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    Chap 20

    Uploaded by

    Usama Khan
    1) Job order costing tracks costs for each individual job or order. Manufacturing overhead is assigned to jobs using a predetermined overhead rate based on estimated annual overhead costs and activity levels. 2) As jobs are completed, their costs are transferred from Work in Process inventory to Finished Goods inventory. When jobs are sold, their costs are moved to Cost of Goods Sold. 3) At the end of the period, under or over applied manufacturing overhead is analyzed. Under applied overhead decreases Cost of Goods Sold, while over applied overhead increases Cost of Goods Sold to properly state costs.

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    Chap 20

    Uploaded by

    Usama Khan
    20 views23 pages
    1) Job order costing tracks costs for each individual job or order. Manufacturing overhead is assigned to jobs using a predetermined overhead rate based on estimated annual overhead costs and activity levels. 2) As jobs are completed, their costs are transferred from Work in Process inventory to Finished Goods inventory. When jobs are sold, their costs are moved to Cost of Goods Sold. 3) At the end of the period, under or over applied manufacturing overhead is analyzed. Under applied overhead decreases Cost of Goods Sold, while over applied overhead increases Cost of Goods Sold to properly state costs.

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    1) Job order costing tracks costs for each individual job or order. Manufacturing overhead is assigned to jobs using a predetermined overhead rate based on estimated annual overhead costs and activity levels. 2) As jobs are completed, their costs are transferred from Work in Process inventory to Finished Goods inventory. When jobs are sold, their costs are moved to Cost of Goods Sold. 3) At the end of the period, under or over applied manufacturing overhead is analyzed. Under applied overhead decreases Cost of Goods Sold, while over applied overhead increases Cost of Goods Sold to properly state costs.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    20 views23 pages

    Chap 20

    Uploaded by

    Usama Khan
    1) Job order costing tracks costs for each individual job or order. Manufacturing overhead is assigned to jobs using a predetermined overhead rate based on estimated annual overhead costs and activity levels. 2) As jobs are completed, their costs are transferred from Work in Process inventory to Finished Goods inventory. When jobs are sold, their costs are moved to Cost of Goods Sold. 3) At the end of the period, under or over applied manufacturing overhead is analyzed. Under applied overhead decreases Cost of Goods Sold, while over applied overhead increases Cost of Goods Sold to properly state costs.

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    Job Order Costing

    STUDY OBJECTIVES

    After studying this chapter, you should be

    able to:

    1-Explain the characteristics and purposes of cost accounting.

    2-Describe the flow of costs in a job order costing system.

    3-Explain the nature and importance of a job cost sheet.

    4-Indicate how the predetermined overhead rate is determined and used.

    5-Prepare entries for jobs completed and sold.

