Job Order Costing
Chapter 4
Introduction
How much does it cost?
Managers ask this question for many purposes, including formulating overall strategies, product and service-emphasis decisions, and pricing decisions.
This chapter presents basic concepts of job costing.
Learning Objectives
Describe the building block concepts of costing systems
Distinguish between job costing and process costing
Outline a seven-step approach to job costing
Distinguish actual costing from normal costing
Learning Objectives
Track the flow of costs in a job-costing system
Prorate end-of-period under- or overallocated indirect costs using alternative methods
Apply variations of normal costing
成本核算流程－对外报告
1、按照成本计算目的，确定成本核算对象，如产品种类、产品批别等。
2、划分生产成本和期间费用的界限，生产成本指应计入产品成本的那部分费用。
3、在生产成本中，划分直接成本和间接成本，即为每个成本核算对象确定直接成本项目（如直接材料、直接人工等）。
成本核算流程－对外报告
4、帐户设置
生产成本
基本生产成本：按成本核算对象开设生产成本明细帐（成本计算单）。
辅助生产成本：按辅助生产车间种类（如供水、供电、运输、机修等）开设明细帐。
制造费用
按不同车间、部门开设明细帐。
成本核算流程－对外报告
一项成本费用发生
生产成本还是期间费用？
期间费用
损益表
——管理费用
——销售费用
——财务费用
基本生产成本还是辅助生产成本？
成本核算流程－对外报告
辅助生产成本明细帐
直接成本还是间接成本？
基本生产成本明细帐
制造费用明细帐
当期损益
成本核算流程－对外报告
---基本生产成本明细帐（成本计算单）
完工产品成本
期末在产品成本
损益表
——销售成本
资产负债表
——存货
Learning Objective 1
Describe the building block concepts of costing systems
Building Block Concepts of Costing Systems
The following five terms constitute the building blocks that will be used in this chapter:
A cost object is anything for which a separate measurement of costs is desired.
Building Block Concepts of Costing Systems
Direct costs of a cost object are costs that are related to the particular cost object and can be traced to it in an economically feasible way.
Indirect costs of a cost object are costs that are related to the particular cost object but cannot be traced to it in an economically feasible way.
Building Block Concepts of Costing Systems
The relationship among these three concepts is as follows:
Direct Costs
Cost Tracing
Cost Object
Indirect Costs
Cost Allocation
Cost Assignment
Building Block Concepts of Costing Systems
Cost pool is a grouping of individual cost items.
Cost allocation base is a factor that is the common denominator for systematically linking an indirect cost or group of indirect costs to a cost object.
Learning Objective 2
Distinguish between job costing and process costing
Job-Costing and Process-Costing Systems
There are two basic systems used to assign costs to products or services:
Job costing
Process costing
Job-Costing and Process-Costing Systems
In a job-costing system, the cost object is an individual unit, batch, or lot of a distinct product or service called a job.
In process costing, the cost object is masses of identical or similar units or a product or service.
Job-Costing and Process-Costing Systems
Process costing allocates costs among all the products manufactured during that period.
Job-Costing and Process-Costing Systems
Job-costing Process-costing system system Distinct units Masses of identical of a product or similar units of a or service product or service
Learning Objective 3
Outline a seven-step approach to job costing
General Approach to Job Costing
The following seven-steps approach is used to assign actual costs to individual jobs:
Identify the chosen cost object(s).
Identify the direct costs of the job.
Select the cost-allocation base(s).
Identify the indirect costs associated with each cost-allocation base.
General Approach to Job Costing
Compute the rate per unit of each cost-allocation base used to allocate indirect costs to the job.
Compute the indirect costs allocated to the job.
Compute the cost of the job by adding all direct and indirect costs assigned to it.
General Approach to Job Costing
D. L. Sports manufactures various sporting goods.
D. L. is planning to sell a batch of 25 special machines (Job 100) to Healthy Gym for $104,800.
A key issue for D. L. Sports in determining this price is the cost of doing the job.
General Approach to Job Costing
Step 1: The cost object is Job 100.
