Systems Design: Job-Order Costing

Chapter 3

Types of Product Costing Systems

Process
Costing

Job-order
Costing

Many
Many different
different products
products are
are produced
produced each
each period.
period.
Products
Products are
are manufactured
manufactured to
to order.
order.

The
The unique
unique nature
nature of
of each
each order
order requires
requires tracing
tracing or
or
allocating
allocating costs
costs to
to each
each job,
job, and
and maintaining
maintaining cost
cost
records
records for
for each
each job.
job.

3-2

Comparing Process and Job-Order Costing

3-3

Measuring Direct Materials Cost

3-4

Job-Order Cost Accounting

3-5

Manufacturing Overhead Application

The predetermined overhead rate (POHR) used
to apply overhead to jobs is determined before
the period begins.

3-6

Determining Predetermined Overhead

Rates
Predetermined overhead rates are calculated
using a three-step process.

Estimate
Estimate the
the level
level of
of
production
production for
for the
the
period.
period.

Estimate
Estimate total
total amount
amount
of
of the
the allocation
allocation base
base
for
for the
the period.
period.

Estimate
Estimate total
total
manufacturing
manufacturing
overhead
overhead costs.
costs.

POHR =
3-7

Job-Order Cost Accounting

3-8

Job-Order Costing
Document Flow Summary

Materials
Materials
used
used may
may be
be
either
either direct
direct or
or
indirect.
indirect.

Direct
materials

Job Cost
Sheets

Materials
Requisition
Indirect
materials

Manufacturing
Overhead
Account

3-9

Job-Order Costing
Document Flow Summary
An
employees
time may be either
direct or
indirect.

Direct
Labor

Job Cost
Sheets

Employee Time
Ticket
Indirect
Labor

Manufacturing
Overhead
Account

3-10

Job-Order Costing
Document Flow Summary
Materials
Requisition

Other
Actual OH
Charges
Employee
Time Ticket

Indirect
Material

POHR
rate used
to apply
Manufacturing overhead
Overhead
Account

Job Cost
Sheets

Indirect
Labor
3-11

The Purchase and Issue of Raw Materials

Raw Materials
Material Direct
Purchases Materials
Indirect
Materials

Work in Process
(Job Cost Sheet)
Direct
Materials

Mfg. Overhead
Actual Applied
Indirect
Materials

3-12

Cost Flows Material Purchases

Raw material purchases are recorded in an
inventory account.

3-13

Cost Flows Material Usage

Direct materials issued to a job increase Work in
Process and decrease Raw Materials. Indirect
materials used are charged to Manufacturing
Overhead and also decrease Raw Materials.

3-14

The Recording of Labor Costs

Salaries and
Wages Payable
Direct
Labor
Indirect
Labor

Work in Process
(Job Cost Sheet)
Direct

Direct
Materials
Labor

Mfg. Overhead
Actual Applied
Indirect
Materials
Indirect
Labor
3-15

Applying Manufacturing Overhead

Salaries and
Wages Payable
Direct
Labor
Indirect
Labor

Mfg. Overhead
Actual Applied
Indirect
Materials Overhead
Indirect
Applied to
Labor
Work in
Other
Process
Overhead

Work in Process
(Job Cost Sheet)
Direct

Direct
Materials
Labor
Overhead
Applied

If actual and
and applied
manufacturing overhead
are not equal, a year-end
adjustment is required.
required.

3-16

Transferring Completed Units

Work in Process
(Job Cost Sheet )
Direct

Direct
Materials
Labor
Overhead
Applied

Finished Goods
Cost of
Goods
Mfd.

Cost of
Goods
Mfd.

3-17

Underapplied and Overapplied Overhead

Beginning of the period:

Estimated total manufacturing overhead cost / Estimated total amount

of the allocation base = Predetermined overhead rate (POHR)

During the period:

Predetermined overhead rate x Actual total amount of the allocation

base incurred during the period = Total manufacturing overhead
applied

End of the period:

Actual total manufacturing overhead cost - Total manufacturing

overhead applied = Underapplied (Overapplied) overhead

End of Chapter 3

3-19