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Job Costing
Presentation
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T o T each Job Costing
Objective 1
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Job order costing
Process costing
Cost Systems
There are two basic systems used bymanufacturers to assign costs to their
products:
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Chopping Mixing and Canning
Process Costing Example
Laxmi Foods Company produces a garlicflavored tomato sauce.
Production of the sauce requires two major processes:
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Job Costing
It is used by a manufacturer who produces products as individual units or in distinct
batches or jobs.
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Job Costing Example
Ram, Sham , and Co. is a small furnituremanufacturing business in Texas.
They received an order for 1 0 chairs froma customer in Kansas City.
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$500 10 = $50/ chair
Job Costing Example
Total cost for the job was $500 .How much was the cost per chair?
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Job Costing
Job cost record is a document used to
accumulate the costs of a job.
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Job Number: J9738 Date Promised: 9 /11 /06Customer: Miami Motors Date Started: 8 /03/06Job Description: 3 00 automobile engine valves
Engineering Design Number: JJJ-1 00
Job Cost Record Example
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Dates Number Hours Rate Amount
8/2, 3,4,5 M1 6 24 $28 $ 6728/2, 3,4,5 M18 , M19 , M20 6 4 $26 1,66 48/6, 7,8,9,10 A25, A26, A27 120 $ 18 2,160
8/6,
7,8
,9
,1
0A3
2,A34
,A3
5 61
$17 1
,037
Total direct labor cost : 269 $5,5 33
Job Cost Record Example
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Manufacturing Overhead Amount118 machine hours @ $40 per hour $ 4,72026 9 direct labor hours @ 3 6 per hour 9 ,684
Total overhead cost: $14 ,404
Job Cost Record Example
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Total cost $39 ,237 Number of units produced 3 00Cost per unit $130.79
Job Cost Record Example
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T race Materials and
Labor in a ManufacturersJob Costing System.
Objective 2
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Materials Cost
Companies using job costing often use a perpetual system to account for direct
materials.A materials requisition is used to requesttransfer of materials to the production
floor.
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Materials Cost Example
Alec Clothing Co. purchased raw materialson account for $15,000 .Materials costing $10,000 wererequisitioned for production.Of this total , $2,000 was indirect materials.
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Indirect materials
Direct materials
15,000 10,000
2,000
8,000
Materials Inventory WIP Inventory
Manufacturing Overhead
Materials Cost Example
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Labor Costs
Labor costs are accumulated using the payroll register and time records.
Labor time records identify the employee , the amount of time spent , and the costcharged to each job.
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Labor Cost Example
The company incurred $30,000 of manufacturing wages for all jobs.
Assume that $25,000 can be traced directlyto the jobs and $5,000 is for indirect labor.
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Indirect labor
Direct labor
30,000 30,000
5,000
25,000
Manufacturing Wages WIP Inventory
Manufacturing Overhead
Labor Cost Example
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A llocate ManufacturingOverhead in a
Manufacturers Job Costing
System
Objective 3
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Manufacturing Overhead(Deprec.-Plant and Equipment) 20,000
Accumulated Depreciation(Plant and Equipment) 20,000
To record plant and equipment depreciation
Manufacturing Overhead Costs
The company incurred $20,000 of plantequipment depreciation.
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Estimated overhead Estimated base = Rate
Manufacturing Overhead Rate
At the beginning of the year , a predetermined manufacturing overhead
application rate is computed.This rate is used to apply overhead to all
jobs completed during the year.
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Six Steps in Allocating
Manufacturing Overhead Cost1 Estimate total overhead for the period.2 Select an overhead allocation base.
3 Estimate total quantity of the overheadallocation base.
4 Compute the predetermined overhead rate.
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Six Steps in Allocating
Manufacturing Overhead Cost5 Obtain actual quantities of the overhead
allocation base.
6 Allocate manufacturing overhead bymultiplying the predeterminedmanufacturing overhead rate by the actualquantity of the allocation base that pertainsto each job.
