Job Order Costing KHALID AZIZ 0322-3385752 Learning Objective 1 Describe the building-block concepts...
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Transcript of Job Order Costing KHALID AZIZ 0322-3385752 Learning Objective 1 Describe the building-block concepts...
Job Order Costing
Job Order Costing
KHALID AZIZ 0322-3385752
Learning Objective 1
Describe the building-block
concepts of costing systems.
KHALID AZIZ 0322-3385752
Building-Block Conceptsof Costing Systems
Building-Block Conceptsof Costing Systems
Cost object
Direct costsof a cost object
Indirect costsof a cost object
KHALID AZIZ 0322-3385752
Building-Block Conceptsof Costing Systems
Building-Block Conceptsof Costing Systems
Cost Assignment
DirectCosts
IndirectCosts
Cost Tracing
Cost Allocation
CostObject
KHALID AZIZ 0322-3385752
Building-Block Conceptsof Costing Systems
Building-Block Conceptsof Costing Systems
Cost pool
Cost allocation base
KHALID AZIZ 0322-3385752
Learning Objective 2
Distinguish between job
costing and process costing.
KHALID AZIZ 0322-3385752
Job-Costing andProcess-Costing Systems
Job-Costing andProcess-Costing Systems
Job-costingsystem
Process-costingsystem
Distinct unitsof a productor service
Masses of identicalor similar units of
a product or service
KHALID AZIZ 0322-3385752
Learning Objective 3
Outline a seven-step
approach to job costing.
KHALID AZIZ 0322-3385752
Seven-Step Approachto Job Costing
Seven-Step Approachto Job Costing
Step 1:Identify the chosen cost object.
Step 2:Identify the direct costs of the job.
Step 3:Select the cost-allocation bases.
Step 4:Identify the indirect costs.
KHALID AZIZ 0322-3385752
Seven-Step Approachto Job Costing
Seven-Step Approachto Job Costing
Step 5:Compute the rate per unit.
Step 6:Compute the indirect costs.
Step 7:Compute the total cost of the job.
KHALID AZIZ 0322-3385752
General Approach to Job CostingGeneral Approach to Job Costing
A manufacturing company is planning to sella batch of 25 special machines (Job 650) to a
retailer for Rs114,800.
Step 1:The cost object is Job 650.
Step 2:Direct costs are: Direct materials = Rs50,000
Direct manufacturing labor = Rs19,000KHALID AZIZ 0322-3385752
General Approach to Job CostingGeneral Approach to Job Costing
Step 3:The cost allocation base is machine-hours.
Job 650 used 500 machine-hours.2,480 machine-hours were used by all jobs.
Step 4:Manufacturing overhead costs were Rs65,100.
KHALID AZIZ 0322-3385752
General Approach to Job CostingGeneral Approach to Job Costing
Step 5:Actual indirect cost rate is
Rs65,100 ÷ 2,480 = Rs26.25 per machine-hour.
Step 6:Rs26.25 per machine-hour × 500 hours = Rs13,125
KHALID AZIZ 0322-3385752
General Approach to Job CostingGeneral Approach to Job Costing
Step 7:Direct materials Rs50,000Direct labor 19,000Factory overhead 13,125
Total Rs82,125
KHALID AZIZ 0322-3385752
General Approach to Job Costing
What is the gross margin of this job?
Revenues Rs114,800Cost of goods sold 82,125Gross margin Rs 32,675
What is the gross margin percentage?
Rs32,675 ÷ Rs114,800 = 28.5%
KHALID AZIZ 0322-3385752
JOIN KHALID AZIZJOIN KHALID AZIZ ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS,
B.COM. FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4
ICAP MODULE B, B.COM, BBA, MBA & PIPFA. COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP
MODULE D, BBA, MBA & PIPFA.
CONTACT: 0322-3385752 R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA,
KARACHI, PAKISTAN
Source DocumentsSource Documents
Job cost record
Materials requisition record
Labor time record
KHALID AZIZ 0322-3385752
Learning Objective 4
Distinguish actual costing
from normal costing.
