning Objective 7

Apply variations from

normal costing.

(3)

4 - 58

Variations of Normal Costing

Home Health budget includes the following:

Total direct labor costs: $400,000

Total indirect costs: $96,000

(4)

Variations of Normal Costing

What is the budgeted direct labor cost rate?

$400,000 ÷ 16,000 = $25

What is the budgeted indirect cost rate?

$96,000 ÷ 16,000 = $6

(5)

4 - 60

Variations of Normal Costing

Suppose a patient uses 25 direct labor-hours.

Assuming no other direct costs, what is the

cost to Home Health?

Direct labor:

25 hours × $25 = $625

Indirect costs: 25 hours × $6

= 150

(6)