1. Job Order Cost System Module 5 ACG 2071 Created by M. Mari Fall 2007-1

2. Cost Accounting Systems  Job order cost Provides separate record of the cost of each quantity of the product that passes through the factory  Process cost system Costs are accumulated for each of the department or processes within the factory

3. Job Order Accounting  A major aim is to determine the cost of producing each job or job lot.  Job sheet Is a separate record maintained for each job While a job is being manufactured, its accumulated costs are kept in Goods in Process Inventory When job is finished, costs are transferred to Finished Goods Inventory

4. Purchase of Materials DateAccountDebitCredit Raw materials inventoryXX Accounts payableXX

5. Example  Purchased $8,000 worth of materials for use in production on account DateAccountPRDebitCredit Raw materials inventory$8,000 Accounts payable$8,000

6. Requisition of Materials DateAccountDebitCredit Work in processTotal direct materials used Factory overheadTotal indirect materials used Materials inventoryTotal materials used

7. Example 2  Material usage is shown below, record the material used Job #Materials 125$4,500 126$4,250 127$4,000 128$3,500 129$3,000 Indirect$2,000 TOTAL$21,250

8. Example 2 DateAccountDebitCredit Work in process$19,250 Factory overhead 2,000 Raw materials inventory $21,250

9. Factory Labor DateAccountPRDebitCredit Good in processDirect labor Factory overheadIndirect labor Wages payableTotal labor costs

10. Example 3 Job #LaborDirect labor hours 125$5,000200 126$4,900175 127$4,500150 128$4,000125 129$3,500100 Indirect$1,500 TOTAL$23,400830 To the right, you will find a distribution of labor costs between jobs. Please record the labor used.

11. Example 3 DateAccountDebitCredit Work in process$21,900 Factory overhead 1,500 Wages payable $23,400

12. Factory Overhead Costs DateAccountPRDebitCredit Factory overheadTotal actual overhead costs Various accountsTotal actual overhead costs

13. Allocating Factory Overhead  Cost allocation – the process of assigning factory overhead costs to a cost object  Activity Base – measure used to allocate factory overhead Predetermined factory overhead rate = Estimated total factory overhead costs Estimated Activity Base Estimated Activity Base

14. Examples  Example 4: The corporation estimates FO at $500,000 for the next period. The corporation uses direct labor hours as its activity base and estimates 50,000 total direct labor hours Predetermined rate = Estimated FO Costs Estimated activity base = $500,000 50,000 DLH = $10 per direct labor hour So factory overhead is applied at rate of $10 for each hour of direct labor charged to the job.

15. Examples  Factory overhead costs are $500,000 for the next period. Factory overhead is determined as a percentage of direct labor costs. If direct labor costs is $750,000, what is the factory overhead rate? Predetermined rate = Est. Factory overhead Est. Activity Base = $500,000 $750,000 = 67% Factory overhead is applied at a rate of 67% of direct labor costs. For each dollar of direct labor charged to the job, 67 cents is charged to factory overhead.

16. Applying Factory Overhead  The factory overhead account is applied based on the predetermined rate. DateAccountPRDebitCredit Work in processTotal factory overhead applied Factory overhead Total factory overhead applied

17. Example 6 Job #MtrlsLaborDL hrFO 12545005000230 12642504900175 12740004500150 12835004000125 12930003500100 Indirect20001500 Totals2125023400780 Below is the manufacturing information for Bunny. Factory overhead rate is $50 per direct labor hour. Record the application of factory overhead to the jobs listed below.

18. Example 6 Job #DLhrFO 125230230 X $50 per direct labor hour = $11,500 126175175 x $50 = $8,750 127150150 x $50 = $7,500 128125125 x $50 = $6,250 129100100 x $50 = $5,000 Indirect Totals780$39,000

19. Example 6 DateAccountPRDebitCredit Goods in process$39,000 Factory overhead$39,000

20. Example 7  Taxon Corporation applies factory overhead at the rate of 75% of direct labor costs. Record the application using the following information: Job # LaborFactory 125$5000$5,000 x 75% = $3,750 126$4900$4,900 X 75% = $3,675 127$4500$4,500 X 75% = $3,375 128$4000$4,000 X 75% = $3,000 129$1500$1,500 X 75% = $1,125 TOTAL$14,925

21. Example7 Dat e AccountPRDebitCredit Goods in process$14,925 Factory overhead$14925

22. Factory Overhead Debit Credit Factory Overhead Account Actual factory overhead costs greater than estimated and applied factory overhead costs Actual factory overhead costs less than estimated and applied factory overhead costs

23. Disposal of Factory Overhead Since Factory overhead is an EXPENSE account, it must be closed at the end of the period. The balance of the account is closed into COST OF GOODS SOLD DateAccountPRPR DebitCredit Cost of Goods SoldDebit if underapplied by the balance in the account Credit if overapplied by the balance in the account Factory overhead Debit if overapplied by the balance in the account Credit if underapplied by the balance in the account

24. Example  Example 7: The balance in the factory overhead account is $50,000, the corporation applies $60,000 to work in process. Record the disposal of the balance.  The factory overhead account has a credit balance of $10,000 after the entry to apply factory overhead to work in process.

25. Example DateAccountDebitCredit Factory overhead$10,000 Cost of goods sold$10,000 Factory overhead Debit $50,000 Actual factory overhead costs Credit $60,000 Factory overhead costs applied $10,000 balance Over-applied factory overhead

26. Example  Example 7: The balance in the factory overhead account is $100,000, the corporation applies $95,000 to work in process. Record the disposal of the balance.  The factory overhead account has a debit balance of $5,000 after the entry to apply factory overhead to work in process.

27. Example DateAccountDebitCredit Cost of goods sold$5,000 Factory overhead$5,000 Factory overhead Debit $100,000 Actual factory overhead costs Credit $95,000 Factory overhead costs applied $5,000 balance Under-applied factory overhead

28. Transfer of Finished Goods DateAccountDebitCredit Finished goodsTotal manufacturing costs Work in processTotal manufacturing costs

29. Example 9: JobMtrlLaborFOTotal 125$4500$5000$6900$16400 126$4250$4900$5250$14400 127$000$4500 $13000 Total$43,800 Suppose that jobs 125, 126, and 127 are completed. Record their transfer to finished goods inventory.

30. Transfer to Finished Goods Dat e AccountPRDebitCredit Finished goods inventory$43,800 Goods in process$43,800 The jobs are kept in Finished Goods Inventory until they are sold to the customer. Then they are transferred to Cost of Goods Sold

31. Transferred to COGS DateAccountPRDebitCredit Cost of goods soldTotal cost Finished goodsTotal costs

32. Example  Using the information in example 7 above, assume that jobs 125 which costs $16,400 to manufacture has been sold for $75,000 on account. Record the entry. DateAccountPRDebitCredit Accounts receivable$75,000 Sales$75,000 Cost of goods sold$16,400 Finished goods$16,400