Presentation on theme: "Chapter Two Professor McDermott"— Presentation transcript:
1Chapter Two Professor McDermott Job Order Costing
2Two Types of Costing Systems Process CostingHomogeneous productsExample: Paint, pencils, hammers, etc.Job Order CostingProducts that are different from one anotherCustom built homesBattleshipsPrinting shopsAuto repair
3Finished Goods Inventory Flow of CostsDirect MaterialsWork in ProcessInventoryFinished Goods InventoryDirect LaborCost of Goods SoldFactory Overhead
4Journal Entries—Raw Materials Raw Materials Inventory$10,000Accounts PayableTo record purchase of raw materials
5Journal Entries—Raw Materials Raw materials inventory10,000Accounts payableTo record purchase of raw materialsWork in process5,000Raw materials used in production
6Journal--Factory Labor and Overhead Labor Work in process25,000Manufacturing overhead15,000Payroll payable40,000To assign labor costs to work in process and overheadNote: if more than one Job is being debited, then subsidiary ledgers forEach job will be debited also. For example if the work in process consisted of$20,000 of payroll going into Job 1 and $5,000 going into job 2, then youwould also Debit Job 1 WIP $20,000, and Job 2 WIP $5,000. The work inprocess and Finished goods are control accounts.
7Journal—Transfer from Work in Process to Finished Goods 9,000Work in ProcessTo transfer completed work in process to finished goods
8Journal—Transfer from Finished Goods To COGS Cost of Goods Sold5,000Finished GoodsTo record sale of finished goodsAccounts Receivable$7,850Sales7,850
9OverheadOverhead is defined as indirect costs that occur in the factoryExamples: Factory supervisor labor, electricity in factory, insurance in factory, cleaning supplies in factory, copy expense in factory, and so on.
10Three Overhead Categories Budgeted overheadEstimated at the beginning of the yearUsed for one purpose—calculation of overhead rateActual overheadCalculated at the end of the yearFound in the general ledgerOverhead appliedThe amount of overhead credited from the Manufacturing Overhead account and debited to Work in Process using a rate and a base
11Overhead Rate Formula Rate = Budgeted Overhead/Base Base should be cost driverExamples of overhead bases includeDirect labor hoursDirect labor dollarsTotal costsUnits manufacturedAnd so on
12Overhead Example Jensen Woodworking manufactures custom furniture Overhead is applied on the basis of direct labor hoursAt the beginning of the year the controller prepares the information shown on the next slide
13Budget Estimated direct labor hours = 100,000 Estimated overhead cost = $1,000,000Overhead rate = 1,000,000/100,000 = $10 per labor hour
14Actual Data Year End Actual direct labor hours worked = 99,500 Actual overhead expense from the general ledger = $1,020,000
15Overhead Applied Formula: Actual hours worked x overhead rate 99,500 x $10 = $995,000 overhead applied
16Overhead Account and Work in Process Accounts Manufacturing OverheadWork in Process1,020,000$995,000$995,000
17Overhead Account and Work in Process Accounts Manufacturing OverheadWork in Process1,020,000$995,000$995,000$25,000Are we over or under applied?We are under applied by $25,000
18Overhead Account and Work in Process Accounts Manufacturing OverheadCost of Goods Sold1,020,000$995,000$25,000$25,000Our next step is to close the overor under applied amount intoCost of Goods Sold (providingthe amount is immaterial)
19Brief Exercise ThreeIn January, Reyes Tool & Dye requisitions raw materials for production as follows: Job one $900, job two $1200, job three $700, and general factory use $600.Prepare a summary journal entry to record raw material used.Work in Process Inventory 2,800Manufacturing Overhead Raw Materials Inventory 3,400
20Brief Exercise FourFactory labor data for Reyes Tool & Dye is given in BE2-2.During January, time tickets show that the factory labor of $5,000 was used as follows:Job 1 $1,200Job 2 $1,600Job 3 $1,400And general factory use $800Prepare a summary journal entry to record factory labor used.
21General Journal Entry Work in Process Inventory 4,200 Manufacturing Overhead 800Factory Labor ,000
22Brief Exercise SixMarquis Company estimates that annual manufacturing overhead costs will be $800,000.Estimated annual operating activity bases are:Direct labor costs $500,000Direct labor hours 50,000Machine hours 100,000Compare the predetermined overhead rate for each activity base.
23Brief Exercise Six Overhead rates using each base: Direct labor costs: $800,000/$500,000 = $1.60 per direct labor dollar (or 160%)Direct labor hour: $800,000/50,000 = $16 per direct labor hourMachine hours: $800,000/100,000 = $8 per machine hour
24Exercise 2-2 Miller Manufacturing uses a job order costing system. On May 1, the company has a balance in work in process inventory of $3,200 and two jobs in process:Job 429: $2,000Job 430: $1,200Information from source documents for May is shown on the following slide.
25Source Documents Job # Material Requisition Slips Labor Time Tickets 429$2,500$1,9004303,5003,0004314,4007,600Subtotal$10,400$12,500Gen Use8001,200Total$11,200$13,700Miller applies overhead to jobs at an overhead rate of 80% of directlabor cost. Job 429 is completed during the month.
26Prepare Summary Journals to Record The requisition slipsThe time ticketsThe assignment of manufacturing overhead to jobsThe completion of job 429Then post the entries to work in process and prove the agreement of the control account with the job cost sheets.
27To Record Materials and Labor Work in process inventory10,400Manufacturing overhead800Raw materials inventory11,20012,5001200Factory labor13,700
28To Record Overhead and Finished Goods Inventory Work in process inventory10,000Manufacturing Overhead($12,500 × 80%)Finished goods inventory7,9207920($2000 +$ $ )
29Work in Process Inventory Account May 1 Balance ,200May ,400May ,500May ,000May ,920Balance ,180
30Job Cost Sheets Job BW IP DM DL MOH Total 430 1200 3500 3000 2400 10,10043144007600608018,080790010,600848028,180Same balance as control work in process account
31Remaining Problems to Be Worked on Excel or on Board