Step 2: Identify the direct costs of Job 100.
Direct material = $45,000
Direct manufacturing labor = $14,000
General Approach to Job Costing
Step 3: Select the cost-allocation base.
. chose machines hours as the only allocation base for linking all indirect manufacturing costs to jobs.
Job 100 used 500 machine hours.
2,480 machine hours were used by all jobs.
General Approach to Job Costing
Step 4: Identify the indirect costs.
Actual manufacturing overhead costs were $65,100.
Step 5: Compute the rate per unit.
Actual indirect cost rate is $65,100 ÷ 2,480 = $ per machine hour.
General Approach to Job Costing
Step 6: Compute the indirect costs allocated to the job.
$ per machine hour × 500 hours = $13,125
General Approach to Job Costing
Step 7: Compute the cost of Job No. 100.
Direct materials $45,000
Direct labor 14,000
Factory overhead 13,125
Total $72,125
General Approach to Job Costing
What is the gross margin of this job?
Revenues $104,800
Cost of goods sold 72,125
Gross margin $ 32,675
What is the gross margin percentage?
$32,675 ÷ $104,800 = %
Two Major Cost Objects
Products
Responsibility centers
What are Source Documents?
They are the original records that support journal entries in an accounting system.
What is a Job Cost Record?
It is a document that records and accumulates all the costs assigned to a specific job.
It is the basic record for product costing.
What is a Materials Requisition Record?
It is the form used to charge job cost records and departments for the cost of direct materials used on specific jobs.
What is a Labor Time Record?
It is used to charge job cost records and departments for labor time used on specific jobs.
It shows the time each employee spent on individual jobs.
Learning Objective 4
Distinguish actual costing from normal costing
Actual Costing System...
is a job-costing system that uses actual costs to determine the cost of individual jobs.
Actual costing is a method of job costing that traces indirect costs to a cost object by using the actual direct-cost rate(s) times the actual quantity of the direct cost input(s).
Normal Costing...
is a costing method that allocates indirect costs based on the budgeted indirect-cost rate(s) times the actual quantity of the cost allocation base(s).
Normal Costing
Assume that D. L. Sports budgets $60,000 for total manufacturing overhead costs and 2,400 machine hours.
What is the budgeted indirect-cost rate?
$60,000 ÷ 2,400 = $25 per hour
How much indirect cost was allocated to Job 100?
Normal Costing
500 machine hours × $25 = $12,500
What is the cost of Job 100 under normal costing?
Direct materials 45,000 Direct labor 14,000 Factory overhead 12,500 Total $71,500
Longer Time Period Used to Compute Indirect-Cost Rates
The numerator reason (indirect costs):
The shorter the period, the greater the influence of seasonal patterns on the level of costs.
The denominator reason (quantity of the allocation base):
The need to spread monthly fixed indirect costs over fluctuating levels of output.
Learning Objective 5
Track the flow of costs in a job-costing system
General Ledger and Subsidiary Ledgers
The Work-in-Process Control account presents the totals of the separate job-cost records pertaining to all unfinished jobs.
The job-cost record and Work-in-Process Control account track job costs from the time jobs are started until they are completed.
Transactions
Purchase of Conversion into Materials Work-in-Process and Other Inventory Manufacturing Inputs
Conversion into Sale of Finished Finished Goods Goods
Inventory
Transactions
Purchase of $80,000 worth of materials (direct and indirect) on credit.
Materials Accounts Payable Control Control 1. 80,000 1. 80,000
Transactions
Materials costing $70,000 were sent to the manufacturing plant floor.
$45,000 were issued to Job No. 100 and $10,000 to Job 102.
$15,000 of indirect materials were issued.
What is the journal entry?
Transactions
Work-in-Process Control: Job No. 100 45,000 Job No. 102 10,000 Factory Overhead Control 15,000 Materials Control 70,000
Transactions
Materials Work-in-Process Control Control 1. 80,000 2. 70,000 2. 55,000 Manufacturing Overhead Control Job 100 2. 15,000 2. 45,000
Transactions
Total manufacturing payroll for the period was $22,000.
