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Job-Order Costing for Manufacturing

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Presentation on theme: "Job-Order Costing for Manufacturing"— Presentation transcript:


2 Job-Order Costing for Manufacturing
CHAPTER 2 Job-Order Costing for Manufacturing And Service Companies

3 Merchandising and Manufacturing Firms

4 Cost Classifications for Manufacturing Firms
Manufacturing Costs Also known as product costs All costs associated with the production of goods Nonmanufacturing Costs Also known as period costs All costs not associated with the production of goods

5 Manufacturing Costs Direct Material Cost Direct Labor Cost
Cost of all materials directly traced to items produced Direct Labor Cost Cost of labor directly traced to items produced Manufacturing Overhead Cost of manufacturing activities other than direct materials and direct labor

6 Common Manufacturing Overhead Costs (Illustration 2-2)

7 Manufacturing Costs Indirect Materials Indirect Labor
Materials not directly traced to a product Minor costs not worthwhile to trace to specific products Indirect Labor Labor costs not directly traced to products produced (Supervisor salaries) Both included as Manufacturing Overhead

8 Nonmanufacturing Costs
Selling Costs All costs associated with securing and filing customer orders General and Administrative Costs All costs associated with the firm’s general management

9 Manufacturing Overhead – Overtime Premium

10 Product and Period Costs
Product Costs Costs assigned to goods produced Also referred to as manufacturing costs Period Costs Costs identified with accounting periods rather than with goods produced Also referred to as nonmanufacturing costs

11 Relationships Among Cost Categories

12 Study Break #1 Which of the following is a period cost?
Raw materials costs Manufacturing plant maintenance Wages for production line workers Salary for the vice president of finance Answer: d. Salary for the vice president of finance

13 Study Break #2 Which of the following is a direct materials cost?
Steel for a ship builder Production supervisor salary for an auto manufacturer Factory rent Wages for production line workers Answer: a. Steel for a ship builder

14 Product Cost Information
GAAP requires Full Cost Information Product cost includes both variable and fixed manufacturing overhead and direct material and direct labor Balance Sheet – Inventory Income Statement – Cost of Goods Sold

15 Balance Sheet Presentation of Product Costs
Raw Materials Inventory Cost of materials on hand used to produce a company’s products Work in Process Inventory Inventory account for the cost of goods that are only partially completed Finished Goods Inventory Account for the cost of all the items complete and ready to sell

16 Flow of Product Costs in Accounts

17 Income Statement Presentation of Product Costs
Cost of Goods Manufactured

18 Income Statement Presentation of Product Costs
Cost of Goods Sold

19 Study Break #3 Beginning work-in-process plus total manufacturing costs minus ending work-in-process equals? Cost of materials used Finished goods inventory Cost of goods sold Cost of goods manufactured Answer: d. Cost of goods manufactured

20 Study Break #4 Cost of Goods Sold is $200,000, beginning Finished Goods is $50,000, ending Finished Goods is $100,000, and ending Work in Process is $10,000. What is the Cost of Goods Manufactured? $100,000 $250,000 $50,000 $150,000 Answer: d. $150,000

21 Types of Costing Systems
Job-order Costing System Companies produce individual products or batches of unique products Process Costing System Companies produce large quantities of identical items

22 Job-Order and Process Costing Examples
Job Order Companies Cray Computer Corporation, Boeing Company, Chris Craft Boat Company Process Costing Companies Pepsico Incorporated, Starbucks Corporation, Revlon Consumer Products Corporation, Goodyear Tire and Rubber Company

23 Relating Product Costs to Jobs

24 Job Costs & Financial Statement Accounts

25 Job Cost Sheet Direct Material Cost Direct Labor Cost
Material requisition form Direct Labor Cost Time Tickets Manufacturing Overhead Allocation base Overhead allocation rate Overhead applied

26 Example Exercise #1 During the month of August, Star Plastics had material requisitions for $250,000 of materials related to specific jobs and $20,000 of miscellaneous materials classified as overhead. Prepare journal entries to record the issuance of materials during August.

27 Example Exercise #1 Solution
Direct Materials Work in Process ,000 Raw Materials ,000 Indirect Materials Manufacturing Overhead---20,000 Raw Materials ,000

28 Job-Order Costing Summary

29 Relation Between the Costs of Jobs and the Flow of Costs

30 Allocating Overhead to Jobs
Overhead Allocation Rates Overhead Allocation Rate = Overhead Cost Allocation Base Overhead Allocation Base Alternatives Direct labor hours Direct labor cost Machine hours Direct material cost

31 Example Exercise #2 Lollah Manufacturing Company expects annual manufacturing overhead to be $800,000. The company also expects 50,000 direct labor hours costing $1,600,000 and machine run time of 25,000 hours. Calculate overhead allocation rates based on direct labor hours, direct labor cost, and machine time.

32 Example Exercise #2 Solution
Direct Labor Hours $800,000 / 50,000 DLH = $16.00 per Direct Labor Hour Direct Labor Cost $800,000 / $1,600,000 DLC = $0.50 per dollar of Direct Labor Machine Time $800,000 / 25,000 Machine Hours = $32.00 per Machine Hour


34 Allocating Overhead to Jobs
Activity-Based Costing (ABC) Assigns overhead costs to products using a number of allocation bases Cost Pools Cost Driver

35 Allocating Overhead to Jobs
Predetermined Overhead Rates Utilize estimates rather than actual costs and quantities Estimated total overhead cost__ Estimated level of allocation base Allows decisions to be made based on budgeted amounts

36 Allocating Overhead to Jobs
Eliminating Overhead Differences Occurs due to differences between estimated and actual overhead Underapplied Overhead Actual overhead is greater than applied overhead Overapplied Overhead Actual overhead is less than applied overhead

37 Job-Order Costing for Service Companies
Same process may be utilized by service companies Examples Hospitals Repair Shops Consulting Firms

38 Modern Manufacturing Practices
Just-in-Time Production (JIT) Computer-Controlled Manufacturing Total Quality Management (TQM)

39 JIT or Just-in-Case?

40 Full and Incremental Cost

41 Copyright © 2007 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.

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