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© 2012 McGraw-Hill Education (Asia) Systems Design: Job-Order Costing Chapter 8.

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Presentation on theme: "© 2012 McGraw-Hill Education (Asia) Systems Design: Job-Order Costing Chapter 8."— Presentation transcript:

1 © 2012 McGraw-Hill Education (Asia) Systems Design: Job-Order Costing Chapter 8

2 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 2 Learning Objective 1 Distinguish between process costing and job- order costing and identify companies that would use each costing method.

3 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 3 Types of Product Costing Systems Process Costing Job-order Costing A company produces many units of a single product. A company produces many units of a single product. One unit of product is indistinguishable from other units of product. One unit of product is indistinguishable from other units of product. The identical nature of each unit of product enables assigning the same average cost per unit. The identical nature of each unit of product enables assigning the same average cost per unit. A company produces many units of a single product. A company produces many units of a single product. One unit of product is indistinguishable from other units of product. One unit of product is indistinguishable from other units of product. The identical nature of each unit of product enables assigning the same average cost per unit. The identical nature of each unit of product enables assigning the same average cost per unit.

4 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 4 Types of Product Costing Systems Process Costing Job-order Costing A company produces many units of a single product. A company produces many units of a single product. One unit of product is indistinguishable from other units of product. One unit of product is indistinguishable from other units of product. The identical nature of each unit of product enables assigning the same average cost per unit. The identical nature of each unit of product enables assigning the same average cost per unit. A company produces many units of a single product. A company produces many units of a single product. One unit of product is indistinguishable from other units of product. One unit of product is indistinguishable from other units of product. The identical nature of each unit of product enables assigning the same average cost per unit. The identical nature of each unit of product enables assigning the same average cost per unit. Example companies: 1. Asia Pulp & Paper (paper manufacturing) 2. Kang-shi-fu (Instant Noodle Producer) 3. Coca-Cola (mixing and bottling beverages) Example companies: 1. Asia Pulp & Paper (paper manufacturing) 2. Kang-shi-fu (Instant Noodle Producer) 3. Coca-Cola (mixing and bottling beverages)

5 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 5 Types of Product Costing Systems Process Costing Job-order Costing Many different products are produced each period. Many different products are produced each period. Products are manufactured to order. Products are manufactured to order. The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job. The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job. Many different products are produced each period. Many different products are produced each period. Products are manufactured to order. Products are manufactured to order. The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job. The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job.

6 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 6 Types of Product Costing Systems Process Costing Job-order Costing Many different products are produced each period. Many different products are produced each period. Products are manufactured to order. Products are manufactured to order. The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job. The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job. Many different products are produced each period. Many different products are produced each period. Products are manufactured to order. Products are manufactured to order. The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job. The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job. Example companies: 1. Commercial Aircraft Corporation of China (aircraft manufacturer) (aircraft manufacturer) 2. Tata Consultancy Services (Information Technology) 3. Hong Kong Aircraft Engineering (aircraft maintenance) Example companies: 1. Commercial Aircraft Corporation of China (aircraft manufacturer) (aircraft manufacturer) 2. Tata Consultancy Services (Information Technology) 3. Hong Kong Aircraft Engineering (aircraft maintenance)

7 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 7 Comparing Process and Job-Order Costing

8 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 8 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. 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.

9 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 9 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. 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.

10 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 10 Learning Objective 2 Identify the documents used in a job-order costing system.

11 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 11 Manufacturing Overhead Job No. 1 Job No. 2 Job No. 3 Charge direct material and direct labor costs to each job as work is performed. Job-Order Costing – An Overview Direct Materials Direct Labor

12 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 12 Manufacturing Overhead, including indirect materials and indirect labor, are allocated to all jobs rather than directly traced to each job. Indirect Manufacturing Costs Direct Materials Direct Labor Job No. 1 Job No. 2 Job No. 3 Manufacturing Overhead

13 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 13 PearCo Job Cost Sheet Job Number A - 143Date Initiated Date Completed Department B3Units Completed Item Wooden cargo crate Direct MaterialsDirect LaborManufacturing Overhead Req. No.AmountTicketHoursAmountHoursRateAmount Cost SummaryUnits Shipped Direct MaterialsDateNumberBalance Direct Labor Manufacturing Overhead Total Cost Unit Product Cost The Job Cost Sheet

14 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 14 Measuring Direct Materials Cost Will E. Delite

15 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 15 Measuring Direct Materials Cost

16 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 16 Measuring Direct Labor Costs

17 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 17 Job-Order Cost Accounting

18 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 18 Learning Objective 3 Compute predetermined overhead rates and explain why estimated overhead costs (rather than actual overhead costs) are used in the costing process.

