Job Order costing_Chapter Four_Horngren.pdf

this document includes slides of job order costing which is chapter 4 from Horngren Managerial accounting textbook.

1. 2009 Foster School of Business Cost Accounting L.DuCharme
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Job Order Costing

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Building-Block Concepts
of Costing Systems
Cost Assignment
Direct
Costs
Indirect
Costs
Cost Tracing
Cost Allocation
Cost
Object
Cost Allocation
Base

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Job-Costing and
Process-Costing Systems
Job-costing
system
Process-costing
system
Distinct units
of a product
or service
Masses of identical
or similar units of
a product or service

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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:
Identify the indirect costs.

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Seven-Step Approach
to Job Costing
Step 5:
Compute the rate per unit.
Step 6:
Compute the indirect costs.
Step 7:
Compute the total cost of the job.

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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:
Direct costs are: Direct materials = $50,000
Direct manufacturing labor = $19,000

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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:
Manufacturing overhead costs were $65,100.

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General Approach to Job Costing
Step 5:
Actual indirect cost rate is
$65,100 ÷2,480 = $26.25 per machine-hour.
Step 6:
$26.25 per machine-hour ×500 hours = $13,125

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General Approach to Job Costing
Step 7:
Direct materials $50,000
Direct labor 19,000
Factory overhead 13,125
Total $82,125

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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 thegross margin percentage?
$32,675 ÷$114,800 = 28.5%

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Different Costing Systems:
Actual costing
Normal costing
Extended-normal
Standard

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Different Costing Systems
Actual
Costing
Normal
Costing
Extended
-Normal
Standard
Costing
Direct
Costs
Actualdirect-
cost rates X
Actualquantity
of direct-cost
inputs used
Actualdirect-
cost rates X
Actualquantity
of direct-cost
inputs used
Budgetdirect-
cost rates X
Actualquantity
of direct-cost
inputs used
Budgetdirect-
cost rates X
Budgetquantity
of direct-cost
inputs
Indirect
Costs
Actualindirect-
cost rates X
Actualquantity
of indirect-cost
allocation base
Budgetindirect-
cost rates X
Actualquantity
of indirect-cost
allocation base
Budgetindirect-
cost rates X
Actualquantity
of indirect-cost
allocation base
Budgetindirect-
cost rates X
Budgetquantity
of indirect-cost
allocation base

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Normal Costing--example
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

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Normal Costing
What is the cost of Job 650 under normal costing?
Direct materials$50,000
Direct labor 19,000
Factory overhead12,500
Total $81,500

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The flow of costs
in a job-costing system.

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Transactions
(flow of costs in job costing)
Purchase of materials and other manufacturing inputs
Conversion into work in process inventory
Conversion into finished goods inventory
Sale of finished goods

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Transactions
$80,000 worth of materials (direct and
indirect) were purchased on credit.
Materials
Control
1. 80,000 1. 80,000
Accounts Payable
Control

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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?

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Transactions
Work-in-Process Control:
Job No. 650 50,000
Job No. 651 10,000
Factory Overhead Control15,000
Materials Control 75,000

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Transactions
Materials
Control
1. 80,0002. 75,000
Work in Process
Control
2. 60,000
Manufacturing
Overhead
Control
2. 15,000
Job 650
2. 50,000

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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?

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Transactions
Work in Process Control:
Job No. 650 19,000
Job No. 651 3,000
Manufacturing Overhead Control5,000
Wages Payable 27,000

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Transactions
Wages Payable
Control
3. 27,000
Work in Process
Control
2. 60,000
3. 22,000
Manufacturing
Overhead
Control
2. 15,000
3. 5,000
Job 650
2. 50,000
3. 19,000

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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
3. 27,000

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Transactions
Assume that depreciation for the
period is $26,000.
Other manufacturing overhead
incurred amounted to $19,100.
What is the journal entry?

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Transactions
Manufacturing Overhead Control45,100
Accumulated Depreciation Control 26,000
Various Accounts 19,100
What is the balance of the Manufacturing
Overhead Control account?

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Transactions
$62,000 of overhead was allocated to the
various jobs of which $12,500 went to Job 650.
Work-in-Process Control62,000
Manufacturing Overhead Control62,000
What are the balances of the control accounts?

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Transactions
MOH-control WIP-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

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Transactions
The cost of Job 650 is:
Job 650
2.50,000
3.19,000
6.12,500
Bal.81,500

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Transactions
Jobs costing $104,000 were completed and
transferred to finished goods, including Job 650.
What effect does this have on the control accounts?

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Transactions
WIP-control FG-control
2.60,000
3.22,000
6.62,000
Bal.40,000
7. 104,0007. 104,000

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Transactions
Job 650 was sold for $114,800.
What is the journal entry?
Accounts Receivable Control114,800
Revenues 114,800
Cost of Goods Sold 81,500
Finished Goods Control 81,500

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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.
What is the journal entry?

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Transactions
Marketing and Administrative Costs19,000
Salaries Payable Control 19,000

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Transactions
Direct Materials Used $60,000
Direct Labor and Overhead$84,000
Ending WIP Inventory $40,000
Cost of Goods Manufactured$104,000–
=
+

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

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EOP Adj. J.E.
Account for end-of-period
underallocated or
overallocated
indirect costs using
alternative methods.

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End-Of-Period Adjustments
Underallocated indirect costs
Overallocated indirect costs
MOH-control
Bal. 65,100
MOH-applied
Bal. 62,000

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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)

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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.
Budgeted MOH rate = $60,000 / 2,400 MH = $25 / MH
Actual MOH rate = $65,100 / 2,480 MH = $26.25 / MH

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End-Of-Period Adjustments
Approaches to disposing underallocated
or overallocated overhead:
1. Adjusted allocation rate approach
2. Proration approaches (2 ways)
3. Immediate write-off to Cost of Goods
Sold approach

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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
than the budgeted $25.00.

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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
$12,500 + $625 = $13,125, which equals
actual manufacturing overhead.

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Proration Approach
Basis to prorate under-or overallocated overhead:
A.ending $ amount of MOH in WIP, FG, and
CoGS balances (before proration)
B. ending $ balances of Work-in-Process,
Finished Goods, and Cost of Goods Sold

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Proration Approach “A”
Assume the following manufacturing
overhead component of year-end
balances (before proration):
Work in Process $20,00025.0%
Finished Goods 10,00012.5%
Cost of Goods Sold50,00062.5%
Total $80,000 100 %

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Proration Approach “A”
Manufacturing Overhead Finished Goods
65,100 62,000 22,500
3,100 388
0 22,888
Cost of Goods Sold Work-in-Process
81,500 40,000
1,938 775
83,438 40,775

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Proration Approach “B”
Ending $ balances of Work-in-Process,
Finished Goods, and Cost of Goods Sold
Work in Process $ 40,00027.8%
Finished Goods 22,50015.6%
Cost of Goods Sold81,50056.6%
Total $144,000 100 %

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Proration Approach “B”
Manufacturing Overhead Finished Goods
65,100 62,000 22,500
3,100 484
0 22,984
Cost of Goods Sold Work in Process
81,500 40,000
1,755 862
83,255 40,862

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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

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Queries