#17.1 -- Cost Accounting and Job Order Costing (10.40)

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Job Order Cost Systems and Overhead Allocations:

Job Order Cost Systems and Overhead Allocations Chapter 17

Chapter 17 Learning Outcomes: Job Order Cost Systems & Overhead Allocations:

Chapter 17 Learning Outcomes: Job Order Cost Systems & Overhead Allocations Explain why managers use cost accounting systems. Explain job order costing and determine when to use job order costing when employing cost accounting. Explain the flow of costs in job order costing. Accurately use job order costing to allocate manufacturing overhead and ultimately assign costs. Describe activity-based costing and explain why companies use this cost accounting system. Accurately use activity-based costing to determine cost allocation rates and ultimately assign costs.

Outcome #1: Cost Accounting Systems:

Planning and control functions Providing products or services to customers Assessing the efficiency and effectiveness of operations Determining unit manufacturing costs Cost accounting systems provide information supporting decisions making the business successful Outcome #1: Cost Accounting Systems

Cost Accounting Systems:

Disclose inventories and cost of goods sold Track resources consumed by products and services Manage activities that consume resources Evaluate and reward employee performance Cost Accounting Systems Cost accounting systems are the procedures and techniques used by management

Slide5:

In the next two chapters, we will examine three different types of cost accounting: Job Order Costing (Chapter 17) Activity-Based Costing (Chapter 17) Process Costing (Chapter 18)

Outcome #2: Job Order Costing:

Outcome #2: Job Order Costing Typical job order cost applications: Special-order printing Building construction Also used in service industry Hospitals Law firms Used for production of large, unique, high-cost items. Built to order rather than mass produced. Many costs can be directly traced to each job.

Job Order Cost Systems and the Creation of Goods and Services:

THE JOB Direct materials Traced directly to each job Direct labor Traced directly to each job Job Order Cost Systems and the Creation of Goods and Services Manufacturing overhead (OH) Applied to each job using a predetermined rate (POHR)

Job Order Cost Systems and the Creation of Goods and Services:

Manufacturing Overhead Job No. 1 Job No. 2 Job No. 3 Charge direct material and direct labor costs to each job as work is performed. Direct Materials Direct Labor Apply overhead to each job using a predetermined rate . Job Order Cost Systems and the Creation of Goods and Services

Overhead Application Rates:

Estimated total manufacturing overhead cost for the coming period Estimated total units in the activity base for the coming period POHR = The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the period begins. It allows us to estimate because actual overhead costs will not be known until the end of the period. Ideally, the activity base is a cost driver that causes overhead. Overhead Application Rates

Overhead Application Rates:

Overhead applied = POHR × Actual activity Actual amount of the cost driver such as units produced, direct labor hours, or machine hours incurred during the period. Based on estimates, and determined before the period begins. Overhead Application Rates

Overhead Application Rates:

Compuline, Inc., applies overhead based on direct labor hours. Total estimated overhead for the year is $360,000. Total estimated labor hours are 30,000. What is Compuline’s predetermined overhead rate per hour? Overhead Application Rates

Overhead Application Rates:

For each direct labor hour worked on a job, $12.00 of manufacturing overhead will be applied to the job. POHR = $12.00 per DLH $360,000 30,000 direct labor hours (DLH) POHR = Estimated total manufacturing overhead cost for the coming period Estimated total units in the allocation base for the coming period POHR = Overhead Application Rates

The Job Cost Sheet:

The Job Cost Sheet

The Job Cost Sheet:

The Job Cost Sheet A materials requisition form is used to authorize the use of materials on a job.

The Job Cost Sheet:

The Job Cost Sheet Accumulate direct labor costs by means of a work record, such as a time ticket , for each employee.

The Job Cost Sheet:

The Job Cost Sheet Apply manufacturing overhead to jobs using a predetermined overhead rate (POHR) based on direct labor cost.

Outcome #3 Flow of Costs in Job Costing:

A materials requisition indicates the cost of direct material to charge to jobs and the cost of indirect material to charge to overhead. Outcome #3 Flow of Costs in Job Costing Job Cost Sheets Manufacturing Overhead Account Job Cost Sheets Job Cost Sheets Job Cost Sheets Direct Material Indirect Material Materials Requisitioin Material Requisitioin Materials Requisitioni Materials Requisition

Flow of Costs in Job Costing:

Employee time tickets indicate the cost of direct labor to charge to jobs and the cost of indirect labor to charge to overhead. Job Cost Sheets Manufacturing Overhead Account Job Cost Sheets Job Cost Sheets Job Cost Sheets Direct Labor Indirect Labor Employee Time Ticket Employee Time Ticket Employee Time Ticket Employee Time Ticket Flow of Costs in Job Costing

Flow of Costs in Job Costing:

Employee Time Ticket Materials Requisition Other Actual OH Charges Indirect Material Indirect Labor Manufacturing Overhead Account Overhead Applied with POHR Job Cost Sheets Flow of Costs in Job Costing

Flow of Costs in Job Costing:

Material Purchases Direct Material Direct Material Mfg. Overhead Indirect Material Work in Process (Job Cost Sheet) Indirect Material Materials Inventory Flow of Costs in Job Costing

Flow of Costs in Job Costing:

Direct Labor Mfg. Overhead Work in Process (Job Cost Sheet) Indirect Material Direct Material Overhead Applied to Work in Process Indirect Labor Direct Labor Overhead Applied Indirect Labor the difference is closed to cost of goods sold. When Actual Applied factory factory overhead overhead = / Labor Flow of Costs in Job Costing

Flow of Costs in Job Costing:

Cost of Goods Mfd. Finished Goods Cost of Goods Sold Cost of Goods Mfd. Cost of Goods Sold Cost of Goods Sold Work in Process (Job Cost Sheet) Direct Material Direct Labor Overhead Applied Flow of Costs in Job Costing

Over- or Under-applied Overhead:

Over- or Under-applied Overhead

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