19 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 19 Why Use an Allocation Base? Manufacturing overhead is applied to jobs that are in process. An allocation base, such as direct labor hours, direct labor dollars, or machine hours, is used to assign manufacturing overhead to individual jobs. We use an allocation base because: 1.It is impossible or difficult to trace overhead costs to particular jobs. 2.Manufacturing overhead consists of many different items ranging from the grease used in machines to production managers salary. 3.Many types of manufacturing overhead costs are fixed even though output fluctuates during the period.

20 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 20 The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the period begins. Manufacturing Overhead Application

21 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 21 Using a predetermined rate makes it possible to estimate total job costs sooner. Actual overhead for the period is not known until the end of the period. The Need for a POHR

22 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 22 Determining Predetermined Overhead Rates Predetermined overhead rates are calculated using a three-step process. Estimate the level of production for the period. Estimate total amount of the allocation base for the period. Estimate total manufacturing overhead costs. POHR = ÷

23 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 23 Actual amount of allocation is based upon the actual level of activity (normal costing system). Based on estimates, and determined before the period begins. Application of Manufacturing Overhead Overhead applied = POHR × Actual activity

24 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 24 For each direct labor hour worked on a particular job, $4.00 of factory overhead will be applied to that job. Overhead Application Rate POHR = $4.00 per DLH $640, ,000 direct labor hours (DLH) POHR = Estimated total manufacturing overhead cost for the coming period Estimated total units in the allocation base for the coming period POHR =

25 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 25 Job-Order Cost Accounting

26 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 26 Job-Order Cost Accounting

27 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 27 Interpreting the Average Unit Cost The average unit cost should not be interpreted as the costs that would actually be incurred if an additional unit was produced. Fixed overhead would not change if another unit was produced, so the incremental cost of another unit is something less than $118. The average unit cost should not be interpreted as the costs that would actually be incurred if an additional unit was produced. Fixed overhead would not change if another unit was produced, so the incremental cost of another unit is something less than $118.

28 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 28 Quick Check Job WR53 at NW Fab, Inc. required $200 of direct materials and 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. b. $350. c. $380. d. $730.

29 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 29 Job WR53 at NW Fab, Inc. required $200 of direct materials and 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. b. $350. c. $380. d. $730. Quick Check

30 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 30 Learning Objective 4 Understand the flow of costs in a job-order costing system and prepare appropriate journal entries to record costs.

31 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 31 Job-Order Costing Document Flow Summary A sales order is the basis of issuing a production order. A production order initiates work on a job.

32 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 32 Job-Order Costing Document Flow Summary Job Cost Sheets Materials Requisition Manufacturing Overhead Account Direct materials Indirect materials Materials used may be either direct or indirect.

33 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 33 Job-Order Costing Document Flow Summary Job Cost Sheets Employee Time Ticket Manufacturing Overhead Account An employees time may be either direct or indirect. Direct Labor Indirect Labor

34 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 34 Job-Order Costing Document Flow Summary Manufacturing Overhead Account Other Actual OH Charges Job Cost Sheets POHR rate used to apply overhead Materials Requisition Employee Time Ticket Indirect Labor Indirect Material

35 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 35 Learning Objectives 4 and 7 Understand the flow of costs in a job- order costing system and prepare appropriate journal entries to record costs. Use T-accounts to show the flow of costs in a job-order costing system.

36 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 36 Job-Order Costing: The Flow of Costs The transactions (in T- account and journal entry form) that capture the flow of costs in a job-order costing system are illustrated on the following slides.

37 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 37 Raw Materials Material Purchases Mfg. Overhead Work in Process (Job Cost Sheet) ActualApplied Direct Materials Indirect Materials The Purchase and Issue of Raw Materials

38 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 38 Cost Flows – Material Purchases Raw material purchases are recorded in an inventory account.

39 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 39 Cost Flows – Material Usage Direct materials issued to a job increase Work in Process and decrease Raw Materials. Indirect materials used are charged to Manufacturing Overhead and also decrease Raw Materials.

40 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 40 Mfg. Overhead Salaries and Wages Payable Work in Process (Job Cost Sheet) Direct Materials Direct Labor Indirect Materials ActualApplied Indirect Labor The Recording of Labor Costs

41 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 41 The Recording of Labor Costs The cost of direct labor incurred increases Work in Process and the cost of indirect labor increases Manufacturing Overhead.

