Maliyet Muhasebesi Job-Order Costing Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin Chapter Three Job-Order CostingCopyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 2 Learning Objective 1 Distinguish between process costing and job- order costing and identify companies that would use each costing method.Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 3 Types of Product Costing Systems Process Costing Job-order Costing A company produces many units of a single ? product. One unit of product is indistinguishable from ? other units of product. The identical nature of each unit of product enables ? assigning the same average cost per unit.Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 4 Types of Product Costing Systems Process Costing Job-order Costing A company produces many units of a single ? product. One unit of product is indistinguishable from ? other units of product. The identical nature of each unit of product enables ? assigning the same average cost per unit. Example companies: 1. Paper manufacturing 2. Milk products 3. Beverage productionCopyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 5 Types of Product Costing Systems Process Costing Job-order Costing Many different products are produced each period. ? Products are manufactured to order. ? The unique nature of each order requires tracing or ? allocating costs to each job, and maintaining cost records for each job.Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 6 Types of Product Costing Systems Process Costing Job-order Costing Many different products are produced each period. ? Products are manufactured to order. ? The unique nature of each order requires tracing or ? allocating costs to each job, and maintaining cost records for each job. Example industries: 1. Aircraft manufacturing 2. Ship building 3. Movie productionCopyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 7 Comparing Process and Job-Order Costing J o b - O r d e r P r o c e s s N u m b e r o f j o b s w o r k e d M a n y S i n g l e P r o d u c t C o s t a c c u m u l a t e d b y I n d i v i d u a l J o b D e p a r t m e n t A v e r a g e c o s t c o m p u t e d b y J o b D e p a r t m e n tCopyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 8 Quick Check ? Which of the following industries would be likely to use job-order costing rather than process costing? a. Paper manufacturing. b. Architecture. c. Ketchup manufacturing. d. Catering services for wedding reception. e. Customized furniture manufacturing.Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 9 Quick Check ? Which of the following industries would be likely to use job-order costing rather than process costing? a. Paper manufacturing. b. Architecture. c. Ketchup manufacturing. d. Catering services for wedding reception. e. Customized furniture manufacturing.Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 10 Learning Objective 2 Identify the documents used in a job-order costing system.Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 11 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. Job-Order Costing – An Overview Direct Materials Direct LaborCopyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 12 Manufacturing Overhead, including indirect materials and indirect labor , are allocated to all jobs rather than directly traced to each job. Direct Manufacturing Costs Direct Materials Direct Labor Job No. 1 Job No. 2 Job No. 3 Manufacturing OverheadCopyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 13 PearCo Job Cost Sheet Job Number A - 143 Date Initiated 3-4-05 Date Completed Department B3 Units Completed Item Wooden cargo crate Direct Materials Direct Labor Manufacturing Overhead Req. No. Amount Ticket Hours Amount Hours Rate Amount Cost Summary Units Shipped Direct Materials Date Number Balance Direct Labor Manufacturing Overhead Total Cost Unit Product Cost The Job Cost SheetCopyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 14 Measuring Direct Materials Cost P e a r C o M a t e r i a l s R e q u i s i t i o n F o r m R e q u i s i t i o n N o . X 7 - 6 8 9 0 D a t e 3 - 4 - 0 5 J o b N o . A - 1 4 3 D e p a r t m e n t B 3 D e s c r i p t i o n Q u a n t i t y U n i t C o s t T o t a l C o s t 2 x 4 , 1 2 f e e t 1 2 3 . 