Chapter 2: Job Order Costing Flashcards
Prepare the entries for manufacturing/service jobs
- completed and
- sold
1. When Job is completed:
Finished Goods Inventory
Work in Process Inventory
2. When sold:
Acc. Receivable
Sales Revenue
COGS
Finished Goods Inventory
Höhe der Activity Base wird entnommen aus ???
- Direct labor cost
- Direct material cost
- Direct material Cost: Material requisition slip
- Direct labor Cost: Time Tickets
Achtung:
- Enthält auch Overhead Cost (diese sind nicht mit einzubeziehen)
Manufacturing Overhead Rate and
Predetermined Overhead Rate
Issue with Manufacturing Overhead Cost:
- Cannot be assigned to a specific job based on actual costs incurred
Solution:
- Companies assign them to Work in Process and to specific jobs on an estimate basis through the use of a Predetermined Overhead Rate
Job Order Cost Flow:
Raw Materials
The physical flow of the materials as they are converted into finished goods
- Manufacturing Costs are assigned to Work in Process (WIP) Inventory account
- Cost of completed jobs is transferred to the Finishied Goods Inventory account
- When units are sold, the cost ist transferred to the Cost of Goods Sold account
Accumulating Manufacturing Cost
Factory Labor Cost
Consists of three costs:
- Gross earnings of factory workers
- Employer payroll taxes on these earnings
- Fringe benefits
- sick pay
- pensions
- …
Assigend to jobs on the basis of a time ticket
Job Cost Sheet
- Used to record costs chargeables to specific jobs
- Summarizes the cost of jobs completed and not completed at the end of the accounting period
Predetermined Overhead Rate
Large Companys vs. Small Companies
- Large Companies:
- use a diffrent rate for each department
- each department may even have a diffrent Activty Base
- Small Companies:
* often use a single, company-wide predetermined rate
Process Cost System
- Costs are accumulated for a time period (week or month)
- Costs are assigned to departmens or processes for a specific period of time
- Used when a large volume of similar products are manufactured (Müsli, Eis,…)
Raw Matieral Cost
Direct Materials and Indirect Materials
- Assigned to a Job, hence for to WiP or Manufacturing Overhead, when materials are issued in response of a request via the Materials requisition slip
- Direct Materials are charged to WiP
- Indirect Materials are charged to Manufacturing Overhead
Job Cost Sheet and WiP relationship
Each entry to WiP MUST be accompanied by a corresponding posting to one or more job cost sheets
Work in Process Account under Job Order Costing
- Only ONE WiP Account under Job Order Costing
- NO distinction between Jobs! Every Job is recorded to WiP
Predetermined Overhead Rate:
- Based on the relationship between estimated annual overhead costs and expected annual operation activity
- Expressed in terms of an ACTIVY BASE such as:
- Direct labor costs
- Direct labor hours
- Machine hours
- Formula:
Under- or Overapplied in Manufacturing Overhead
- Debit Balance in Manufacturing overhead means that overhead is UNDERAPPLIED
- Credit Balance… is OVERAPPLIED
Any year-end Balance in manufacturing overhead is eliminated by adjusting COGS:
- UNDERAPPLIED Overhead is debited to COGS
- OVERAPPLIED Overhead is credited to COGS
Job Order Cost System
- Products have a UNIQUE CHARATERISTIC
- Costs are assigned to EACH JOB/BATCH
- Objective is to compute the cost per job
- Measures costs for each job completed (NOT for a set of time periods !!!!)
Important feature:
- Each Job/Batch has its own distinguishing characteristics
Advantages and Disadvantages of Job Order Costing compared to Process Costing
Advantge:
- More precise in assignment of costs to projects than process costing
- Provides more useful information for determining the profitability of particular projects and for estimating costs when bids on future jobs
Disadvantage:
- Requires a significant amount of data entry