42 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 42 Mfg. Overhead Salaries and Wages Payable Work in Process (Job Cost Sheet) Direct Materials Direct Labor Indirect Materials ActualApplied Indirect Labor Recording Actual Manufacturing Overhead Other Overhead

43 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 43 Recording Actual Manufacturing Overhead In addition to indirect materials and indirect labor, other manufacturing overhead costs are charged to the Manufacturing Overhead account as they are incurred.

44 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 44 Learning Objective 5 Apply overhead cost to Work in Process using a predetermined overhead rate.

45 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 45 Mfg. Overhead Salaries and Wages Payable Work in Process (Job Cost Sheet) Direct Materials Direct Labor Indirect Materials ActualApplied Indirect Labor Applying Manufacturing Overhead Other Overhead Overhead Applied Overhead Applied to Work in Process If actual and applied manufacturing overhead are not equal, a year-end adjustment is required.

46 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 46 Applying Manufacturing Overhead Work in Process is increased when Manufacturing Overhead is applied to jobs.

47 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 47 Accounting for Nonmanufacturing Cost Nonmanufacturing costs are not assigned to individual jobs, rather they are expensed in the period incurred. Examples: 1. Salary expense of employees who work in a marketing, selling, or administrative capacity. 2. Advertising expenses are expensed in the period incurred. Examples: 1. Salary expense of employees who work in a marketing, selling, or administrative capacity. 2. Advertising expenses are expensed in the period incurred.

48 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 48 Accounting for Nonmanufacturing Cost Nonmanufacturing costs (period expenses) are charged to expense as they are incurred.

49 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 49 Learning Objective 6 Prepare schedules of cost of goods manufactured and cost of goods sold.

50 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 50 Finished Goods Work in Process (Job Cost Sheet) Direct Materials Direct Labor Overhead Applied Cost of Goods Mfd. Transferring Completed Units

51 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 51 Transferring Completed Units As jobs are completed, the Cost of Goods Manufactured is transferred to Finished Goods from Work in Process.

52 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 52 Finished Goods Cost of Goods Sold Work in Process (Job Cost Sheet) Direct Materials Direct Labor Overhead Applied Cost of Goods Mfd. Cost of Goods Sold Transferring Units Sold

53 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 53 Transferring Units Sold When finished goods are sold, two entries are required: (1) to record the sale, and (2) to record the Cost of Goods Sold.

54 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 54 Learning Objective 8 Compute underapplied or overapplied overhead cost and prepare the journal entry to close the balance in Manufacturing Overhead to the appropriate accounts.

55 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 55 Problems of Overhead Application The difference between the overhead cost applied to Work in Process and the actual overhead costs of a period is referred to as either underapplied or overapplied overhead. Underapplied overhead exists when the amount of overhead applied to jobs during the period using the predetermined overhead rate is less than the total amount of overhead actually incurred during the period. Overapplied overhead exists when the amount of overhead applied to jobs during the period using the predetermined overhead rate is greater than the total amount of overhead actually incurred during the period.

56 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 56 PearCos actual overhead for the year was $650,000 with a total of 170,000 direct labor hours worked on jobs. PearCos actual overhead for the year was $650,000 with a total of 170,000 direct labor hours worked on jobs. How much total overhead was applied to PearCos jobs during the year? Use PearCos predetermined overhead rate of $4.00 per direct labor hour. Overhead Application Example Overhead Applied During the Period Applied Overhead = POHR × Actual Direct Labor Hours Applied Overhead = $4.00 per DLH × 170,000 DLH = $680,000

57 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 57 PearCos actual overhead for the year was $650,000 with a total of 170,000 direct labor hours worked on jobs. PearCos actual overhead for the year was $650,000 with a total of 170,000 direct labor hours worked on jobs. How much total overhead was applied to PearCos jobs during the year? Use PearCos predetermined overhead rate of $4.00 per direct labor hour. Overhead Applied During the Period Applied Overhead = POHR × Actual Direct Labor Hours Applied Overhead = $4.00 per DLH × 170,000 DLH = $680,000 Overhead Application Example PearCo has overapplied overhead for the year by $30,000. What will PearCo do?