0 0 $ 3 6 . 0 0 $ 1 x 6 , 1 2 f e e t 2 0 4 . 0 0 8 0 . 0 0 1 1 6 . 0 0 $ A u t h o r i z e d S i g n a t u r e Will E. DeliteCopyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 15 P e a r C o J o b C o s t S h e e t J o b N u m b e r A - 1 4 3 D a t e I n i t i a t e d 3 - 4 - 0 5 D a t e C o m p l e t e d D e p a r t m e n t B 3 U n i t s C o m p l e t e d I t e m W o o d e n c a r g o c r a t e D i r e c t M a t e r i a l s D i r e c t L a b o r M a n u f a c t u r i n g O v e r h e a d R e q . N o . A m o u n t T i c k e t H o u r s A m o u n t H o u r s R a t e A m o u n t X 7 - 6 8 9 0 1 1 6 $ C o s t S u m m a r y U n i t s S h i p p e d D i r e c t M a t e r i a l s 1 1 6 $ D a t e N u m b e r B a l a n c e D i r e c t L a b o r M a n u f a c t u r i n g O v e r h e a d T o t a l C o s t U n i t P r o d u c t C o s t Measuring Direct Materials CostCopyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 16 Measuring Direct Labor Costs P e a r C o E m p l o y e e T i m e T i c k e t T i m e T i c k e t N o . 3 6 D a t e 3 / 5 / 2 0 0 5 E m p l o y e e I . M . S k i l l e d S t a t i o n 4 2 S t a r t i n g E n d i n g H o u r s H o u r l y T i m e T i m e C o m p l e t e d R a t e A m o u n t J o b N o . 0 8 0 0 1 6 0 0 8 . 0 0 1 1 . 0 0 $ 8 8 . 0 0 $ A - 1 4 3 T o t a l s 8 . 0 0 1 1 . 0 0 $ 8 8 . 0 0 $ A - 1 4 3 S u p e r v i s o r C . M . W o r k m a nCopyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 17 Job-Order Cost Accounting P e a r C o J o b C o s t S h e e t J o b N u m b e r A - 1 4 3 D a t e I n i t i a t e d 3 - 4 - 0 5 D a t e C o m p l e t e d D e p a r t m e n t B 3 U n i t s C o m p l e t e d I t e m W o o d e n c a r g o c r a t e D i r e c t M a t e r i a l s D i r e c t L a b o r M a n u f a c t u r i n g O v e r h e a d R e q . N o . A m o u n t T i c k e t H o u r s A m o u n t H o u r s R a t e A m o u n t X 7 - 6 8 9 0 1 1 6 $ 3 6 8 8 8 $ C o s t S u m m a r y U n i t s S h i p p e d D i r e c t M a t e r i a l s 1 1 6 $ D a t e N u m b e r B a l a n c e D i r e c t L a b o r 8 8 $ M a n u f a c t u r i n g O v e r h e a d T o t a l C o s t U n i t P r o d u c t C o s tCopyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 18 Learning Objective 3 Compute predetermined overhead rates and explain why estimated overhead costs (rather than actual overhead costs) are used in the costing process.Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 19 Why Use an Allocation Base? Manufacturing overhead is applied to jobs that are in process. An allocation base, such as direct labor hours, direct labor dollars, or machine hours, is used to assign manufacturing overhead to individual jobs. We use an allocation base because: It is impossible or difficult to trace overhead 1. costs to particular jobs. Manufacturing overhead consists of many 2. different items.Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 20 The predetermined overhead rate ( POHR ) used to apply overhead to jobs is determined before the period begins. Manufacturing Overhead Application Ideally, the allocation base is a cost driver that causes overhead. Estimated total MOH Estimated total units of allocation base POHR =Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 21 Using a predetermined rate makes it possible to estimate total job costs sooner. Actual overhead for the period is not known until the end of the period. The Need for a POHR $Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 22 Actual amount of the allocation based upon the actual level of activity. Based on estimates , and determined before the period begins. Application of Manufacturing Overhead Overhead applied = POHR × Actual activity Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 23 For each direct labor hour worked on a particular job, $4.00 of factory overhead will be applied to that job. Overhead Application Rate POHR = $4.00 per DLH $640,000 160,000 direct labor hours (DLH) POHR = Estimated total MOH Estimated total units of allocation base POHR =Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 24 Job-Order Cost Accounting P e a r C o J o b C o s t S h e e t J o b N u m b e r A - 1 4 3 D a t e I n i t i a t e d 3 - 4 - 0 5 D a t e C o m p l e t e d 3 - 5 - 0 5 D e p a r t m e n t B 3 U n i t s C o m p l e t e d 2 I t e m W o o d e n c a r g o c r a t e D i r e c t M a t e r i a l s D i r e c t L a b o r M a n u f a c t u r i n g O v e r h e a d R e q . N o . A m o u n t T i c k e t H o u r s A m o u n t H o u r s R a t e A m o u n t X 7 - 6 8 9 0 1 1 6 $ 3 6 8 8 8 $ 8 4 $ 3 2 $ C o s t S u m m a r y U n i t s S h i p p e d D i r e c t M a t e r i a l s 1 1 6 $ D a t e N u m b e r B a l a n c e D i r e c t L a b o r 8 8 $ M a n u f a c t u r i n g O v e r h e a d 3 2 $ T o t a l C o s t U n i t P r o d u c t C o s tCopyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 25 Job-Order Cost Accounting P e a r C o J o b C o s t S h e e t J o b N u m b e r A - 1 4 3 D a t e I n i t i a t e d 3 - 4 - 0 5 D a t e C o m p l e t e d 3 - 5 - 0 5 D e p a r t m e n t B 3 U n i t s C o m p l e t e d 2 I t e m W o o d e n c a r g o c r a t e D i r e c t M a t e r i a l s D i r e c t L a b o r M a n u f a c t u r i n g O v e r h e a d R e q . N o . A m o u n t T i c k e t H o u r s A m o u n t H o u r s R a t e A m o u n t X 7 - 6 8 9 0 1 1 6 $ 3 6 8 8 8 $ 8 4 $ 3 2 $ C o s t S u m m a r y U n i t s S h i p p e d D i r e c t M a t e r i a l s 1 1 6 $ D a t e N u m b e r B a l a n c e D i r e c t L a b o r 8 8 $ M a n u f a c t u r i n g O v e r h e a d 3 2 $ T o t a l C o s t 2 3 6 $ U n i t P r o d u c t C o s t 1 1 8 $ Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 26 Quick Check ? Job WR53 at NW Fab, Inc. required $200 of direct materials and 10 direct labor hours at $15 per hour. Estimated total overhead for the year was $760,000 and estimated direct labor hours were 20,000. What would be recorded as the cost of job WR53? a. $200. b. $350. c. $380. d. $730.Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 27 Quick Check ? Job WR53 at NW Fab, Inc. required $200 of direct materials and 10 direct labor hours at $15 per hour. Estimated total overhead for the year was $760,000 and estimated direct labor hours were 20,000. What would be recorded as the cost of job WR53? a. $200. b. $350. c. $380. d. $730. P r e d . o v h d . r a t e $ 7 6 0 , 0 0 0 / 2 0 , 0 0 0 h o u r s $ 3 8 D i r e c t m a t e r i a l s $ 2 0 0 D i r e c t l a b o r $ 1 5 x 1 0 h o u r s $ 1 5 0 M a n u f a c t u r i n g o v e r h e a d $ 3 8 x 1 0 h o u r s $ 3 8 0 T o t a l c o s t $ 7 3 0Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 28 Learning Objectives 4 & 7 Understand the flow of costs in a job-order costing system and prepare appropriate journal entries to record costs. Use T-accounts to show the flow of costs in a job-order costing system.Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 29 Job-Order Costing: The Flow of Costs The transactions (in T- account and journal entry form) that capture the flow of costs in a job- order costing system are illustrated on the following slides .Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 30 Raw Materials Material ? Purchases Mfg. Overhead Work in Process (Job Cost Sheet) Actual Applied Direct ? Materials Direct ? Materials Indirect ? Materials Indirect ? Materials The Purchase and Issue of Raw MaterialsCopyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 31 G E N E R A L J O U R N A L D a t e D e s c r i p t i o n P o s t . R e f . D e b i t C r e d i t R a w M a t e r i a l s X X X X X A c c o u n t s P a y a b l e X X X X X Cost Flows – Material Purchases Raw material purchases are recorded in an inventory account. Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 32 G E N E R A L J O U R N A L D a t e D e s c r i p t i o n P o s t . R e f . D e b i t C r e d i t W o r k i n P r o c e s s X X X X X M a n u f a c t u r i n g O v e r h e a d X X X X X R a w M a t e r i a l s X X X X X 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. Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 33 Mfg. Overhead Salaries and Wages Payable Work in Process (Job Cost Sheet) Direct ? Materials Direct ? Labor Direct ? Labor Indirect ? Materials Actual Applied Indirect ? Labor Indirect ? Labor The Recording of Labor CostsCopyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 34 G E N E R A L J O U R N A L D a t e D e s c r i p t i o n P o s t . R e f . D e b i t C r e d i t W o r k i n P r o c e s s X X X X X M a n u f a c t u r i n g O v e r h e a d X X X X X S a l a r i e s a n d W a g e s P a y a b l e X X X X X The Recording of Labor Costs The cost of direct labor incurred increases Work in Process and the cost of indirect labor increases Manufacturing Overhead. Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 35 Mfg. Overhead Salaries and Wages Payable Work in Process (Job Cost Sheet) Direct ? Materials Direct ? Labor Direct ? Labor Indirect ? Materials Actual Applied Indirect ? Labor Indirect ? Labor Recording Actual Manufacturing Overhead Other ? OverheadCopyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 36 G E N E R A L J O U R N A L D a t e D e s c r i p t i o n P o s t . R e f . D e b i t C r e d i t M a n u f a c t u r i n g O v e r h e a d X X X X X A c c o u n t s P a y a b l e X X X X X P r o p e r t y T a x e s P a y a b l e X X X X X P r e p a i d I n s u r a n c e X X X X X A c c u m u l a t e d D e p r e c i a t i o n X X X X X Recording Actual Manufacturing Overhead In addition to indirect materials and indirect labor, other manufacturing overhead costs are charged to the Manufacturing Overhead account as they are incurred. Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 37 Learning Objective 5 Apply overhead cost to Work in Process using a predetermined overhead rate.Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 38 Mfg. Overhead Salaries and Wages Payable Work in Process (Job Cost Sheet) Direct ? Materials Direct ? Labor Direct ? Labor Indirect ? Materials Actual Applied Indirect ? Labor Indirect ? Labor Applying Manufacturing Overhead Other ? Overhead Overhead ? Applied Overhead ? Applied to Work in Process If actual and applied manufacturing overhead are not equal, a year-end adjustment is required.Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 39 G E N E R A L J O U R N A L D a t e D e s c r i p t i o n P o s t . R e f . D e b i t C r e d i t W o r k i n P r o c e s s X X X X X M a n u f a c t u r i n g O v e r h e a d X X X X X Applying Manufacturing Overhead Work in Process is increased when Manufacturing Overhead is applied to jobs. Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 40 Learning Objective 6 Prepare schedules of cost of goods manufactured and cost of goods sold.Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 41 Finished Goods Work in Process (Job Cost Sheet) Direct ? Materials Direct ? Labor Overhead ? Applied Cost of ? Goods Mfd. Cost of ? Goods Mfd. Transferring Completed UnitsCopyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 42 G E N E R A L J O U R N A L D a t e D e s c r i p t i o n P o s t . R e f . D e b i t C r e d i t F i n i s h e d G o o d s X X X X X W o r k i n P r o c e s s X X X X X Transferring Completed Units As jobs are completed, the Cost of Goods Manufactured is transferred to Finished Goods from Work in Process. Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 43 Finished Goods Cost of Goods Sold Work in Process (Job Cost Sheet) Direct ? Materials Direct ? Labor Overhead ? Applied Cost of ? Goods Mfd. Cost of ? Goods Mfd. Cost of ? Goods Sold Cost of ? Goods Sold Transferring Units SoldCopyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 44 G E N E R A L J O U R N A L D a t e D e s c r i p t i o n P o s t . R e f . D e b i t C r e d i t A c c o u n t s R e c e i v a b l e X X X X X S a l e s X X X X X C o s t o f G o o d s S o l d X X X X X F i n i s h e d G o o d s X X X X X Transferring Units Sold When finished goods are sold, two entries are required: (1) to record the sale, and (2) to record COGS and reduce Finished Goods. Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 45 Accounting for Nonmanufacturing Cost Nonmanufacturing costs are not assigned to individual jobs; rather they are expensed in the period incurred. Examples: 1. Salary expense of employees who work in a marketing, selling, or administrative capacity. 2. Advertising expenses are expensed in the period incurred.Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 46 G E N E R A L J O U R N A L D a t e D e s c r i p t i o n P o s t . R e f . D e b i t C r e d i t S a l a r i e s E x p e n s e X X X X X S a l a r i e s P a y a b l e X X X X X A d v e r t i s i n g E x p e n s e X X X X X A c c o u n t s P a y a b l e X X X X X Accounting for Nonmanufacturing Cost Nonmanufacturing costs (period expenses) are charged to expense as they are incurred. Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 47 Job-Order Costing: The Flow of Costs APPLICATIONCopyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 48 Transactions Purchase of $80,000 worth of materials 1. (direct and indirect) on credit. Raw Materials 80,000 2. Accounts Payable 80,000Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 49 Transactions Materials costing $70,000 were sent to the 2. manufacturing plant floor. $45,000 were issued to Job No. 100 and • $10,000 to Job 102. $15,000 of indirect materials were issued. • What is the journal entry? •Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 50 Transactions Work-in-Process 55,000 2. Job No. 100 45,000 Job No. 102 10,000 MOH Control 15,000 Raw Materials 70,000Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 51 Transactions Raw Materials Work-in-Process 1. 80,000 2. 70,000 2. 55,000 Manufacturing Overhead Job 100 2. 15,000 2. 45,000Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 52 Transactions Total manufacturing payroll for the period was 3. $22,000. Job No. 100 incurred direct labor costs of 4. $14,000 and Job No. 102 incurred direct labor costs of $3,000. $5,000 of indirect labor was also incurred. 5. What is the journal entry? 6.Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 53 Transactions Work-in-Process 17,000 3. Job No. 100 14,000 Job No. 102 3,000 MOH Control 5,000 Wages Payable 22,000Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 54 Transactions Wages Payable Work-in-Process 3. 22,000 2. 55,000 3. 17,000 Manufacturing Overhead Job 100 2. 15,000 2. 45,000 3. 5,000 3. 14,000Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 55 Transactions Wages payable were paid. 4. Wages Payable 22,000 • Cash 22,000 Wages Payable Cash 4. 22,000 3. 22,000 4. 22,000Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 56 Transactions Assume that depreciation for the period is 5. $26,000. Other manufacturing overhead incurred • amounted to $19,100. What is the journal entry? •Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 57 Transactions MOH Control 45,100 5. Accumulated Depreciation 26,000 Various Accounts 19,100 What is the balance of the Manufacturing • Overhead Control?Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 58 Transactions Manufacturing Overhead • 2. 15,000 3. 5,000 5. 45,100 Bal. 65,100Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 59 Transactions $62,000 of overhead was allocated to the 6. various jobs of which $12,500 went to Job 100. What is the journal entry? • Work-in-Process 62,000 • MOH Control 62,000 What are the balances of the control • accounts?Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 60 Transactions Manufacturing Overhead Work-in-Process 2. 15,000 6. 62,000 2. 55,000 3. 5,000 3. 17,000 5. 45,100 6. 62,000 Bal. 3,100 Bal. 134,000Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 61 Transactions The cost of Job 100 is: • Job 100 2. 45,000 3. 14,000 6. 12,500 Bal. 71,500Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 62 Transactions Jobs costing $104,000 were completed and 7. transferred to finished goods, including Job 100. Finished Goods 104,000 • Work-in-Process 104,000 What effect does this have on the control • accounts?Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 63 Transactions Work-in-Process Finished Goods 55,000 7. 104,000 7. 