Job No. 100 incurred direct labor costs of $14,000 and Job No. 102 incurred direct labor costs of $3,000.
$5,000 of indirect labor was also incurred.
What is the journal entry?
Transactions
Work-in-Process Control: Job No. 100 14,000 Job No. 102 3,000 Manufacturing Overhead Control 5,000 Wages Payable 22,000
Transactions
Wages Payable Work-in-Process Control Control 3. 22,000 2. 55,000 3. 17,000 Manufacturing Overhead Control Job 100 2. 15,000 2. 45,000 3. 5,000 3. 14,000
Transactions
Wages payable were paid.
Wages Payable Control 22,000 Cash Control 22,000
Wages Payable Cash Control Control 4. 22,000 3. 22,000 4. 22,000
Transactions
Assume that depreciation for the period is $26,000.
Other manufacturing overhead incurred amounted to $19,100.
What is the journal entry?
Transactions
Manufacturing Overhead Control 45,100 Accumulated Depreciation Control 26,000 Various Accounts 19,100
What is the balance of the Manufacturing Overhead Control?
Transactions
Manufacturing Overhead Control 2. 15,000 3. 5,000 5. 45,100 Bal. 65,100
Transactions
$62,000 of overhead was allocated to the various jobs of which $12,500 went to Job 100.
What is the journal entry?
Work-in-Process Control 62,000 Manufacturing Overhead Control 62,000
What are the balances of the control accounts?
Transactions
Manufacturing Overhead Work-in-Process Control Control 2. 15,000 6. 62,000 2. 55,000 3. 5,000 3. 17,000 5. 45,100 6. 62,000 Bal. 3,100 Bal. 134,000
Transactions
The cost of Job 100 is:
Job 100 2. 45,000 3. 14,000 6. 12,500 Bal. 71,500
Transactions
Jobs costing $104,000 were completed and transferred to finished goods, including Job 100.
What effect does this have on the control accounts?
Transactions
Work-in-Process Finished Goods
Control Control 2. 55,000 7. 104,000 7. 104,000 3. 17,000 6. 62,000 Bal. 30,000
Transactions
What is the journal entry to transfer Job 100?
Finished Goods Control 71,500 Work-in-Process Control 71,500
Transactions
Job 100 was sold for $104,800.
What is the journal entry?
Accounts Receivable Control 104,800 Revenues 104,800 Cost of Goods Sold 71,500 Finished Goods Control 71,500
Transactions
What is the balance in the Finished Goods Control account?
$104,000 – $71,500 = $32,500
Assume that marketing and administrative salaries were $9,000 and $10,000.
What is the journal entry?
Transactions
Marketing and Administrative Costs 19,000 Salaries Payable Control 19,000
Learning Objective 6
Prorate end-of-period under- or overallocated indirect costs using alternative methods
Budgeted Indirect Costs
Budgeted indirect-cost rates can be assigned to individual jobs on an ongoing and timely basis.
However, budgeted rates are based on estimates made up to 12 months before actual costs are incurred.
Adjustments may need to made by year end.
End-Of-Period Adjustments
Underallocated indirect costs occur when the allocated amount of indirect costs in an accounting period is less than the actual amount incurred.
Overallocated indirect costs occur when the allocated amount of indirect costs is greater than the actual amount incurred.
End-Of-Period Adjustments
Under- or overallocated indirect costs = Indirect costs incurred – Indirect costs allocated
Underapplied (or overapplied) indirect costs and underabsorbed (or overabsorbed) indirect costs are equivalent terms.
End-Of-Period Adjustments
Assume the following annual data for D. L. Sports: Manufacturing Overhead Control Bal. 65,100 Manufacturing Overhead Applied Bal. 62,000
End-Of-Period Adjustments
How was the allocated overhead determined?
2,480 machine hours × $25 budgeted rate = $62,000
$65,100 – $62,000 = $3,100 (underallocated)
End-Of-Period Adjustments
Reasons for the underallocated amount:
Numerator reason (indirect costs)
Denominator reason (quantity of allocation base)
End-Of-Period Adjustments
Actual manufacturing overhead costs of $65,100 are more than the budgeted amount of $60,000.