KHALID AZIZ 0322-3385752
Costing SystemsCosting Systems
Actual costing is a system that uses actualcosts to determine the cost of individual jobs.
It allocates indirect costs based on the actualindirect-cost rate(s) times the actual quantity
of the cost-allocation base(s).
KHALID AZIZ 0322-3385752
Costing SystemsCosting Systems
Normal costing is a method that allocatesindirect costs based on the budgetedindirect-cost rate(s) times the actual
quantity of the cost allocation base(s).
KHALID AZIZ 0322-3385752
JOIN KHALID AZIZJOIN KHALID AZIZ PIPFA STUDENTS INTERMEDIATE FINANCIAL ACCOUNTING PERFORMANCE MEASUREMENT COMPLETION OF SYLLABUS IN 3
MONTHS JOIN KHALID AZIZ 0322*3385752 R1173-ALNOOR SOCIETY BLOCK 19
F.B.AREA-KARACHI.
Normal CostingNormal Costing
Assume that the manufacturing company budgets$60,000 for total manufacturing overhead costs
and 2,400 machine-hours.
What is the budgeted indirect-cost rate?
Rs60,000 ÷ 2,400 = Rs25 per hour
How much indirect cost was allocated to Job 650?
500 machine-hours × Rs25 = Rs12,500
KHALID AZIZ 0322-3385752
Normal CostingNormal Costing
What is the cost of Job 650 under normal costing?
Direct materials Rs50,000Direct labor 19,000Factory overhead 12,500
Total Rs81,500
KHALID AZIZ 0322-3385752
Learning Objective 5
Track the flow of costs
in a job-costing system.
KHALID AZIZ 0322-3385752
TransactionsTransactions
Purchase of materials and other manufacturing inputs
Conversion into work in process inventory
Conversion into finished goods inventory
Sale of finished goods
KHALID AZIZ 0322-3385752
TransactionsTransactions
Rs80,000 worth of materials (direct andindirect) were purchased on credit.
MaterialsControl
1. 80,000 1. 80,000
Accounts PayableControl
KHALID AZIZ 0322-3385752
Transactions
Materials costing Rs75,000 were sent to themanufacturing plant floor.
Rs50,000 were issued to Job No. 650 andRs10,000 to Job 651.
Rs15,000 of indirect materials were issued.
What is the journal entry?
KHALID AZIZ 0322-3385752
TransactionsTransactions
Work in Process Control:Job No. 650 50,000Job No. 651 10,000Factory Overhead Control 15,000
Materials Control 75,000
KHALID AZIZ 0322-3385752
TransactionsTransactions
Materials Control
1. 80,000 2. 75,000
Work in ProcessControl
2. 60,000
Manufacturing Overhead
Control2. 15,000
Job 6502. 50,000
KHALID AZIZ 0322-3385752
Transactions
Total manufacturing payroll forthe period was Rs27,000.
Job No. 650 incurred direct labor costsof Rs19,000 and Job No. 651 incurred
direct labor costs of Rs3,000.
Rs5,000 of indirect labor was also incurred.
What is the journal entry?
KHALID AZIZ 0322-3385752
TransactionsTransactions
Work in Process Control:Job No. 650 19,000Job No. 651 3,000Manufacturing Overhead Control 5,000
Wages Payable 27,000
KHALID AZIZ 0322-3385752
TransactionsTransactions
Wages Payable Control
3. 27,000
Work in ProcessControl
2. 60,0003. 22,000
Manufacturing Overhead
Control2. 15,0003. 5,000
Job 6502. 50,0003. 19,000
KHALID AZIZ 0322-3385752
TransactionsTransactions
Wages payable were paid.
Wages PayableControl
4. 27,000 4. 27,000
CashControl
Wages Payable Control 27,000Cash Control 27,000
3. 27,000
KHALID AZIZ 0322-3385752
TransactionsTransactions
Assume that depreciation for theperiod is Rs26,000.
