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TRANSCRIPT
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Job-Order, Process, and Hybrid Cost Systems
Chapter 12
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Job-OrderCosting
ProcessCosting
Job-Order Cost Systems
Product costs are traced to individual inventory items.
Products are manufactured to order.
Cost records must be maintained for each distinct product or job.
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Typical job-order cost applications: Special-order printing Building construction
Also used in service industry Hospitals Law firms
Job-OrderCosting
ProcessCosting
Job-Order Cost Systems
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Job-OrderCosting
ProcessCosting
Used for production of small, identical, low cost items.
Costs cannot be directly traced to each unit of product.
Costs are evenly distributed across total production by dividing total product cost by the number of units produced.
Process Cost Systems
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Typical process cost applications:
Petrochemical refinery
Paint manufacturer
Paper mill
Job-OrderCosting
ProcessCosting
Process Cost Systems
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Schedulejobs
Begin production
Receive orders from customers
Ordermaterials
Job-Order Cost Flow
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Job-Order Cost Flow
THE JOB
Directmaterial
Traced directly to each job
Direct labor
Traced directly
to each job
Manufacturingoverhead (OH)
Applied to eachjob using a
predeterminedrate
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Manufacturing Overhead
Manufacturing Overhead
Job No. 1Job No. 1
Job No. 2Job No. 2
Job No. 3Job No. 3
Charge direct
material and direct labor
costs to each job as
work is performed.
Charge direct
material and direct labor
costs to each job as
work is performed.
Direct MaterialsDirect Materials
Direct LaborDirect Labor
Job-Order Cost Flow
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Apply overhead to
each job using a
predeter-mined rate.
Apply overhead to
each job using a
predeter-mined rate.
Direct MaterialsDirect Materials
Direct LaborDirect Labor
Job No. 1Job No. 1
Job No. 2Job No. 2
Job No. 3Job No. 3Manufacturing Overhead
Manufacturing Overhead
Job-Order Cost Flow
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Documentation in a Job-OrderCost System
The primary document for tracking
the costs associated with a given job is the
job cost sheet.
Let’s investigate
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Documentation in a Job-OrderCost System
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Let’s see one
A materials requisition form is used to
authorize the use of materials on a job.
Documentation in a Job-OrderCost System
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Will E. Delite
Documentation in a Job-OrderCost System
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Will E. Delite
Type, quantity, and total cost of material charged to job A-143.
Cost of material is charged to job A-143.
Documentation in a Job-OrderCost System
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Documentation in a Job-OrderCost System
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Workers use time tickets to record the time spent on each
job.
Let’s see one
Documentation in a Job-OrderCost System
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Documentation in a Job-OrderCost System
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Documentation in a Job-OrderCost System
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Apply manufacturing overhead to jobs using a predetermined overhead rate of $4 per direct
labor hour (DLH).Let’s do it
Documentation in a Job-OrderCost System
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Documentation in a Job-OrderCost System
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Let’s summarize the document flow we have
been discussing in a job-order
costing system.
Documentation in a Job-OrderCost System
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Job Cost Sheets
MaterialsRequisition
Direct materials
Indirect materials
Manufacturing Overhead Account
Materials usedmay be either
direct orindirect.
Documentation in a Job-OrderCost System
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Job Cost Sheets
Employee Time Ticket
Manufacturing Overhead Account
Direct Labor
Indirect Labor
An employee’stime may be eitherdirect or indirect.
Documentation in a Job-OrderCost System
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EmployeeTime Ticket
MaterialsRequisition
IndirectMaterial
IndirectLabor
AppliedOverhead
Manufacturing Overhead Account
OtherActual OHCharges
Job Cost Sheets
Documentation in a Job-OrderCost System
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Let’s return to WoodCo and see what we will do if
actual and applied overhead
are not equal.
Job-Order Cost Flow
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SOLUTIONApplied Overhead = POHR × Actual Direct Labor Hours
Applied Overhead = $4.00 per DLH × 170,000 DLH = $680,000
WoodCo’s actual overhead for the year was$650,000 for a total of 170,000 direct labor hours.
How much total overhead was applied toWoodCo’s jobs during the year? Use
WoodCo’s predetermined overhead rateof $4.00 per direct labor hour.
Job-Order Cost Flow
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WoodCo’s actual overhead for the year was$650,000 for a total of 170,000 direct labor hours.
