© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Chapter 5: Job Order Costing Cost Accounting: Foundations & Evolutions, 8e Kinney and Raiborn

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Job Order or Process Costing Job Order Small quantities Batches of identifiable, tailor-made products User-specific services Tracks costs by job Process Large quantities Homogeneous goods Tracks costs by batch of goods by department

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Job Order Costing A job is a single unit or group of units identifiable as being produced to distinct customer specifications A job can be a  Client  Engagement  Project  Contract

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Job Order Costing System Each job is a cost object Costs are accumulated for each job A job can consist of one or more units of output The job cost sheet is the subsidiary ledger for each job (WIP)

Job Order Costing System WIP ControlJob 2Job 1Job 3 Job 1 + Job 2 + Job 3 = WIP Control WIP Subsidiary Ledger = Job Job Job Total © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Tracking Material Requisition Form  Tracks who is responsible for materials  Verifies flow of materials from warehouse to department to job Employee Time Sheet  Time worked on each job Job Order Cost Sheet  All financial information about a job direct material (from material requisition) direct labor (from time sheets or labor tickets) applied overhead (debit job cost (WIP) and credit overhead)  When job is complete, use job order cost sheet to analyze actual costs compared to budgeted costs

Management Use of Job Order Costing Systems Estimate future job costs Establish realistic bids and selling prices Develop budgets and standards Compare actual costs to estimated costs Furnish performance evaluation information based on profitability of jobs © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Product and Material Losses Shrinkage  Evaporation  Leakage  Oxidation Production errors  Defects can be economically reworked  Spoilage cannot be economically reworked Normal Loss — expected during production Abnormal Loss — exceeds what is expected during production

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Product and Material Losses Normal Loss Abnormal Loss Loss for most jobs Loss identified with a specific job In overhead rate Period cost Charge to specific job Period cost

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Ex 5-19 template Income statement: Enter sales to date of the hurricane as given in the text. Compute cost of goods sold as sales X.75 Enter beg FG inventory as given in the text. End FG inventory is already entered as a negative. Cost of FG available for sale will calculate as CGS less end FG inventory. Cost of goods mfg. will be forced out as cost of FG available for sale less beg. FG inv.

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Ex 5-19 template (cont’d) Cost of goods mfg. Cost of goods mfg. is entered automatically from the income statement. Enter beg. WIP Inventory at January 1. Enter beg. materials inv at January 1. Enter raw materials purchased during Enter DL (25760 hours X $ Enter overhead applied as DL X.85. To obtain the end. WIP inventory, you must complete the WIP schedule. WIP schedule: DM is given for each job. DL is hours X Overhead is DL X.85. You schedules should not be complete. The answers to a. and b. of the exercise are found on the income statement. Overhead applied is found on the WIP schedule. Ending WIP destroyed is shown on the cost of goods mfg. schedule. Ending FG inventory destroyed is shown on the income statement.

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Unit 4 Illustrations Chapter 5 13

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Cost Accumulation & Journal Entries Modern Building Solutions (Demo Problem) Modern Building Solutions bills its customers on a cost-plus basis, with profit set equal to 25 percent of costs. The firm uses a job order costing system based on normal costs. Overhead is applied in Parts Fabrication at a predetermined rate of $100 per machine hour (MH). In the Assembly Department, overhead is applied at a predetermined rate of $10 per direct labor hour (DLH). The following significant transactions occurred in March 2010: 14

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Cost Accumulation & Journal Entries Modern Building Solutions (Demo Problem) 16

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Cost Accumulation & Journal Entries Modern Building Solutions (Demo Problem) 17

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Cost Accumulation & Journal Entries Modern Building Solutions (Demo Problem) 18

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Cost Accumulation & Journal Entries Modern Building Solutions (Demo Problem) 19

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Cost Accumulation & Journal Entries Modern Building Solutions (Demo Problem) 20

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Cost Accumulation & Journal Entries Modern Building Solutions (Demo Problem) 21

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Cost Accumulation & Journal Entries Modern Building Solutions (Demo Problem) 22

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Cost Accumulation & Journal Entries Modern Building Solutions (Demo Problem) 23

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Cost Accumulation & Journal Entries Modern Building Solutions (Demo Problem) 24

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Cost Accumulation & Journal Entries Modern Building Solutions (Demo Problem) 25

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Cost Accumulation & Journal Entries Modern Building Solutions (Demo Problem) 26