104,000 17,000 62,000 Bal. 30,000Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 64 Transactions What is the journal entry to transfer Job 100? • Finished Goods Control 71,500 • Work-in-Process Control 71,500Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 65 Transactions Job 100 was sold for $104,800. • What is the journal entry? • Accounts Receivable 104,800 • Revenues 104,800 Cost of Goods Sold 71,500 • Finished Goods Control 71,500Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 66 Transactions What is the balance in the Finished Goods • Control account? $104,000 – $71,500 = $32,500 • Assume that marketing and administrative • salaries were $9,000 and $10,000. What is the journal entry? •Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 67 Transactions Salaries Expense 19,000 • Salaries Payable 19,000Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 68 Learning Objective 8 Compute underapplied or overapplied overhead cost and prepare the journal entry to close the balance in Manufacturing Overhead to the appropriate accounts.Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 69 Problems of Overhead Application The difference between the overhead cost applied to Work in Process and the actual overhead costs is referred to as either underapplied or overapplied overhead. Underapplied overhead exists when overhead applied to jobs is less than actual overhead. Overapplied overhead exists when overhead applied to jobs is greater than actual overhead.Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 70 For each direct labor hour worked on a particular job, $4.00 of factory overhead will be applied to that job. Overhead Application Rate POHR = $4.00 per DLH $640,000 160,000 direct labor hours (DLH) POHR = Estimated total MOH Estimated total units of allocation base POHR =Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 71 Actual amount of the allocation based upon the actual level of activity. Based on estimates , and determined before the period begins. Application of Manufacturing Overhead Overhead applied = POHR × Actual activity Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 72 PearCo’s actual overhead for the year was $650,000 with a total of 170,000 direct labor hours worked on jobs. How much total overhead was applied to PearCo’s jobs during the year? Use PearCo’s predetermined overhead rate of $4.00 per direct labor hour. Overhead Application Example Overhead Applied During the Period Applied Overhead = POHR × Actual Direct Labor Hours Applied Overhead = $4.00 per DLH × 170,000 DLH = $680,000Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 73 PearCo’s actual overhead for the year was $650,000 with a total of 170,000 direct labor hours worked on jobs. How much total overhead was applied to PearCo’s jobs during the year? Use PearCo’s predetermined overhead rate of $4.00 per direct labor hour. Overhead Application Example Overhead Applied During the Period Applied Overhead = POHR × Actual Direct Labor Hours Applied Overhead = $4.00 per DLH × 170,000 DLH = $680,000 PearCo has overapplied overhead for the year by $30,000. What will PearCo do?Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 74 Disposition of Under- or Overapplied Overhead $30,000 may be closed directly to cost of goods sold. Cost of Goods Sold PearCo’s Method Work in Process Finished Goods Cost of Goods Sold $30,000 may be allocated to these accounts. ORCopyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 75 Disposition of Under- or Overapplied Overhead to COGS PearCo’s Mfg. Overhead Actual overhead costs $650,000 $30,000 overapplied PearCo’s Cost of Goods Sold Unadjusted Balance Adjusted Balance $30,000 $30,000 Overhead applied to jobs $680,000Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 76 Disposition of Under- or Overapplied Overhead to COGS G E N E R A L J O U R N A L D a t e D e s c r i p t i o n P o s t . R e f . D e b i t C r e d i t M a n u f a c t u r i n g O v e r h e a d 3 0 . 0 0 0 C o s t o f G o o d s S o l d 3 0 . 