1. ACCT 1105 Lesson 7 – Chapter 19 Job Order Cost Accounting
Learning Objectives
See Lesson 19 for a summarized list of Learning Objectives

2. ACCT 1105 Lesson 7 – Chapter 19 Job Order Cost Accounting
To ensure that interactive components function, view this presentation as a slide show.

3. Objective 1 Define cost accounting system
Records manufacturing activities using a perpetual inventory system which continuously updates records for costs of materials, goods in process, and finished goods inventories; also provides information about manufacturing costs per unit of product

4. Objective 2 Describe Job Order Manufacturing
A manufacturing system in which products are individually designed to meet the needs of a specific customer

5. Objective 3
Identify the two defining characteristics of a job order cost system
Custom Products
Low Volume of Production

6. Check Your Understanding
For each of the following products, indicate whether it is most likely produced in a job order or process manufacturing system.
Baseball caps for the a local little league team.
Paper towels
A flower arrangement sent to a patient at the local hospital
An oil portrait of the town mayor
Hanes t-shirts
Job order
Process
Job order
Job order
Process

7. Objective 4 Distinguish between a job and a job lot
Job-the production activities for a customized product
Job Lot-the production activities for a group of customized products

8. Objective 5 List the events in job order manufacturing Customer Order
Estimate Costs and Negotiate Sales Price
Prepare Work Schedule
Order Raw Materials
Apply Materials, Labor, and Overhead to Goods

9. Objective 6
Define the following documents and explain how they interact in a job order cost accounting system

10. Objective 6 (continued)
Materials Ledger Card-perpetual records that are updated each time units are purchased and each time units are issued for use in production

11. Materials Ledger Card

12. Objective 6 (continued)
Materials Requisition - Source document production managers use to request the type and amount of materials needed for the production of a specific job

13. Materials Requisition
C. Luther
M. Batemen

14. Objective 6 (continued)
Time Tickets - Source document used to report the time an employee spent working on a job or on overhead activities and then to determine the amount of direct labor to charge to the job or the amount of indirect labor to charge to overhead.

15. Time Ticket

16. Objective 6 (continued)
Job Cost Sheet – a separate record maintained for each job indicating the direct materials, direct labor, and manufacturing overhead applied to the job

17. Job Cost Sheet

18. Objective 6 (continued)
Explain how the four documents discussed above interact in a job order cost accounting system
When materials are requested, the materials requisition form provides information that flows to the Materials Ledger Card.
The Materials Ledger Card and Time Tickets provide cost information for materials and labor that are reported on the Job Cost Sheet.

19. Objective 7 Explain how to establish a predetermined overhead rate
Since many overhead costs are not determined until the end of the period, and businesses cannot wait until the end of the period to apply overhead to a specific job, a method of estimating an applying overhead must be established.

20. Objective 7 (continued)
Explain how to establish a predetermined overhead rate
In order to establish an overhead application rate, an estimate of total overhead costs must be made and an allocation factor must be selected.
The two most common overhead allocation factors are direct materials and direct labor.

21. Objective 7 (continued)
Explain how to establish a predetermined overhead rate
Predetermined Overhead Rate = Estimated Overhead Costs/ Estimated Factor Costs

22. Objective 8 Explain how overhead is applied using a POR
Overhead is applied by multiplying the POR by the actual cost of the allocation factor.

23. Overhead Application Exercise
Management estimates that total overhead costs will be $1,800,000 and direct labor costs will be $450,000.
Determine the Overhead Application Rate
1,800,000/450,000 = 400%
Determine the amount of overhead to be applied to a job if the direct labor for that job is $445,000.
445,000 X 400% = $1,780,000

24. Objective 9
Complete Job Cost Sheets

25. Exercise 19-3 See Exercise 19-3 on pages 796 of your text.
Print the Job Cost Sheet for Wright Boats.
Using the information provided in Ex 19-3, complete only the Cost Summary portion of the Job Cost Sheet.
Assume that all materials and labor are direct.
Check your answers on the next slide.