Actual machines hours of 2,480 are more than the budgeted amount of 2,400 hours.
End-Of-Period Adjustments
Approaches to disposing underallocated or overallocated overhead:
Adjusted allocation rate approach
Proration approaches
Immediate write-off to Cost of Goods Sold approach
Adjusted Allocation Rate Approach...
restates all entries in the general and subsidiary ledgers by using actual cost rates rather than budgeted cost rates.
Actual indirect-cost rate is computed at the end of the year.
Every job to which indirect costs were allocated during the year has its amount recomputed.
Adjusted Allocation Rate Approach
Actual manufacturing overhead ($65,100) exceeds manufacturing overhead allocated ($62,000) by 5%.
3,100 ÷ 62,000 = 5%
Actual manufacturing overhead rate is $ per machine hour ($65,100 ÷ 2,480) rather than the budgeted $.
Adjusted Allocation Rate Approach
D. L. Sports could increase the manufacturing overhead allocated to each job by 5%.
Manufacturing overhead allocated to Job 100 under normal costing is $12,500.
$12,500 × 5% = $625
$12,500 + $625 = $13,125 which equals actual manufacturing overhead.
Proration Approach
Proration is the spreading of under- or overallocated overhead among ending work in process, finished goods, and cost of goods sold.
Proration Approach
Basis to prorate under- or overallocated overhead:
Total amount of manufacturing overhead allocated (before proration)
Ending balances of Work-in-Process, Finished Goods, and Cost of Goods Sold
Proration Approach “A”
Manufacturing overhead component of year-end balances (before proration):
Work-in-Process $23,500 38% Finished Goods 26,000 42% Cost of Goods Sold 12,500 20% Total $62,000 100%
Proration Approach “A”
$3,100 × 38% = $1,178 to Work-in-Process
$3,100 × 42% = $1,302 to Finished Goods
$3,100 × 20% = $620 to Cost of Goods Sold
Proration Approach “A”
Manufacturing Overhead Finished Goods 65,100 62,000 32,500 3,100 1,302 0 33,802 Cost of Goods Sold Work-in-Process 71,500 30,000 620 1,178 72,120 31,178
Proration Approach “B”
Ending balance of Work-in-Process, Finished Goods, and Cost of Goods Sold
Work-in-Process $ 30,000 22% Finished Goods 32,500 24% Cost of Goods Sold 71,500 54% Total $134,000 100%
Proration Approach “B”
Manufacturing Overhead Finished Goods 65,100 62,000 32,500 3,100 744 0 33,244 Cost of Goods Sold Work-in-Process 71,500 30,000 1,674 682 73,174 30,682
Immediate Write-off to Cost of Goods Sold Approach
Manufacturing Overhead 65,100 62,000 3,100 0 Cost of Goods Sold 71,500 3,100 74,600
Choosing Among Approaches
The adjusted allocation rate approach provides the most accurate record of individual job costs.
Indirect-cost-allocated components provides the most accurate inventory and cost of goods sold figures.
Immediate write-off approach is the simplest.
Learning Objective 7
Apply variations of normal costing
Variations of Normal Costing
Service industries perform jobs that differ from each other.
Job costing is very useful in these industries.
Variations of Normal Costing
Carmen and Associates provide home health services.
Their budget includes the following:
Total direct labor costs: $400,000
Total indirect costs: $96,000
Total direct (professional) labor hours: 16,000
Variations of Normal Costing
What is the budgeted direct labor cost rate?
$400,000 ÷ 16,000 = $25
What is the budgeted indirect cost rate?
$96,000 ÷ 16,000 = $6
Variations of Normal Costing
Suppose a patient uses 25 direct labor hours.
Assuming no other direct costs, what is the cost to Carmen and Associates?
Direct labor: 25 hours × $25 = $625 Indirect costs: 25 hours × $ 6 = 150 Total $775
End of Chapter 4
Assignments:4-19,4-23,4-30,4-31,4-32