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$243 ,000 4 ,500 = $5 4
Manufacturing Overhead Example
Alec Clothing Co.s total estimatedoverhead for the year equals $243 ,000 .
The predetermined overhead rate is basedon 4 ,500 direct labor hours.What is the predetermined overhead rate?
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Work-in-Process Inventory 1 0,800Manufacturing Overhead 1 0,800To record overhead applied to Job 51
Manufacturing Overhead Example
Assume that Job 51 used 200 direct labor hours.
What is the journal entry to record themanufacturing overhead applied?
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A ccount for Completion andSales of Finished Goods, and
A djust for Under-or-
Overapplied ManufacturingOverhead
Objective 4
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Accounting for Finished Goods ,
Sales , and Cost of Goods SoldAs jobs are completed they are transferredto finished goods inventory.
In addition to the overhead applied to Job51, direct labor was $4,000 and directmaterials totaled $30,000 .
How much was transferred to FinishedGoods Inventory?
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Direct materials $30,000Direct labor 4 ,000
Manufacturing overhead 1 0,800$44 ,800
Work in Process44 ,800
Finished Goods44 ,800
Accounting for Finished Goods ,
Sales , and Cost of Goods Sold
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Work in Process44 ,800
Finished Goods44 ,800 44 ,800
Cost of Goods Sold44 ,800
Accounting for Finished Goods ,
Sales , and Cost of Goods Sold
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Disposing of Underallocated or
Overallocated OverheadSuppose that the company incurred$232,000 of actual manufacturing
overhead during the year , and that actualdirect labor hours worked were 4 ,000 .The actual manufacturing overhead ratewould have been $232,000 4 ,000 = $58.The predetermined rate was $54.
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Disposing of Underallocated or
Overallocated OverheadHow much overhead was allocated to thevarious jobs?
4,000 direct labor hours $54 = $216,000What is the underallocated amount?$232,000 actual $216,000 allocated
= $16,000
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Manufacturing Overhead232,000 2 16,000
16,000
Cost of Goods Sold16,000
0
Disposing Underallocated
Overhead to Cost of Goods Sold
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Disposing Overallocated
Overhead to Cost of Goods SoldAssume the opposite situation in which allocatedoverhead is $2 32,000 and actual overhead is
$2 16,000 .How do we dispose of overallocated overhead?Debit the Manufacturing Overhead account andcredit the Cost of Goods Sold account to decreasethe costs that went to the income statement.
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Manufacturing Overhead216,000 2 32,00016,000
0
Cost of Goods Sold16,000
Disposing Overallocated
Overhead to Cost of Goods Sold
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A ssign Noninventoriable
Costs in Job Costing.
Objective 5
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Job Costing in a
Nonmanufacturing CompanyHow is direct labor traced to individual
jobs in a nonmanufacturing company?
Employees complete a weekly time record.Jim, Abby , and Associates is a firmspecializing in composing and arrangingmusic parts for different clients.
Musician Judy Lopezs salary is $80,000 per year.
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Advertising $ 15,000Depreciation 6,000Maintenance 1 2,000
Office rent 60,000Office support 47 ,000Travel 20,000Total indirect costs $160,000
Job Costing in a
Nonmanufacturing CompanyJim and Abby estimated the indirect coststhat will be incurred in 2006 .
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160,000 8 ,000 = $20
Job Costing in a
Nonmanufacturing CompanyAssume that they estimate that themusicians will work 8 ,000 direct labor
hours in 2006 .What is the predetermined indirect costrate?
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Direct Labor: 25 hours $40 = $1,000
Indirect costs: 25 hours $20 = 500Total costs: $1,500
Job Costing in a
Nonmanufacturing CompanyRecords show that Judy Lopez worked 25 hours servicing Los Abuelos Music Co.
What is the total cost assigned to thisclient?
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T hankswww.svtuition.org
T hankswww.svtuition.org
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