2. Job-Order Costing for Manufacturing
CHAPTER 2
Job-Order Costing for Manufacturing
And
Service Companies

3. Merchandising and Manufacturing Firms

4. Cost Classifications for Manufacturing Firms
Manufacturing Costs
Also known as product costs
All costs associated with the production of goods
Nonmanufacturing Costs
Also known as period costs
All costs not associated with the production of goods

5. Manufacturing Costs Direct Material Cost Direct Labor Cost
Cost of all materials directly traced to items produced
Direct Labor Cost
Cost of labor directly traced to items produced
Manufacturing Overhead
Cost of manufacturing activities other than direct materials and direct labor

6. Common Manufacturing Overhead Costs (Illustration 2-2)

7. Manufacturing Costs Indirect Materials Indirect Labor
Materials not directly traced to a product
Minor costs not worthwhile to trace to specific products
Indirect Labor
Labor costs not directly traced to products produced (Supervisor salaries)
Both included as Manufacturing Overhead

8. Nonmanufacturing Costs
Selling Costs
All costs associated with securing and filing customer orders
General and Administrative Costs
All costs associated with the firm’s general management

9. Manufacturing Overhead – Overtime Premium

10. Product and Period Costs
Product Costs
Costs assigned to goods produced
Also referred to as manufacturing costs
Period Costs
Costs identified with accounting periods rather than with goods produced
Also referred to as nonmanufacturing costs

11. Relationships Among Cost Categories

12. Study Break #1 Which of the following is a period cost?
Raw materials costs
Manufacturing plant maintenance
Wages for production line workers
Salary for the vice president of finance
Answer:
d. Salary for the vice president of finance

13. Study Break #2 Which of the following is a direct materials cost?
Steel for a ship builder
Production supervisor salary for an auto manufacturer
Factory rent
Wages for production line workers
Answer:
a. Steel for a ship builder

14. Product Cost Information
GAAP requires Full Cost Information
Product cost includes both variable and fixed manufacturing overhead and direct material and direct labor
Balance Sheet – Inventory
Income Statement – Cost of Goods Sold

15. Balance Sheet Presentation of Product Costs
Raw Materials Inventory
Cost of materials on hand used to produce a company’s products
Work in Process Inventory
Inventory account for the cost of goods that are only partially completed
Finished Goods Inventory
Account for the cost of all
the items complete and ready to sell

16. Flow of Product Costs in Accounts

17. Income Statement Presentation of Product Costs
Cost of Goods Manufactured

18. Income Statement Presentation of Product Costs
Cost of Goods Sold

19. Study Break #3
Beginning work-in-process plus total manufacturing costs minus ending work-in-process equals?
Cost of materials used
Finished goods inventory
Cost of goods sold
Cost of goods manufactured
Answer:
d. Cost of goods manufactured

20. Study Break #4
Cost of Goods Sold is $200,000, beginning Finished Goods is $50,000, ending Finished Goods is $100,000, and ending Work in Process is $10,000. What is the Cost of Goods Manufactured?
$100,000
$250,000
$50,000
$150,000
Answer:
d. $150,000

21. Types of Costing Systems
Job-order Costing System
Companies produce individual products or batches of unique products
Process Costing System
Companies produce large quantities of identical items

22. Job-Order and Process Costing Examples
Job Order Companies
Cray Computer Corporation, Boeing Company, Chris Craft Boat Company
Process Costing Companies
Pepsico Incorporated, Starbucks Corporation, Revlon Consumer Products Corporation, Goodyear Tire and Rubber Company

23. Relating Product Costs to Jobs

24. Job Costs & Financial Statement Accounts

25. Job Cost Sheet Direct Material Cost Direct Labor Cost
Material requisition form
Direct Labor Cost
Time Tickets
Manufacturing Overhead
Allocation base
Overhead allocation rate
Overhead applied

26. Example Exercise #1
During the month of August, Star Plastics had material requisitions for $250,000 of materials related to specific jobs and $20,000 of miscellaneous materials classified as overhead.
Prepare journal entries to record the issuance of materials during August.

27. Example Exercise #1 Solution
Direct Materials
Work in Process ,000
Raw Materials ,000
Indirect Materials
Manufacturing Overhead---20,000
Raw Materials ,000

28. Job-Order Costing Summary

29. Relation Between the Costs of Jobs and the Flow of Costs

30. Allocating Overhead to Jobs
Overhead Allocation Rates
Overhead Allocation Rate = Overhead Cost Allocation Base
Overhead Allocation Base Alternatives
Direct labor hours
Direct labor cost
Machine hours
Direct material cost

31. Example Exercise #2
Lollah Manufacturing Company expects annual manufacturing overhead to be $800,000. The company also expects 50,000 direct labor hours costing $1,600,000 and machine run time of 25,000 hours.
Calculate overhead allocation rates based on direct labor hours, direct labor cost, and machine time.

32. Example Exercise #2 Solution
Direct Labor Hours
$800,000 / 50,000 DLH
= $16.00 per Direct Labor Hour
Direct Labor Cost
$800,000 / $1,600,000 DLC
= $0.50 per dollar of Direct Labor
Machine Time
$800,000 / 25,000 Machine Hours
= $32.00 per Machine Hour

33. YOU GET WHAT YOU MEASURE

34. Allocating Overhead to Jobs
Activity-Based Costing (ABC)
Assigns overhead costs to products using a number of allocation bases
Cost Pools
Cost Driver

35. Allocating Overhead to Jobs
Predetermined Overhead Rates
Utilize estimates rather than actual costs and quantities
Estimated total overhead cost__
Estimated level of allocation base
Allows decisions to be made based on budgeted amounts

36. Allocating Overhead to Jobs
Eliminating Overhead Differences
Occurs due to differences between estimated and actual overhead
Underapplied Overhead
Actual overhead is greater than applied overhead
Overapplied Overhead
Actual overhead is less than applied overhead

37. Job-Order Costing for Service Companies
Same process may be utilized by service companies
Examples
Hospitals
Repair Shops
Consulting Firms

38. Modern Manufacturing Practices
Just-in-Time Production (JIT)
Computer-Controlled Manufacturing
Total Quality Management (TQM)

39. JIT or Just-in-Case?

40. Full and Incremental Cost

41. Copyright
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