Job Costing

Copyright © 2007 Prentice-Hall. All rights reserved

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Job CostingJob Costing

Chapter 3


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Objective 1Objective 1

Distinguish between job order costing and process costing


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Cost SystemsCost Systems

• Process costing– Assigns costs to large numbers of identical

units– Track costs by departments or processes

• Job costing– Assigns costs to specific unit or small batch of

products– Track costs by job


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Job CostingJob Costing

• Used by companies that produce goods or services to meet customers’ specifications

• Examples: building construction, custom furniture, accounting firms, health care, mail order catalogs


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S3-1S3-1a. A manufacturer of plywood

b. A manufacturer of wakeboards

c. A manufacturer of luxury yachts

d. A professional services firm

e. A landscape garden contractor

process costing

process costing

job costing

job costing

job costing


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Work in Process

Cost of GoodsSold

Labor

Materials

Ind

irec

t

FinishedGoods

FactoryOverhead

Direct

Direct

Allocate

Cost FlowCost FlowIn

dir

ect


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Work in Process

Cost of GoodsSold

FinishedGoods

Cost FlowCost Flow

Job Cost RecordJob No.Customer Name and AddressJob DescriptionDate Promised Date Started Date Completed

Direct Materials Direct Labor Overhead Costs Applied

DateRequisi-tion No. Amount

Time Ticket

No. Amount Date Rate Amount

Overall Cost SummaryMaterialsLaborOverhead

Totals Total Job Cost

Direct MaterialsDirect LaborManufacturing Overhead


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Record materials and labor in a manufacturer’s job costing system


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Raw MaterialsMaterial

PurchasesDirectDirect

MaterialMaterialDirectDirect

MaterialMaterial

Accounting for Materials

ActualOverhead

Costs

Indirect Material

Manufacturing Overhead

Work in Process


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S3-2S3-2GENERAL JOURNAL

DATE DESCRIPTION REF DEBIT CREDIT

Materials inventory – canvas 70,000

Accounts payable 70,000

Materials inventory – thread 1,100



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S3-3S3-3

Date Units Cost Total Mat Req No Units Cost Total Units Cost Total

SUBSIDIARY MATERIALS LEDGER RECORD

Received Used BalanceItem No._________ Description: ______________________C865 Canvas (black)

7/10 7000 $10 70,000 7000 $10 70,000

Date Units Cost Total Mat Req No Units Cost Total Units Cost Total

Received Used BalanceItem No._________ Description: ______________________

SUBSIDIARY MATERIALS LEDGER RECORD

T444 Thread (black)

7/10 55 $20 1,100 55 $20 1,100


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Materials RequisitionMaterials Requisition

• Used to authorize the use of materials on a job

• Serves as source document for recording material usage

Item no. Item Quantity Unit cost Amount

MATERIALS REQUISITION NO. _____Date: _______ Job No. _____

89668/03

C865 Black canvas 6,300 $10 63,000

562

T444 Black thread 14 $20 280 Total 63,280


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Work in process inventory 63,000

Materials inventory-canvas 63,000

(for direct materials)

Manufacturing overhead 280

Materials inventory-thread 280

(for indirect materials)


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S3-3S3-3

Raw MaterialsBeginning bal 35,680Purchases 70,000

1,100 63,280 Requisitioned

Ending bal 43,500


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Job Cost RecordJob Cost RecordJob Cost Record

Job No.Customer Name and AddressJob DescriptionDate Promised Date Started Date Completed

Direct Materials Direct Labor Overhead Costs Applied

DateRequisi-tion No. Amount

Time Ticket

No. Amount Date Rate Amount

Overall Cost SummaryMaterialsLaborOverhead

Totals Total Job Cost

562Happy Campers

2,000 backpacks

8/03 8966 63,000


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Work in ProcessIncurred Direct

