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JOB COSTING © 2012 Pearson Prentice Hall. All rights reserved.

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Presentation on theme: "JOB COSTING © 2012 Pearson Prentice Hall. All rights reserved."— Presentation transcript:

1 JOB COSTING © 2012 Pearson Prentice Hall. All rights reserved.

2 Class Announcements Assignment #2 due September 26th CPA Information Session: Friday, September 27; 3:30 to 4:30pm, Gerald Schwartz School of Business, SCHW205 Midterm in-class Thursday October 24th Bloomberg Apptitude Test (BAP) Session: Friday September 27th at 10am in SCHW 252 (Free) Contact: Campus Ambassador, Jake Baker Trudy Eagan Women in Business Speakers Series and Awards Presentation Location SCHW Auditorium (SCHW 110) 2:15pm Thursday October 10, 2013 Guest Speaker: Mary Lou OReilly, IBC Sign in at door

3 © 2012 Pearson Prentice Hall. All rights reserved. Class Objectives 1. Job Order Costing as an approach to costing a cost object (ignore journal entries e.g., p ) 2. Allocation of manufacturing overhead to jobs 3. Allocating costs on actual, normal and standard basis

4 © 2012 Pearson Prentice Hall. All rights reserved. Product Costing Systems A product costing system accumulates the cost of production process and assigns them to the product or services that constitute the organizations output. Mangers need to understand the nature of the information needed to support their organizations decision making. Costing systems include: 1) Job-order costing 2) Process costing 3) Operation costing

5 © 2012 Pearson Prentice Hall. All rights reserved. Product Costing Systems The objective of costing systems is to accumulate all product costs and assign those costs to each unit manufactured. 1) Job Order Costing allocates costs to products that are identifiable in batches or jobs(or by product in a service industry) 2) Process Costing averages costs over large numbers of nearly identical products 3) Operation Costing is a hybrid of process and job order costing systems

6 © 2012 Pearson Prentice Hall. All rights reserved. vs. Job Costing Process Costing Units of output are distinctive (individual jobs, special orders). Each unit has a relatively high value. Costs can be traced feasibly to the units.Costs are traced or assigned to individual jobs. Units of output are distinctive (individual jobs, special orders). Each unit has a relatively high value. Costs can be traced feasibly to the units.Costs are traced or assigned to individual jobs. Units of output are homogeneous (mass production). Each unit has a very low value. Not feasible to trace costs to units. Costs are traced to the process. Then an average cost per unit is calculated for the process. Units of output are homogeneous (mass production). Each unit has a very low value. Not feasible to trace costs to units. Costs are traced to the process. Then an average cost per unit is calculated for the process. Operation Costing is a hybrid often used for batches of similar products with different types of materials. Evaluating Major Types of Product- Costing Systems

7 © 2012 Pearson Prentice Hall. All rights reserved. Costing Systems Illustrated

8 © 2012 Pearson Prentice Hall. All rights reserved. Job Order Costing Systems Job order costing system: accumulates costs on a job or batch basis is used in an industry where products are made individually or in relatively small batches and one product or batch is readily distinguishable from the other (high value, price etc.) e.g. custom printing, legal cases, etc.

9 © 2012 Pearson Prentice Hall. All rights reserved. Job-Order Cost Accounting

10 © 2012 Pearson Prentice Hall. All rights reserved. Manufacturing Overhead, including indirect materials and indirect labor, are allocated to jobs rather than directly traced to each job. Job-Order Cost Accounting Direct Materials Direct Labor Job No. 1 Job No. 2 Job No. 3 Manufacturing Overhead

11 © 2012 Pearson Prentice Hall. All rights reserved. Job-Order Costing: Manufacturing Overhead Manufacturing Overhead Account Other Actual OH Charges Job Cost Sheets Applied Overhead Materials Requisition Employee Time Ticket Indirect Material Indirect Labor

12 © 2012 Pearson Prentice Hall. All rights reserved. Costing Approaches Actual costingallocates: Indirect costs based on the actual indirect-cost rates times the actual activity consumption. Normal Costingallocates: Indirect costs based on the budgeted indirect-cost rates times the actual activity consumption. Standard Costingallocates: Direct costs and indirect costs based on the budgeted indirect-cost rates times the budgeted activity consumption. Normal and actual methods allocate direct costs to a cost object the same way: by using actual direct-cost rates times actual consumption.

13 © 2012 Pearson Prentice Hall. All rights reserved. Manufacturing Overhead Application The predetermined (budgeted) overhead rate (POHR) used to apply overhead to jobs is determined before the period begins. Estimated total manufacturing overhead cost for the coming period Estimated total units in the allocation base for the coming period POHR = Ideally, the allocation base is a cost driver that causes overhead.

14 © 2012 Pearson Prentice Hall. All rights reserved. Job Costing: Costing Abuses 1. Misstating the stage of completion 2. Charging costs to the wrong jobs 3. Misrepresenting costs

15 © 2012 Pearson Prentice Hall. All rights reserved. Class Objectives 1. Job Order Costing as an approach to costing a cost object (ignore journal entries e.g., p ) 2. Allocation of manufacturing overhead to jobs 3. Allocating costs on actual, normal and standard basis

16 © 2012 Pearson Prentice Hall. All rights reserved. Cost of an Egg: The Egg Eggs offer egg-ceptional nutrition. Eggs are unique in that they contain nearly every nutrient known to be essential to humans.. Eggs are one of nature's most nutritious foods. One large egg contains only 70 calories and an incredible amount of nutrition. Eggs resemble submarine hulls and are among the strongest things known to the human race. Eggs are cylinders with arch-shaped ends, making them exceptionally strong. Try breaking one squeezing it end-to-end.

17 © 2012 Pearson Prentice Hall. All rights reserved. Cost of an Egg Assignment Due: November 28th Worth: 10% Format: Report form, 3 p. Maximum, single spaced, individual assignment, ID# only Costs of egg production and delivery – the cost of an egg Types of Costs of production, maintenance, delivery Allocation of costs Impact of regulation on costs and profitability Cost management and cost efficiency Resources: Nova Scotia Egg Producers Egg Farmers of Canada Nova Scotia Egg Producers Egg Regulations Nova Scotia Department of Agriculture


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