Other manufacturing overheadincurred amounted to Rs19,100.
What is the journal entry?
KHALID AZIZ 0322-3385752
TransactionsTransactions
Manufacturing Overhead Control 45,100Accumulated DepreciationControl 26,000Various Accounts 19,100
What is the balance of the ManufacturingOverhead Control account?
KHALID AZIZ 0322-3385752
TransactionsTransactions
Rs62,000 of overhead was allocated to thevarious jobs of which Rs12,500 went to Job 650.
Work in Process Control 62,000Manufacturing Overhead Control 62,000
What are the balances of the control accounts?
KHALID AZIZ 0322-3385752
TransactionsTransactions
Manufacturing OverheadControl
Work in ProcessControl
2. 15,0003. 5,0005. 45,100Bal. 3,100
2. 60,0003. 22,0006. 62,000Bal. 144,000
6. 62,000
KHALID AZIZ 0322-3385752
TransactionsTransactions
The cost of Job 650 is:
Job 6502. 50,0003. 19,0006. 12,500Bal. 81,500
KHALID AZIZ 0322-3385752
TransactionsTransactions
Jobs costing Rs104,000 were completed andtransferred to finished goods, including Job 650.
What effect does this have on the control accounts?
KHALID AZIZ 0322-3385752
TransactionsTransactions
Work in ProcessControl
Finished GoodsControl
2. 60,0003. 22,0006. 62,000Bal. 40,000
7. 104,0007. 104,000
KHALID AZIZ 0322-3385752
TransactionsTransactions
Job 650 was sold for Rs114,800.
What is the journal entry?
Accounts Receivable Control 114,800Revenues 114,800
Cost of Goods Sold 81,500Finished Goods Control 81,500
KHALID AZIZ 0322-3385752
TransactionsTransactions
What is the balance in the Finished GoodsControl account?
Rs104,000 – Rs81,500 = Rs22,500
Assume that marketing and administrativesalaries were Rs9,000 and Rs10,000.
What is the journal entry?
KHALID AZIZ 0322-3385752
TransactionsTransactions
Marketing and Administrative Costs 19,000Salaries Payable Control 19,000
KHALID AZIZ 0322-3385752
TransactionsTransactions
Direct Materials Used Rs60,000
Direct Labor and Overhead Rs84,000
Ending WIP Inventory Rs40,000
Cost of Goods Manufactured Rs104,000–
=
+
KHALID AZIZ 0322-3385752
TransactionsTransactions
Cost of Goods Manufactured Rs104,000
Ending Finished Goods Inventory Rs22,500
Cost of Goods Sold Rs81,500=
–
KHALID AZIZ 0322-3385752
Learning Objective 6
Account for end-of-period
underallocated or overallocated
indirect costs using
alternative methods.
KHALID AZIZ 0322-3385752
End-Of-Period AdjustmentsEnd-Of-Period Adjustments
Underallocated indirect costs
Overallocated indirect costs
ManufacturingOverhead Control Bal. 65,100
ManufacturingOverhead Applied
Bal. 62,000
KHALID AZIZ 0322-3385752
End-Of-Period AdjustmentsEnd-Of-Period Adjustments
How was the allocated overhead determined?
2,480 machine-hours × Rs25 budgeted rate = Rs62,000
Rs65,100 – Rs62,000 =Rs3,100 (underallocated)
KHALID AZIZ 0322-3385752
End-Of-Period AdjustmentsEnd-Of-Period Adjustments
Actual manufacturing overhead costs of Rs65,100are more than the budgeted amount of Rs60,000.
Actual machine-hours of 2,480 are more thanthe budgeted amount of 2,400 hours.