58 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 58 Tiger, Inc. had actual manufacturing overhead costs of $1,210,000 and a predetermined overhead rate of $4.00 per machine hour. Tiger, Inc. worked 290,000 machine hours during the period. Tigers manufacturing overhead is a. $50,000 overapplied. b. $50,000 underapplied. c. $60,000 overapplied. d. $60,000 underapplied. Tiger, Inc. had actual manufacturing overhead costs of $1,210,000 and a predetermined overhead rate of $4.00 per machine hour. Tiger, Inc. worked 290,000 machine hours during the period. Tigers manufacturing overhead is a. $50,000 overapplied. b. $50,000 underapplied. c. $60,000 overapplied. d. $60,000 underapplied. Quick Check

59 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 59 Tiger, Inc. had actual manufacturing overhead costs of $1,210,000 and a predetermined overhead rate of $4.00 per machine hour. Tiger, Inc. worked 290,000 machine hours during the period. Tigers manufacturing overhead is a. $50,000 overapplied. b. $50,000 underapplied. c. $60,000 overapplied. d. $60,000 underapplied. Tiger, Inc. had actual manufacturing overhead costs of $1,210,000 and a predetermined overhead rate of $4.00 per machine hour. Tiger, Inc. worked 290,000 machine hours during the period. Tigers manufacturing overhead is a. $50,000 overapplied. b. $50,000 underapplied. c. $60,000 overapplied. d. $60,000 underapplied. Quick Check Overhead Applied $4.00 per hour × 290,000 hours = $1,160,000 Underapplied Overhead $1,210,000 - $1,160,000 = $50,000 Overhead Applied $4.00 per hour × 290,000 hours = $1,160,000 Underapplied Overhead $1,210,000 - $1,160,000 = $50,000

60 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 60 Disposition of Under- or Overapplied Overhead $30,000 may be closed directly to cost of goods sold. Cost of Goods Sold PearCos Method Work in Process Finished Goods Cost of Goods Sold $30,000 may be allocated to these accounts. OROR

61 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 61 Disposition of Under- or Overapplied Overhead PearCos Mfg. Overhead Actual overhead costs $650,000 $30,000 overapplied PearCos Cost of Goods Sold Unadjusted Balance Adjusted Balance $30,000 Overhead applied to jobs $680,000

62 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 62 Allocating Under- or Overapplied Overhead Between Accounts Assume the overhead applied in ending Work in Process Inventory, ending Finished Goods Inventory, and Cost of Goods Sold is shown below:

63 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 63 Allocating Under- or Overapplied Overhead Between Accounts We would complete the following allocation of $30,000 overapplied overhead: 10% × $30,000

64 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 64 Allocating Under- or Overapplied Overhead Between Accounts

65 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 65 Overapplied and Underapplied Manufacturing Overhead - Summary PearCos Method More accurate but more complex to compute.

66 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 66 Quick Check What effect will the overapplied overhead have on PearCos net operating income? a. Net operating income will increase. b. Net operating income will be unaffected. c. Net operating income will decrease. What effect will the overapplied overhead have on PearCos net operating income? a. Net operating income will increase. b. Net operating income will be unaffected. c. Net operating income will decrease.

67 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 67 Quick Check What effect will the overapplied overhead have on PearCos net operating income? a. Net operating income will increase. b. Net operating income will be unaffected. c. Net operating income will decrease. What effect will the overapplied overhead have on PearCos net operating income? a. Net operating income will increase. b. Net operating income will be unaffected. c. Net operating income will decrease.

68 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 68 May be more complex but... Multiple Predetermined Overhead Rates To this point, we have assumed that there is a single predetermined overhead rate called a plantwide overhead rate. Large companies often use multiple predetermined overhead rates. May be more accurate because it reflects differences across departments.

69 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 69 Job-Order Costing in Service Companies Job-order costing is used in many different types of service companies.

70 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 70 The Use of Information Technology Technology plays an important part in many job-order cost systems. When combined with Electronic Data Interchange (EDI) or a web-based programming language called Extensible Markup Language (XML), bar coding eliminates the inefficiencies and inaccuracies associated with manual clerical processes.

71 © 2012 McGraw-Hill Education (Asia) Activity-based Job-order Costing Appendix 8A

72 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 72 Learning Objective 9 (Appendix 8A) Apply Job-order Costing in Activity-based Costing Environment.

73 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 73 Activity-based Job-order Costing: Example at Dell

74 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 74 Activity-based Job-order Costing: Example at Paperart

75 McGraw-Hill Education (Asia) Garrison, Noreen, Brewer, Cheng & Yuen McGraw-Hill/Irwin Slide 75 End of Chapter 8


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