1. 19 - 1 PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19 Job Order Cost Accounting

2. 19 - 2 Process Costing Job Costing  Used for production of large, unique, or high-cost items.  Built to order rather than mass produced.  Many costs can be directly traced to each job.  Used for production of large, unique, or high-cost items.  Built to order rather than mass produced.  Many costs can be directly traced to each job. Cost Accounting Systems Chapter 20 C 1

3. 19 - 3 Process Costing Job Costing Typical job order cost applications:  Special-order printing  Building construction Also used in service industry  Hospitals  Law firms Typical job order cost applications:  Special-order printing  Building construction Also used in service industry  Hospitals  Law firms Chapter 20 Job Order Production C 1

4. 19 - 4 Receive order from customer. Predict cost to complete job. Negotiate a sales price and decide whether to pursue the job. Schedule production of the job. Events in Job Order Costing C 1

5. 19 - 5 Goods in Process Cost of Goods Sold Labor Materials Indirect Finished Goods Factory Overhead Direct Allocate Job Order Production Activities C 1

6. 19 - 6 Job Cost Sheet P 3

7. 19 - 7 Road Warriors uses a predetermined overhead rate (POHR) based on direct labor cost to apply overhead to jobs. Estimated total manufacturing overhead cost for the coming period Estimated total direct labor costs for the coming period POHR = POHR = = 160% of direct labor $ $200,000 $125,000 Predetermined Overhead Rate P 3

8. 19 - 8 Materials Ledger Cards Materials Requisition Direct materials The materials requisition indicates the cost of direct materials to charge to jobs and the cost of indirect materials to charge to overhead. Indirect materials Job Cost Sheets Factory Overhead Account Material Cost Flows and Documents P 1

9. 19 - 9 Employee time tickets indicate the cost of direct labor to charge to jobs and the cost of indirect labor to charge to overhead. Job Cost Sheets Factory Overhead Account Job Cost Sheets Direct Labor Indirect Labor Employee Time Ticket Labor Cost Flows and Documents P 2

10. 19 - 10 Material Purchases Direct Material Actual Overhead Costs Indirect Material Dr Cr Summary of Cost Flows P 1 Dr Cr

11. 19 - 11 Incurred Direct Material Actual Applied factory factory overhead overhead = / an adjustment is needed. We will look at how to accomplish this later. When Direct Labor Indirect Labor Actual Overhead Costs Overhead Overhead Applied to Work in Process Dr Cr Summary of Cost Flows P 2 P 3

12. 19 - 12 Direct Material Direct Labor Overhead Cost of Goods Mfd. Cost of Goods Sold Dr Cr Summary of Cost Flows P 3

13. 19 - 13 Overhead Application Overhead is not incurred uniformly during the year. Actual overhead rate might vary from month to month. Predetermined rate makes it possible to estimate job costs sooner. Reasons for using a POHR (predetermined overhead rate) P 4

14. 19 - 14 Overhead is overapplied. Overhead applied to Work in Process (POHR × Activity) Actual overhead costs incurred Adjustment of Overapplied or Underapplied Overhead P 4

15. 19 - 15 Overhead is underapplied. Actual overhead costs incurred Overhead applied to Work in Process (POHR × Activity) Adjustment of Overapplied or Underapplied Overhead P 4

16. 19 - 16 Adjusting Cost of Goods Sold for underapplied or overapplied overhead Adjustment of Overapplied or Underapplied Overhead P 4

17. 19 - 17 End of Chapter 19