Material

Manufacturing Wages

Accounting for Labor

Manufacturing OverheadActual

OverheadCosts

Indirect Labor

DirectDirectLaborLabor

DirectDirectLaborLabor


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Labor Time TicketLabor Time Ticket

LABOR TIME RECORDEmployee ___________ No. ______Job _______

Time: Started: ___________ Rate: ____________ Stopped: __________ Cost of Labor Elapsed: __________ Charged to Job $___________

Employee: _J K ___________ Supervisor: M . M orley

J. Khan K13J9738

80015007 hours

$11.25

$78.75


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Manufacturing wages 77,500

Wages payable 77,500

($600 + $900 + $76,000)

Work in process 76,000

Manufacturing overhead 1,500



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Allocate manufacturing overhead in a manufacturer’s job costing

system

Work in ProcessDirect

Material

Accounting for Manufacturing Overhead

Manufacturing OverheadActual

OverheadCosts

OverheadOverheadApplied to Applied to

Work inWork inProcessProcess

OverheadOverhead

DirectLabor


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Total estimated manufacturing overhead costs

Total estimated quantity of the manufacturing overhead allocation base

Predetermined Manufacturing Overhead Rate

Predetermined Manufacturing Overhead Rate


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Allocate Manufacturing OverheadAllocate Manufacturing Overhead

Predetermined manufacturing overhead x Actual quantity of the allocation based used by each job


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E3-20 1.E3-20 1.

Total estimated manufacturing overhead costs

Total estimated quantity of the manufacturing overhead allocation base

$97,800 / $61,125 = $1.60 per direct labor dollar


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E3-20 2.E3-20 2.

GENERAL JOURNALDATE DESCRIPTION REF DEBIT CREDIT

Work in process 102,240


Amount to allocate to the job:

$1.60 x $63,900 = $102,240


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E3-20 3.E3-20 3.

Manufacturing OverheadActual Overhead 104,600 102,240 Overhead Applied

Balance 2,360


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E3-20 4.E3-20 4.

GENERAL JOURNALDATE DESCRIPTION REF DEBIT CREDIT

Cost of goods sold 2,360



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Account for completion and sales of finished goods and close

manufacturing overhead


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Work in Process•Direct Material

•Direct Labor

•Manufacturing Overhead

Finished Goods

Cost of Goods

Manufactured

Cost of Goods Sold

Cost ofGoodsSold

Cost of Goods Sold

Accounting for Finished Goods

Cost of Goods

Manufactured


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E3-17E3-17GENERAL JOURNAL


a. Advertising expense 3,400

Cash 3,400

b. Manufacturing wages 16,000

Cash 16,000

c. Raw materials inventory 14,750



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d. Work in process inventory 7,000


Raw materials inventory 10,000

e. Work in process inventory 10,500




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f. Manufacturing overhead 18,900

Accumulated depreciation,plant 13,000

Prepaid insurance 1,700

Property tax payable 4,200


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g. Work in process inventory 21,000


h. Finished goods inventory 33,000

Work in process inventory 33,000


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i. Accounts receivable 23,000

Sales revenue 23,000

Cost of goods sold 11,000

Finished goods inventory 11,000


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Assign noninventoriable costs in job costing


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Predetermined Indirect Cost Allocation Rate

Predetermined Indirect Cost Allocation Rate

Expected indirect costs ÷ Expected cost allocation base


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E3-23E3-23

1. Direct labor cost rate:$2,669,000 / 17,000 hrs = $157

Indirect cost allocation rate:Office rent $350,000Support staff salaries 1,194,300Utilities 324,000 Total $1,868,300

Rate: $1,868,300 / $2,669,000 = 70%


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E3-23E3-23

2. Predicted cost of job:

Direct labor (220 hrs x $157)$34,540

Indirect cost allocation ($34,540 x 70%)24,178

$58,718


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E3-23E3-23

3. Bid:

Cost $58,718

Desired profit (50%) 29,359$88,077


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End of Chapter 3End of Chapter 3

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Job Costing

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