0 0 0Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 77 Allocating Under- or Overapplied Overhead Between Accounts A m o u n t P e r c e n t o f T o t a l A l l o c a t i o n o f $ 3 0 , 0 0 0 W o r k i n p r o c e s s 6 8 , 0 0 0 $ 1 0 % 3 , 0 0 0 $ F i n i s h e d G o o d s 2 0 4 , 0 0 0 3 0 % 9 , 0 0 0 C o s t o f G o o d s S o l d 4 0 8 , 0 0 0 6 0 % 1 8 , 0 0 0 T o t a l 6 8 0 , 0 0 0 $ 1 0 0 % 3 0 , 0 0 0 $ Assume the overhead applied in ending Work in Process Inventory, ending Finished Goods Inventory, and Cost of Goods Sold is shown below:Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 78 Allocating Under- or Overapplied Overhead Between Accounts A m o u n t P e r c e n t o f T o t a l A l l o c a t i o n o f $ 3 0 , 0 0 0 W o r k i n p r o c e s s 6 8 , 0 0 0 $ 1 0 % 3 , 0 0 0 $ F i n i s h e d G o o d s 2 0 4 , 0 0 0 3 0 % 9 , 0 0 0 C o s t o f G o o d s S o l d 4 0 8 , 0 0 0 6 0 % 1 8 , 0 0 0 T o t a l 6 8 0 , 0 0 0 $ 1 0 0 % 3 0 , 0 0 0 $ We would complete the following allocation of $30,000 overapplied overhead:Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 79 Allocating Under- or Overapplied Overhead Between Accounts A m o u n t P e r c e n t o f T o t a l A l l o c a t i o n o f $ 3 0 , 0 0 0 W o r k i n p r o c e s s 6 8 , 0 0 0 $ 1 0 % 3 , 0 0 0 $ F i n i s h e d G o o d s 2 0 4 , 0 0 0 3 0 % 9 , 0 0 0 C o s t o f G o o d s S o l d 4 0 8 , 0 0 0 6 0 % 1 8 , 0 0 0 T o t a l 6 8 0 , 0 0 0 $ 1 0 0 % 3 0 , 0 0 0 $ G E N E R A L J O U R N A L D a t e D e s c r i p t i o n P o s t . R e f . D e b i t C r e d i t M a n u f a c t u r i n g O v e r h e a d 3 0 , 0 0 0 W o r k i n P r o c e s s I n v e n t o r y 3 , 0 0 0 F i n i s h e d G o o d s I n v e n t o r y 9 , 0 0 0 C o s t o f G o o d s S o l d 1 8 , 0 0 0Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 80 Overapplied and Underapplied Manufacturing Overhead - Summary A l t e r n a t i v e 1 A l t e r n a t i v e 2 I f M a n u f a c t u r i n g C l o s e t o C o s t O v e r h e a d i s . . . o f G o o d s S o l d A l l o c a t i o n U N D E R A P P L I E D I N C R E A S E I N C R E A S E C o s t o f G o o d s S o l d W o r k i n P r o c e s s ( A p p l i e d M O H i s l e s s F i n i s h e d G o o d s t h a n a c t u a l M O H ) C o s t o f G o o d s S o l d O V E R A P P L I E D D E C R E A S E D E C R E A S E C o s t o f G o o d s S o l d W o r k i n P r o c e s s ( A p p l i e d M O H i s g r e a t e r F i n i s h e d G o o d s t h a n a c t u a l M O H ) C o s t o f G o o d s S o l d PearCo’s MethodCopyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 81 Multiple Predetermined Overhead Rates To this point, we have assumed that there is a single predetermined overhead rate called a plantwide overhead rate. Large companies often use multiple predetermined overhead rates. May be more complex but . . . May be more accurate because it reflects differences across departments .Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 82 Job-Order Costing in Service Companies Job-order costing is used in many different types of service companies.Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 83 Job-Order Costing in Service Companies Service industries perform jobs that differ from • each other. Job costing is very useful in these industries. •Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 84 Job-Order Costing in Service Companies Carmen and Associates provide home health • services. Their budget includes the following: • Total direct labor costs: $400,000 Total indirect costs: $96,000 Total direct (professional) labor hours: 16,000Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 85 Job-Order Costing in Service Companies What is the budgeted direct labor cost rate? • $400,000 ÷ 16,000 = $25 What is the budgeted indirect cost rate? • $96,000 ÷ 16,000 = $6Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 86 Job-Order Costing in Service Companies Suppose a patient uses 25 direct labor hours. • Assuming no other direct costs, what is the cost • to Carmen and Associates? Direct labor: 25 hours × $25 = $625 Indirect costs: 25 hours × $ 6 = 150 Total $775Copyright © 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 3- 87 End of Chapter 3