How much total overhead was applied toWoodCo’s jobs during the year? Use
WoodCo’s predetermined overhead rateof $4.00 per direct labor hour.
SOLUTIONApplied Overhead = POHR × Actual Direct Labor Hours
Applied Overhead = $4.00 per DLH × 170,000 DLH = $680,000
WoodCo has overappliedoverhead for the yearby $30,000. What will
WoodCo do?
Job-Order Cost Flow
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$30,000may be allocated
to these accounts.
$30,000 may beclosed directly to
cost of goods sold.
WoodCo’s Method
OR
Work inProcess
FinishedGoods
Cost of Goods Sold
Cost of Goods Sold
Job-Order Cost Flow
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WoodCo’sMfg. Overhead
Actualoverhead
costs
$650,000$30,000
overapplied
WoodCo’s Costof Goods Sold
Unadjusted Balance
$30,000
$30,000
AdjustedBalance
OverheadAppliedto jobs
$680,000
Job-Order Cost Flow
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Alternative 1 Alternative 2If Manufacturing Close to Cost Overhead is . . . of Goods Sold Allocation
UNDERAPPLIED INCREASE INCREASECost of Goods Sold Work in Process
(Applied OH is less Finished Goodsthan actual OH) Cost of Goods Sold
OVERAPPLIED DECREASE DECREASECost of Goods Sold Work in Process
(Applied OH is greater Finished Goodsthan actual OH) Cost of Goods Sold
WoodCo’s Method
Job-Order Cost Flow
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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. Tiger’s manufacturing overhead is
a. $50,000 overapplied.
b. $50,000 underapplied.
c. $60,000 overapplied.
d. $60,000 underapplied.
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. Tiger’s manufacturing overhead is
a. $50,000 overapplied.
b. $50,000 underapplied.
c. $60,000 overapplied.
d. $60,000 underapplied.
Job-Order Cost Flow
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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. Tiger’s manufacturing overhead is
a. $50,000 overapplied.
b. $50,000 underapplied.
c. $60,000 overapplied.
d. $60,000 underapplied.
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. Tiger’s manufacturing overhead is
a. $50,000 overapplied.
b. $50,000 underapplied.
c. $60,000 overapplied.
d. $60,000 underapplied.
Overhead Applied $4.00 per hour × 290,000 hours = $1,160,000
Underapplied Overhead $1,210,000 - $1,160,000 = $50,000
Job-Order Cost Flow
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Assume that Tiger’s overhead was $60,000 underapplied. This amount would result in an adjustment that would decrease cost of goods sold by $60,000.
a. True
b. False
Assume that Tiger’s overhead was $60,000 underapplied. This amount would result in an adjustment that would decrease cost of goods sold by $60,000.
a. True
b. False
Job-Order Cost Flow
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Assume that Tiger’s overhead was $60,000 underapplied. This amount would result in an adjustment that would decrease cost of goods sold by $60,000.
a. True
b. False
Assume that Tiger’s overhead was $60,000 underapplied. This amount would result in an adjustment that would decrease cost of goods sold by $60,000.
a. True
b. FalseIf overhead is underapplied, cost of
goods sold is understated. The adjustment will increase cost of
goods sold.
Job-Order Cost Flow
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Let’s turn our attention to
process cost systems.
Process Costing
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Job-order costing Costs accumulated by
the job.
Work in process has a job-cost sheet for each job.
Many unique, high cost jobs.
Jobs built to customer order.
Process costing Costs accumulated by
department or process.
Work in process has a production report for each batch of products.
A few identical, low cost products.
Units continuously produced for inventory.
Comparison of Job-Order Costing and Process Costing
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Direct Material
FinishedGoods
Cost of GoodsSold
Direct Labor
ManufacturingOverhead
Jobs
The work-in-process account consists of individual jobs in a
job-order cost system.
Differences Between Job-Order and Process Costing
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Direct Material
FinishedGoods
Cost of GoodsSold
Direct Labor
ManufacturingOverhead
Products
Differences Between Job-Order and Process Costing
The work-in-process account consists of
batches of products in a process cost system.
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Equivalent Units: A Key Concept
Costs are accumulated for a period of time for products in work-in-process inventory.
Products in work-in-process inventory at the beginning and end of the period are only partially complete.
Equivalent units is a concept expressing these partially completed products as a smaller number of fully completed products.
Costs are accumulated for a period of time for products in work-in-process inventory.