    6-Distinguish between under- and over applied manufacturing

    overhead
    COST ACCOUNTING SYSTEMS

     Cost accounting involves the measuring,


    recording, and reporting of product costs.
    From the collected data, companies will
    determine both the total cost and the unit cost
    of each product.
     A cost accounting system consists of accounts
    for the various manufacturing costs.
    Perpetual Inventory
    System.
     Such a system provides immediate, up-to-date
    information on the cost of a product
     Here are two basic types of cost accounting
    systems:
    (1) a job order cost system and
    (2) a process cost system.
    Job Order Cost System
     Under a job order cost system, the company
    assigns costs to each job or to each batch of
    goods
     An important feature of job order costing is
    that each job or batch has its own
    distinguishing characteristics. For example,
    each house is custom built, each consulting
    engagement by a CPA firm is unique, and each
    printing job is different.
     The objective is to compute the cost per job. At each
    point in manufacturing a product
    or providing a service, the company can identify the
    job and its associated costs.
     A job order cost system measures costs for each
    completed job, rather than for
    set time periods.
    Process Cost System
     A company uses a process cost system when it manufactures
    a large volume of similar products. Production is continuous.
     Examples of a process cost system are
    the manufacture of cereal by Kellogg, the refining of
    petroleum by ExxonMobil, and the production of
    automobiles by General Motors.
     Process costing accumulates product-related costs for a
    period of time (such as a week or a month) instead
    of assigning costs to specific products or job orders.
     In process costing, companies assign the costs to
    departments or processes for the specified period of time.
    JOB ORDER COST FLOW
    Accumulating Manufacturing Costs
    • RAW MATERIALS COSTS
    Wallace Manufacturing purchases 2,000 handles
    (Stock No. AA2746) at $5 per unit ($10,000) and
    800 modules (Stock No. AA2850) at $40 per
    unit ($32,000) for a total cost of $42,000
    ($10,000 $32,000). The entry to record this
    purchase on January 4 is:
    FACTORY LABOR COSTS
    Assume that Wallace Manufacturing incurs
    $32,000 of factory labor costs. Of that amount,
    $27,000 relates to wages payable and $5,000
    relates to pay- roll taxes payable in January.
    The entry to record factory labor for the month
    is:
    MANUFACTURING OVERHEAD
    COSTS
    Using assumed data, the summary entry for
    manufacturing overhead in Wallace
    Manufacturing Company is:
    Utilities payable 4800
    Prepaid insurance 2000
    Repairment cost 2600
    Accumulated depreciation 3000
    Property taxes payable 1400
    Practice:
    During the current month, Ringling Company incurs the
    following manufacturing
    costs:
    (a) Raw material purchases of $4,200 on account.
    (b) Incurs factory labor of $18,000. Of that amount, $15,000
    relates to wages
    payable and $3,000 relates to payroll taxes payable.
    (c) Factory utilities of $2,200 are payable, prepaid factory
    insurance of $1,800
    has expired, and depreciation on the factory building is $3,500.
    Prepare journal entries for each type of manufacturing cost.
    Assigning manufacturing cost
    • 1- Wallace uses $24000 of direct material and
    $6000 of indirect material in production.
    • 2- Company uses direct labor costing $28000
    and indirect labor costing $4000 in
    production.
    Practice:
    • Daneille company is working on two job
    orders. The job cost sheet shows the
    following. Assign the cost to each department.
    • Direct material – Job 1 $6000 Job 2 $3600
    • Direct labor – Job 1 $4000 Job 2 $2000
    • Manufacturing overhead – Job 1 $ 5000 Job 2
    $ 2500
    Predetermined Overhead Rates
    1- The predetermined overhead rate is based on the
    relationship between estimated annual overhead
    cost and estimated annual operating activity,
    expressed in the terms of a common activity base.
    2- The activity can be expressed in the terms of direct
    labor cost, direct labor hours, machine hours or any
    other measure that will provide an equitable basis
    for applying overhead cost to job.
    • Estimated annual overhead cost ÷ estimated
    annual operating activity = predetermined
    overhead rate
    • The journal entry would be:
    • W I P Account 00000
    MOH 00000
    ( To assign the overhead to the job)
    Practice Question:
    • Stanley company produces specialized safety
    devices. For the year, manufacturing overhead
    cost are estimated to be $ 160,000. Estimated
    machine usage is 40,000 hours. The company
    assigns overhead based on machine hours.
    • And the job used 2000 machine hours.
    Solution:
    • Predetermined overhead rate = $ 160,000 /
    40,000 hours = $ 4 per machine hour
    • The overhead applied to job = 2000 hours × $4
    = $8000
    • W I P 8000
    • MOH 8000
    • (Assign cost to job)
    Entries for job completed and sold
    Assigning cost to finished goods:
    Finished goods inventory 00000
    W I P Inventory 000000
    ( To record the job completion)
    Assigning cost to cost of goods sold
    Account receivable 00000
    sales revenue 00000
    (To record the sales)
    Cost of goods sold 00000
    Finished goods 0000
    ( To record the cost of goods sold)
    Under- or Over applied Manufacturing
    Overhead
    When Manufacturing Overhead has a debit balance, overhead is
    said to be under applied. Under applied overhead means that
    the overhead assigned to work in process is less than the
    overhead incurred.
    Conversely, when manufacturing overhead has a credit balance,
    overhead is over applied.
    Over applied overhead means that the overhead assigned to
    work in process is greater than the overhead incurred.
    Debits under applied overhead to Cost of Goods Sold.
    It Credits over- applied overhead to Cost of Goods Sold.
    To illustrate, assume that Wallace Manufacturing has a
    $2,500 credit balance in Manufacturing Overhead at
    December 31. The adjusting entry for the overapplied
    overhead is:
    Dec. 31 Manufacturing Overhead 2,500
    Cost of Goods Sold 2,500
    (To transfer over applied overhead to
    cost of goods sold)

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