KHALID AZIZ 0322-3385752
End-Of-Period AdjustmentsEnd-Of-Period Adjustments
Approaches to disposing underallocatedor overallocated overhead:
1. Adjusted allocation rate approach
2. Proration approaches
3. Immediate write-off to Cost of Goods Sold approach
KHALID AZIZ 0322-3385752
Adjusted AllocationRate Approach
Adjusted AllocationRate Approach
Actual manufacturing overhead (Rs65,100)exceeds manufacturing overhead allocated
(Rs62,000) by 5%.
3,100 ÷ 62,000 = 5%
Actual manufacturing overhead rate is Rs26.25per machine-hour (Rs65,100 ÷ 2,480) rather
than the budgeted Rs25.00.KHALID AZIZ 0322-3385752
Adjusted AllocationRate Approach
Adjusted AllocationRate Approach
The manufacturing company could increasethe manufacturing overhead allocated to
each job by 5%.
Manufacturing overhead allocated to Job 650under normal costing is Rs12,500.
Rs12,500 × 5% = Rs625
Rs12,500 + Rs625 = Rs13,125, which equalsactual manufacturing overhead.
KHALID AZIZ 0322-3385752
Proration ApproachProration Approach
Basis to prorate under- or overallocated overhead:
– total amount of manufacturing overheadallocated (before proration)
– ending balances of Work in Process, FinishedGoods, and Cost of Goods Sold
KHALID AZIZ 0322-3385752
Proration Approach “A”Proration Approach “A”
Assume the following manufacturingoverhead component of year-end
balances (before proration):
Work in Process Rs23,500 38%Finished Goods 26,000 42%Cost of Goods Sold 12,500 20%
Total Rs62,000 100%
KHALID AZIZ 0322-3385752
Proration Approach “A”
Manufacturing Overhead Finished Goods 65,100 62,000 22,500 3,100 1,302
0 23,802 Cost of Goods Sold Work in Process 81,500 40,000 620
1,178 82,120 41,178
KHALID AZIZ 0322-3385752
Proration Approach “B”Proration Approach “B”
Ending balances of Work in Process,Finished Goods, and Cost of Goods Sold
Work in Process Rs 40,000 28%Finished Goods 22,500 16%Cost of Goods Sold 81,500 56%Total Rs144,000 100%
KHALID AZIZ 0322-3385752
Proration Approach “B”
Manufacturing Overhead Finished Goods 65,100 62,000 22,500 3,100 496
0 22,996 Cost of Goods Sold Work in Process 81,500 40,000 1,736
868 83,236 40,868
KHALID AZIZ 0322-3385752
Immediate Write-off to Cost ofGoods Sold Approach
Immediate Write-off to Cost ofGoods Sold Approach
Manufacturing Overhead 65,100 62,000 3,100 0 Cost of Goods Sold
81,500 3,100 84,600
KHALID AZIZ 0322-3385752
Learning Objective 7
Apply variations from
normal costing.
KHALID AZIZ 0322-3385752
Variations of Normal CostingVariations of Normal Costing
Home Health budget includes the following:
Total direct labor costs: Rs400,000
Total indirect costs: Rs96,000
Total direct (professional) labor-hours: 16,000
KHALID AZIZ 0322-3385752
Variations of Normal CostingVariations of Normal Costing
What is the budgeted direct labor cost rate?
Rs400,000 ÷ 16,000 = Rs25
What is the budgeted indirect cost rate?
Rs96,000 ÷ 16,000 = Rs6
KHALID AZIZ 0322-3385752
Variations of Normal CostingVariations of Normal Costing
Suppose a patient uses 25 direct labor-hours.
Assuming no other direct costs, what is thecost to Home Health?
Direct labor: 25 hours × Rs25= Rs625Indirect costs: 25 hours × Rs 6 = 150
Total Rs775
KHALID AZIZ 0322-3385752
JOIN KHALID AZIZJOIN KHALID AZIZ ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS,
B.COM. FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4
ICAP MODULE B, B.COM, BBA, MBA & PIPFA. COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP
MODULE D, BBA, MBA & PIPFA.
CONTACT: 0322-3385752 R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA,
KARACHI, PAKISTAN