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TRANSCRIPT
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 5:Job Order Costing
Cost Accounting: Foundations & Evolutions, 9e
Kinney and Raiborn
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objectives How do job order and process costing systems, as well as
their related valuation methods, differ? What are the distinguishing characteristics of a job order
costing system? What are the primary documents supporting a job order
costing system and what purposes are served by each of them?
How are costs accumulated in a job order costing system? How does information from a job order costing support
management decision making? How are losses treated in a job order costing system? (Appendix) How are standard costs used in a job order
costing system?
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Job Order or Process Costing
Job Order Small quantities Batches of identifiable,
tailor-made products User-specific services Tracks costs by job
Process Large quantities Homogeneous goods Tracks costs by batch of
goods by department
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Job Order Costing
A job is a single unit or group of units identifiable as being produced to distinct customer specifications
A job can be a Client or customer Engagement Project Product Contract
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Methods of Product Costing
Cost Accumulation System defines cost object method of assigning costs to production
Valuation Method specifies how product costs will be measured
Six Possibilities
Job Order Actual Normal Standard
Process Actual Normal Standard
VAL MU EA TT HI OO DN
COST ACCUMULATION SYSTEM
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Job Order Costing System Each job is a cost object Costs are accumulated for each job A job can consist of one or more units of
output There is a subsidiary ledger for each job
Job Order Costing System
WIP ControlJob 2Job 1 Job 3
Job 1 + Job 2 + Job 3 = WIP Control
WIP Subsidiary Ledger
= Job 1 100Job 2 200Job 3 500Total 800
100 200 500
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© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Job Order Costing and Technology Automate data collection and data entry Accounting software includes job costing
modules Share information using intranet
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Intranet
Restricted network for sharing information and delivering data from corporate databases to local-area network (LAN) desktops
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Tracking
Job Order Cost Sheet All financial information about a job
direct material (from material requisition) direct labor (from time sheets or labor tickets) applied overhead budgeted cost information
Material Requisition Form Tracks who is responsible for materials Verifies flow of materials from warehouse to department to job
Employee Time Sheet Time worked on each job When job is complete, use job order cost sheet to analyze actual
costs compared to budgeted costs
Management Use of Job Order Costing Systems
Estimate future job costs Establish realistic bids and selling prices Develop budgets and standards Compare actual costs to estimated costs Furnish performance evaluation
information based on profitability of jobs
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© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Product and Material Losses Shrinkage
Evaporation Leakage Oxidation
Production errors Defects can be economically reworked Spoilage cannot be economically reworked
Normal Loss—expected during production Abnormal Loss—exceeds what is expected during
production
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Product and Material Losses
NormalLoss
AbnormalLoss
Loss for most jobs
Loss identifiedwith a
specific job
In overheadrate
Period cost
Charge tospecific job
Period cost
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Standard Cost System
Actual cost Normal cost Standard cost
Predetermined norms (or standards) for materials, labor, and overhead
Compare actual costs to standard costs— difference is a variance
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Questions
What is the difference between job order and process costing systems?
How do actual, normal, and standard costing valuation methods differ?
How is the job order cost sheet used?
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Potential Ethical Issues Inflating costs assigned to cost-plus contracts Assigning costs from a fixed-fee contract to a cost-
plus contract Substituting materials with inferior quality Overstating costs included in Work in Process Using methods or materials that violate intellectual
property rights of other firms Recording sales value of defective work as “Other
Revenue”