chapter 6 job costing. 6-2 learning objectives 1. explain what job and job shop mean.2. assign costs...
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Chapter 6Chapter 6
Job CostingJob Costing
6-2
Learning ObjectivesLearning Objectives
1. Explain what job and job shop mean.
2. Assign costs in a job cost system.
3.Account for overhead using predetermined rates.
4.Apply job costing methods in service organizations.
5.Describe the difference between jobs and projects.
6-3
Job CostingJob CostingL.O. 1 Explain what a job and job shop
mean.Job
Cost object that can be distinguished easily and for which a cost is desired
Job shop Firm that produces jobs
Job cost sheet
Record of the cost of the job kept in the accounting system
6-4
Job Costing ContinuedJob Costing Continued
Subsidiary ledger account
Control account
Account that records financial transactions for a specific job
Account in the general ledger that summarizes a set of subsidiary ledger accounts
Job 1 WIPJob 2 WIPJob 3 WIP
Work-In-Process
6-5
The Cost of A JobThe Cost of A JobL.O. 2 Assign costs in a job cost
system.
Suppose Room With a View (RWV) builds custom homes.
Room With a View Job Cost Sheet
Subdivision Date Initiated
Date Completed
Lot
Direct Materials Direct Labor Manufacturing Overhead
Req. No. Amount Ticket Hours Amount Hours Rate Amount
Cost Summary
Direct Materials
Date Number Balance
Direct Labor
Manufacturing Overhead
Total Cost
10
May 15, 200XLa Cresta
6-6The Cost of A Job The Cost of A Job ContinuedContinued
Materials
Work-In-Process
Direct Materials
Indirect Materials
Raw Materials
Overhead
Total WIP
Lot 10
Lot 12
Lot 14
6-7The Cost of A Job The Cost of A Job ContinuedContinued
Labor
Work-In-Process
Direct Labor
Indirect Labor
Labor
Overhead
Total WIP
Lot 10
Lot 12
Lot 14
6-8The Cost of A Job The Cost of A Job ContinuedContinued
Overhead
Work-In-Process
Overhead
OH costs applied to each job using the POHR.
Lot 10
Lot 12
Lot 14
Total WIP
6-9
Recording OHRecording OHL.O. 3 Account for overhead using
predetermined rates.
Predetermined Overhead Rate
(POHR)
Estimated overhead $
Estimated allocation base
RWV
$900,000
$1,200,000
.75/DM$
Direct Material Costs
6-10
During June RWV worked on three homes, Lot 10, 12 and 14.
On June 1 RWV had one home, Lot 10, in process with costs of $255,000.
Let’s record June activities for RWV.
WIP Lot 10
6/1 255,000
RWV’s Job Cost SystemRWV’s Job Cost System
6-11
Room With a ViewRoom With a View
RWV purchased $100,000 of Raw Materials on account.
RM Inventory
100,000
Accounts Payable
100,000
6-12
Room With a ViewRoom With a ViewUsed $10,000 materials for Lot 10. Started Lots 12 and 14 and used $40,000 and $30,000 respectively. Used $20,000 indirect materials.
Raw Materials
WIP Lot 10
WIP Lot 12
WIP Lot 14
Overhead
100,000
10,000
40,000
30,000
20,000
6-13
Room With a ViewRoom With a ViewIncurred labor of $62,000. $10,000 for Lot 10, $30,000 Lot 12, $20,000 Lot 14 and $2,000 indirect labor.
WIP Lot 10
WIP Lot 12
WIP Lot 14
10,000
30,000
20,000
Overhead Wages Payable
2,000 62,000
6-14
Room With a ViewRoom With a View
Recorded depreciation of $30,000 and incurred other indirect costs of $15,000 on account.
OverheadAccumulated Depreciation
Accounts Payable
45,000
30,000
15,000
6-15
Room With a ViewRoom With a ViewApplied overhead for June based on the POHR.
WIP Lot 10
WIP Lot 12
WIP Lot 14
Overhead
7,500 30,000
22,500
60,000
.75/DM$
6-16
Room With a ViewRoom With a ViewSold Lot 10 for $550,000.
Cash
550,000
Sales Revenue
COGS
282,500
WIP Lot 10
7,500
255,000
10,000
10,000
Record sale 550,000
Record COGS282,500
6-17
Room With a ViewRoom With a View
At June 30 Lot 12 is completed but not sold.
WIP Lot 12
40,00030,00030,000
FG Lot 12
100,000
100,000
6-18
Room With a ViewRoom With a View
Accounts at June 30
WIP
72,500
COGS
282,500
Finished Goods
100,000
Lot 10
Lot 12
Lot 14
6-19
The excess of actual overhead costs incurred over applied overhead costs
The excess of applied overhead costs over actual overhead costs incurred
Over and Under Applied Over and Under Applied OverheadOverhead
Underapplied Overhead
Overapplied Overhead
6-20Ending Balance in MOH Ending Balance in MOH AccountsAccounts
Not a balance sheet account
Ending balance must be ZERO
Ø
Overhead
60,00020,0002,000
45,00067,000
60,000MOH underapplied $7,000
6-21Ending Balance in MOH Ending Balance in MOH AccountsAccounts
Charge underapplied overhead to cost of good sold.
Overhead
60,00020,0002,000
45,000
COGS
7,000
7,000
6-22
Room With a ViewRoom With a View
Accounts at June 30
WIP 72,500
COGS $282,500Finished Goods 100,000
% of total
Total $455,000
15.9%
62.1%
22.0%
100%
Costs
6-23Ending Balance in MOH Ending Balance in MOH AccountsAccounts
Allocate underapplied overhead to finished goods, cost of good sold and WIP.
Overhead
60,000
20,000
2,000
40,000
7,000
WIP
72,500
COGS
282,500
Finished Goods
100,000
4,347a 1,540b 1,113c
a 7,000 x .621b 7,000 x .220c 7,000 x .159
6-24Ending Balance in MOH Ending Balance in MOH AccountsAccounts
Not a balance sheet account
Ending balance must be ZERO
Ø
Overhead
60,00020,0002,000
45,00067,000
67,000
7,000
Ending balance equals zero
6-25Normal, Actual and Standard Normal, Actual and Standard CostingCosting
Normal
Actual
Standard
Cost of job determined by actual direct material, actual direct labor and applied overhead using the POHR and the actual allocation base.
Cost of job determined by actual direct material, actual direct labor and applied overhead using actual overhead rate and the actual allocation base.Cost of job determined by standard (budgeted) direct material, standard direct labor and applied overhead using the POHR and a standard (budgeted) allocation base.
6-26
Service OrganizationService OrganizationL.O. 4 Apply job costing methods in service
organizations.
Job Client
Direct Labor
Indirect Labor
Labor
Overhead
WIP
Client A
Client B
Client C
Total WIP
6-27
Job
Managing ProjectsManaging ProjectsL.O. 5 Describe the difference between jobs and
projects.
Project Complex job that spans several periods and requires the work of many different departments, divisions, or subcontractors
Cost object that can be distinguished easily and for which a cost is desired
6-28Managing Projects Managing Projects ExampleExample
Project A WIPProject B WIPProject C WIP
Road Construction
One job; several projects.
6-29
Chapter 6Chapter 6