Professional Documents
Culture Documents
Systems Design:
Job-Order Costing
Dr.BMR Reddy
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
Learning Objectives
Define Job Costing vs. Process, documents
used
Compute/Explain OH rates
Understand cost flows in Job Costing in
related accounts
Apply OH rates to WIP
Prepare COGM and COGS
vMany
v Many different
differentproducts
products
vManufactured
v Manufactured totoorder.
order.
vCost
v Costare
aretracked
tracked to
to aa job.
job.
vEach
v Each job
jobhas
hasaa cost
cost recorda.
recorda.
lTypical
l Typical job
job order
order cost
cost applications:
applications:
vSpecial-order
v Special-order printing
printing
vBuilding
v Building construction
construction
lAlso
l Also used
used inin the
the service
service industry
industry
vHospitals
v Hospitals
vLaw
v Law firms
firms
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
Quick Check
Which of the following companies would be
likely to use job-order costing rather than
process costing?
a. Scott Paper Company for kleenex.
b. Architects.
c. Heinz for ketchup.
d. Caterer for a wedding reception.
e. Builder of commercial fishing vessels.
Receive
Receive
orders
ordersfrom
from Begin
Begin
customers
customers production
production
Schedule
Schedule Order
Order
jobs
jobs materials
materials
Direct
DirectMaterials
Materials
Charge
Charge
Job
Job No.
No. 11
direct
direct
material
material and
and
Direct
DirectLabor
Labor direct
direct labor
labor
Job
Job No.
No. 22 costs
costs to
to
each
each job
job as
as
Manufacturing
Manufacturing Job
Job No.
No. 33
work
work isis
Overhead
Overhead performed.
performed.
Direct
DirectMaterials
Materials
Job
Job No.
No. 11 Apply
Apply
overhead
overhead to to
Direct
DirectLabor
Labor each
each job
job
Job
Job No.
No. 22 using
using aa
predeter-
predeter-
Manufacturing
Manufacturing Job mined
mined rate.
Job No.
No. 33 rate.
Overhead
Overhead
The primary
document for
tracking the costs
associated with a
given job is the job
cost sheet.
Let’s investigate
materials on a job.
Cost Summary Units Shipped
Direct Materials Date Number Balance
Direct Labor
Let’s see one
Manufacturing Overhead
Total Cost
Unit Product Cost
Authorized
Signature Will E. Delite
Type,
Type, quantity,
quantity, and
and
total
total cost
costof
ofmaterial
material
charged
charged toto job
jobA-143.
A-143.
Authorized
Signature Will E. Delite
Supervisor C. M. Workman
Ideally,
Ideally,the
theallocation
allocationbase
base
is
isaacost
costdriver
driverthat
thatcauses
causes
overhead.
overhead.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
Application of Manufacturing
Overhead
Based
Basedononestimates,
estimates,and
and
determined
determinedbefore
beforethe
the
period
periodbegins.
begins.
Actual
Actualamount
amountof ofthe
theallocation
allocation
basesuch
basesuchas asunits
unitsproduced,
produced,
direct
directlabor
laborhours,
hours,orormachine
machine
hours
hours incurred
incurredduring
duringthe
the
period.
period.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
Application of Manufacturing
Overhead
PearCoJobCost Sheet
JobNumber A- 143 DateInitiated 3-4-01
DateCom pleted 3-5-01
Department B3 UnitsCom pleted 2
Item W oodencargocrate
Direct Materials Direct Labor ManufacturingOverhead
Req. No. Am ount Ticket Hours Am ount Hours Rate Amount
X7-6890 $ 116 36 8 $ 88 8 $ 4 $ 32
$
Actual overhead for the period is not
known until the end of the period.
$640,000
POHR =
160,000 direct labor hours (DLH)
For
For each
each direct
direct labor
labor hour
hour worked
worked on
on aa
job,
job, $4.00
$4.00 of
of factory
factory overhead
overhead will
will be
be
applied
applied toto the
the job.
job.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
Overhead Application Example
PearCo Job Cost Sheet
Job Number X - 32 Date Initiated 3-9-01
Date Completed 3-11-01
Department B3 Units Completed 6
Item Wooden cargo crate
Direct Materials Direct Labor Manufacturing Overhead
Req. No. Amount Ticket Hours Amount Hours Rate Amount
X7-7456 $ 240 23 26 $ 286
Total
Total spending
about
spending would
would change
$105. change by by $105
$105 only
only ifif all
all of
of
the
the costs
costs
c. were
Totalwere variable
variable
spending with
with respect
would respect to
probably the
tochange
the by
number
number moreof
of units
than produced.
units produced. Direct
$105. Direct materials
materials is is
variable,
variable, but
but much
much of
of the
the overhead
overhead and
and perhaps
perhaps
even
even direct
direct labor
labor may
may be be fixed.
fixed.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
Quick Check : Job WR53 at NW
Fab, Inc. required:
$200 of direct materials
10 direct labor hours at $15 per hour.
Estimated total overhead for the year was
$760,000 and estimated direct labor hours were
20,000.
What would be recorded as the cost of job WR53?
a. $200.
Pred. ovhd. rate $760,000/20,000hours $38
b. $350.
Direct materials $200
c. $380. Direct labor $15 x 10 hours $150
d. $730. Manufacturing overhead
Total cost
$38 x 10 hours $380
$730
Let’s summarize
the document flow
in a job-order
costing system.
Manufacturing
Manufacturing
Indirect
Overhead
Overhead
materials
Account
Account
Manufacturing
Manufacturing
Indirect
Overhead
Overhead
Labor
Account
Account
Employee
Employee Indirect
Time
TimeTicket
Ticket Labor
Other
Other Manufacturing
Manufacturing Applied Job
JobCost
Cost
Actual
Actual OH
OH Overhead
Overhead Overhead Sheets
Sheets
Charges
Charges Account
Account
Materials
Materials Indirect
Requisition
Requisition Material
Mfg. Overhead
Actual Applied
lIndirect
Materials
Labor Labor
lOverhead
SOLUTION
Applied Overhead = POHR × Actual Direct Labor Hours
Applied Overhead = $4.00 per DLH × 170,000 DLH = $680,000
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
Overapplied and Underapplied
Manufacturing Overhead
PearCo’s Method
Cost of Cost of
Goods Sold Goods Sold
Revenue $ 1,600,000
Cost of goods sold 1,040,000
Gross margin 560,000
Cost of idle capacity 20,000
Selling and admin. expense 500,000
Net operating income $ 40,000
Revenue $ 1,600,000
Cost of goods sold 1,060,000
Gross margin 540,000
Cost of idle capacity -
Selling and admin. expense 500,000
Net operating income $ 40,000