Products in work-in-process inventory at the beginning and end of the period are only partially complete.
Equivalent units is a concept expressing these partially completed products as a smaller number of fully completed products.
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Two one-half completed products are equivalent to one completed product.
+So, 10,000 units 70 percent complete
are equivalent to 7,000 complete units.
So, 10,000 units 70 percent completeare equivalent to 7,000 complete units.
Equivalent Units: A Key Concept
= 1
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For the current period, Jones started15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Jones have for the period?
a. 10,000
b. 11,500
c. 13,500
d. 15,000
Equivalent Units
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For the current period, Jones started15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Jones have for the period?
a. 10,000
b. 11,500
c. 13,500
d. 15,000
10,000 units + (5,000 units × .30) = 11,500 equivalent units
10,000 units + (5,000 units × .30) = 11,500 equivalent units
Equivalent Units
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Calculating and Using Equivalent Units of Production
To calculate the cost perequivalent unit for the period:
Cost perequivalent
unit
= Costs for the period
Equivalent units for the period
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If Jones incurred $27,600 in production costs for the 11,500 equivalent units. What was Jones’s cost per equivalent unit for the period?
a. $1.84
b. $2.40
c. $2.76
d. $2.90
Equivalent Units
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If Jones incurred $27,600 in production costs for the 11,500 equivalent units. What was Jones’s cost per equivalent unit for the period?
a. $1.84
b. $2.40
c. $2.76
d. $2.90
$27,600 ÷ 11,500 equivalent units
= $2.40 per equivalent unit
$27,600 ÷ 11,500 equivalent units
= $2.40 per equivalent unit
Equivalent Units
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Cost of Production Report
Cost of Production
Report
Computation of equivalent units.
Determination of cost per
equivalent unit.
Allocation of total cost to goods
transferred and ending WIP inventory.
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Equivalent Units of Production –Weighted-Average Method
The weighted-average method . . . Makes no distinction between work done in
the prior period and work done in the current period.
Blends together units and costs from the prior period and the current period.
The FIFO method is a morecomplex method and israrely used in practice.
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At this point, we need to look at an example
to illustrate the departmental cost of
production report.
Cost of Production Report
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Process Costing Illustrated
TigerCo makes toy tigers in three departments, Cutting, Stitching, and Stuffing.
TigerCo uses the weighted-average cost procedure.
Using the following information for the month of March, let’s prepare a cost of production report for the Cutting Department.
TigerCo makes toy tigers in three departments, Cutting, Stitching, and Stuffing.
TigerCo uses the weighted-average cost procedure.
Using the following information for the month of March, let’s prepare a cost of production report for the Cutting Department.
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Work in Process, March 1, 30% complete: 20,000 unitsCost of March 1 Work in Process: $ 22,000
Units started into production in June: 30,000 unitsUnits completed and transferred out in June: 40,000 units
Work in process, March 31, 40% complete: 10,000 units
Costs incurred during MarchMaterials $ 88,000Labor 44,000Overhead 132,000
Process Costing Illustrated
TigerCo March Cutting Department Information
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Process Costing Illustrated
Actual Equivalent % Complete Units in Beginning Inventory 20,000 30% Units Started in March 30,000 Total 50,000
Units Transferred to Stitching 40,000 40,000 100% Units in Ending Inventory 10,000 4,000 40% Total 50,000 44,000
Beginning inventory % is not used in weighted-average method.
40% of 10,000 units
Computation of Equivalent Units for March
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Production Report Example
Costs in Beginning Inventory 22,000$ Costs Added in March: Materials 88,000 Labor 44,000 Overhead 132,000 Total 286,000$ Divide by March Equivalent Units ÷ 44,000 Cost per Equivalent Unit 6.50$
Determination of Cost per Equivalent Unit for March.
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Production Report Example
Costs Transferred to Stitching: 40,000 units × $6.50 per unit 260,000$ Costs Remaining in Cutting Inventory: 4,000 units × $6.50 per unit 26,000 Total 286,000$
All costs accounted for
Allocation of Costs
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Hybrid Costing
Hybrid costing employs some aspectsof both job-order and process costing.
Hybrid costing employs some aspectsof both job-order and process costing.
Job-order Hybrid Costing Process Costing (Products produced in batches) Costing
Labor and overhead costs assigned to
batches as in process costing.
Material Costs Chargedto batches as in
job-order costing.
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I’m ready to processsome leisure time.
End of Chapter 12