Job-Order Costing Management Accounting: The Cornerstone for Business Decisions Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.

Learning Objectives 1.Describe the differences between job- order costing and process costing and identify the types of firms that would use each method. 2.Compute the predetermined overhead rate and use the rate to assign overhead to units or services produced. 3.Identify and set up the source documents used with job-order costing.

Learning Objectives 4.Describe the cost flows associated with job-order costing.. 5.(Appendix) Prepare the journal entries associated with job-order costing.

Distinguish Between Job- Order and Process Costing Job-Order Costing Process Costing

What are the three costs of production?

Define Normal and Actual Costing ◙ Normal costing ◙ Actual costing assigns

Complete the Table with Either Actual or Applied NormalActual Direct Materials Direct Labor Overhead

Discuss the Importance of Unit Costs

How to calculate the predetermined overhead rate. At the beginning of the year, Argus Company estimated the following costs; Overhead$480,000 Direct labor cost$960,000 Argus uses normal costing and applies overhead on the basis of direct labor cost. (Direct labor cost is equal to total direct labor hours worked multiplied by the wage rate.) For the month of March, the direct labor cost was $62,

How to calculate the predetermined overhead rate. REQUIRED: 1.Calculate the predetermined overhead rate for the year. 2.Calculate the overhead applied to production in March. Calculation: 5-1

Comment on the Two Types of Overhead

How to reconcile actual overhead with applied overhead. At the beginning of the year, Argus Company estimated the following costs; Overhead$480,000 Direct labor cost$960,000 At the end of the year, the actual data are: Overhead$480,500 Direct labor Cost $982,000 Argus uses normal costing and applies overhead on the basis of direct labor cost. A the end of the year, Cost of Goods Sold (before adjusting for any overhead variance) is $842,

How to reconcile actual overhead with applied overhead. REQUIRED: 1.Calculate the overhead variance for the year. 2.Dispose of the variance by adjusting Cost of Goods Sold (COGS). Calculation: 5-2

How to reconcile actual overhead with applied overhead. 5-2

Overapplied and Underapplied Overhead

How to calculate predetermined departmental overhead rates and apply them to production. At the beginning of the year, Sorrel Company estimated the following; MachiningAssemblyTotal Overhead$240,000$360,000$600,000 Direct labor hours 135, , ,000 Machine hours 200, ,000 Sorrel uses departmental rates in the machining department, overhead is applied on the basis of machine hours. In the assembly department, overhead is applied on the basis of direct labor hours. Actual data for the month of July are as follows: MachiningAssemblyTotal Overhead$22,000$33,000$55,000 Direct labor hours 11,500 22,400 33,900 Machine hours 16,900 16,

REQUIRED: 1.Calculate the predetermined overhead rate for the machining and assembly departments. 2.Calculate the overhead applied to each department for the month of July. 3.By how much has each department’s overhead been overapplied? Underapplied? Calculation: 5-3 How to calculate predetermined departmental overhead rates and apply them to production.

Calculation: 5-3 MachiningAssembly Actual Overhead Applied Overhead Under(Over)applied Overhead

How to convert departmental data to plantwide data to calculate the overhead rate & apply overhead to production. At the beginning of the year, Sorrel Company estimated the following: MachiningAssemblyTotal Overhead$240,000$360,000$600,000 Direct labor hours 135, , ,000 Machine hours 200, ,000 Sorrel has decided to use a plantwide overhead rate based on direct labor hours. Actual data for the month of July are as follows: MachiningAssemblyTotal Overhead$22,000$33,000$55,000 Direct labor hours 11,500 22,400 33,900 Machine hours 16,900 16,

REQUIRED: 1.Calculated the predetermined plantwide overhead rate. 2.Calculated the overhead applied to production for the month of July. 3.Calculate the overhead variance for the month of July. Calculation: How to convert departmental data to plantwide data to calculate the overhead rate & apply overhead to production. 5-4

Define a Job-Order Cost Sheet

What is a materials requisitions form?

Accounting for the Flow of Costs Work-in- Process Materials Inventory Finished Goods Warehouse

Accounting for Overhead ◙ Since most businesses use normal costing, they apply overhead using a predetermined overhead rate. ◙ Actual overhead is recorded but NEVER recorded in the Work-in-Process. ◙ Actual overhead is recorded in a control account. ◙ Actual overhead and applied overhead are reconciled at the end of the period.

Produce a Schedule of Cost of Goods Manufactured

Prepare a Statement of Cost of Goods Sold

Prepare an Income Statement

Prepare entries for Johnson Leather Goods for February 1.Purchased raw materials on account, $3, Requisition materials for use in production, $3, Recognize direct labor costing $2,520. Show as a liability in wages payable.

Prepare entries for Johnson Leather Goods for February 4.Applied overhead to production a the rate of $2 per direct labor hour. A total of 280 direct labor hours were worked. 5.Incurred actual overhead of $ Completed the saddlebags job and transferred to finished goods.

Prepare entries for Johnson Leather Goods for February 7.Sold the saddlebags job at cost plus 60%. 8.Closed overapplied overhead to Cost of Goods Sold.