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Job-order Costing
Typical job order cost applications: Special-order printing Building construction Also used in the service industry Hospitals Law firms
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Quick Check
Which of the following companies would be likely to use job-order costing rather than process costing? a. Scott Paper Company for Kleenex. b. Architects. c. Heinz for ketchup. d. Caterer for a wedding reception. e. Builder of commercial fishing vessels.
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Job-Order Costing
Manufacturing overhead (OH) Direct material Applied to each job using a predetermined rate
The Job
Direct labor
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Job No. 1
Direct Labor Job No. 2 Job No. 3
Manufacturing Overhead
Charge direct material and direct labor costs to each job as work is performed.
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Job No. 1
Direct Labor Job No. 2 Job No. 3
Manufacturing Overhead
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The primary document for tracking the costs associated with a given job is the job cost sheet.
Lets investigate
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Direct Labor Manufacturing Overhead Ticket Hours Amount Hours Rate Amount
Cost Summary Direct Materials Direct Labor Manufacturing Overhead Total Cost Unit Product Cost
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A materials requisition form Manufacturing is used to Direct Labor Overhead Ticket Hours Amount Hours Amount authorize the Rate use of materials on a job.
Lets see one
Units Shipped Date Number Balance
Cost Summary Direct Materials Direct Labor Manufacturing Overhead Total Cost Unit Product Cost
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Will E. Delite
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Will E. Delite
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Workers use time tickets to record the time spent on each job.
Lets see one
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Apply manufacturing overhead to jobs using a predetermined overhead rate of $4 per direct labor hour (DLH). Lets do it
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Actual overhead for the period is not known until the end of the period.
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Estimated total units in the allocation base for the coming period
$640,000
POHR =
For each direct labor hour worked on a job, $4.00 of factory overhead will be applied to the job.
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Quick Check
Job WR53 at NW Fab, Inc. required $200 of direct materials and 10 direct labor hours at $15 per hour. Estimated total overhead for the year was $760,000 and estimated direct labor hours were 20,000. What would be recorded as the cost of job WR53? a. $200. Pred. ovhd. rate $760,000/20,000hours $38 b. $350. Direct materials $200 Direct labor $15 x 10 hours $150 c. $380. Manufacturing overhead $38 x 10 hours $380 Total cost $730 d. $730.
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Quick Check
Job WR53 at NW Fab, Inc. required $200 of direct materials and 10 direct labor hours at $15 per hour. Estimated total overhead for the year was $760,000 and estimated direct labor hours were 19,000. What would be recorded as the cost of job WR53? a. $200. Pred. ovhd. rate $760,000/19,000hours $40 b. $350. Direct materials $200 Direct labor $15 x 10 hours $150 c. $750. Manufacturing overhead $40 x 10 hours $400 d. $730. Total cost $750
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Allocation Base
A Cost Driver is a factor that directly causes overhead costs to be incurred The Cost Driver must be common to all company products and services Cost Drivers include machine-hours, direct labor, computer time, direct material cost, etc. Selection of an appropriate Cost Driver is essential to proper overhead allocation
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Materials Requisition
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Indirect Material
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Mfg. Overhead
Actual Applied Indirect Materials
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Mfg. Overhead
Actual Applied Indirect Overhead Materials Applied to Work in Indirect Process Labor, McGraw-Hill/Irwin All Other
If actual and applied manufacturing overhead are not equal, a year-end adjustment is required.
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Finished Goods
Cost of Goods Mfd.
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SOLUTION
Applied Overhead = POHR Actual Direct Labor Hours Applied Overhead = $4.00 per DLH 170,000 DLH = $680,000
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OR
Work in Process Finished Goods Cost of Goods Sold
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$650,000
$30,000
$680,000
$30,000 overapplied
Quick Check
What effect will the adjustment of overapplied overhead have on Pear Cos cost of goods sold? a. Cost of goods sold will increase. b. Cost of goods sold will be unaffected. c. Cost of goods sold will decrease.
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Quick Check
What effect will the overapplied overhead have on PearCos net operating income? a. Net operating income will increase. b. Net operating income will be unaffected. c. Net operating income will decrease.
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Quick Check
Tiger, Inc. had actual manufacturing overhead costs of $1,210,000 and a predetermined overhead rate of $4.00 per machine hour. Tiger, Inc. worked 290,000 machine hours during the period. Tigers manufacturing overhead is
Overhead Applied a. $50,000 overapplied. $4.00 per hour 290,000 hours = $1,160,000 b. $50,000 underapplied. Underapplied Overhead $1,210,000 - $1,160,000 d. $60,000 underapplied. = $50,000
c. $60,000 overapplied.
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End of Chapter 3
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