26. Quick Study 19-3 WRIGHT BOATS JOB COST SHEET Job No. Materials $ 2,450
Materials
$ 2,450
Labor
$ 1,650
Overhead
$ 2,310
($1,650 x 140%)
Total Cost
$ 6,410
Status
 Finished

27. Objective 10 Prepare journal entries to track the flow of job costs
Common Transactions and journal entries for Manufacturers include:
Purchasing raw materials
Applying raw materials to goods in process
Paying wages for labor
Applying direct labor to goods in process
Applying overhead to goods in process
Transferring completed goods from goods in process to finished goods
Selling finished goods

28. Objective 10 (continued)
Prepare journal entries to track the flow of job costs
See the Chapter 19 handout entitled Common Transactions and Journal Entries for Manufacturers for more information on journalizing these entries
Print the handout from the Lesson 7 page.

29. Objective 11 Describe under- and over-applied overhead
Recall that overhead is applied using an estimated overhead application rate.
It is very likely that the actual amount of overhead incurred during the accounting period will not equal the amount of applied overhead.
If estimated overhead is less than actual overhead, overhead has been underapplied.
If estimated overhead is more than actual overhead, overhead has been overapplied.

30. Objective 11 (continued)
Describe under- and over-applied overhead
Underapplied overhead will result in a DEBIT balance in the Factory Overhead account.
Overapplied overhead will result in a CREDIT balance in the Factory Overhead account.

31. Objective 12
Explain the two ways to account for under- or over-applied overhead
If over/underapplied overhead is material (significant), the balance is allocated among the accounts affected which include Cost of Goods Sold, Finished Goods Inventory, and Goods in Process Inventory.
If over/underapplied overhead is immaterial (insignificant), the balance is fully allocated to the Cost of Goods Sold account. (This is the method that will be used in this lesson.)

32. Material Over- or Under-Applied Overhead
When a material balance remains in the overhead account at the end of the accounting period, the balance should be allocated among Cost of Goods Sold, Finished Goods Inventory, and Goods in Process Inventory. This is accomplished by multiplying the amount of over- or under-applied overhead by the percentage balance in each of the inventory accounts.

33. Material Over- or Under-Applied Overhead - Example
Assume the following end-of–period account balances:
Ending Balance
Percent of Total
 Calculation
Goods in Process
70,000
Finished Goods
80,000
Cost of Goods Sold
100,000
Total
Step 1 – Find the total of the three inventory accounts.

34. Material Over- or Under-Applied Overhead - Example
Assume the following end-of–period account balances:
Ending Balance
Percent of Total
 Calculation
Goods in Process
70,000
Finished Goods
80,000
Cost of Goods Sold
100,000
Total
250,000
Step 2 – Find the percent of total for each of the three inventory accounts.

35. Material Over- or Under-Applied Overhead - Example
Assume the following end-of–period account balances:
Ending Balance
Percent of Total
 Calculation
Goods in Process
70,000
28%
(70,000/250,000)
Finished Goods
80,000
32%
(80,000/250,000)
Cost of Goods Sold
100,000
40%
(100,000/250,000)
Total
250,000
100%

36. Material Over- or Under-Applied Overhead - Example
Assume that overhead has a debit balance of $10,000 (indicating that overhead was underapplied). In order remove this balance from the overhead account, Factory Overhead must be credited for $10,000 and the three allocation accounts will therefore be debited. The amount debited to each account is determined by their relative percents calculated in the previous step.
Step 3 – Allocate overhead to the three accounts

37. Material Over- or Under-Applied Overhead - Example
Recall the relative percent of total:
Ending Balance
Percent of Total
 Calculation
Goods in Process
70,000
28%
(70,000/250,000)
Finished Goods
80,000
32%
(80,000/250,000)
Cost of Goods Sold
100,000
40%
(100,000/250,000)
Total
250,000
100%
Journal entry to close Factory Overhead
Debit
Credit
Goods in Process
2,800
(10,000 X .28)
Finished Goods
3,200
(10,000 X .32)
Cost of Goods Sold
4,000
(10,000 X .40)
Factory Overhead
10,000

38. End of Chapter 19 Notes