Job-Order Costing

A job order costing system is used when a company produces a product or provides a service that is unique-that is, the cost of one product or service is different than that of another.

A job order costing system must be able to identify each individual job and accumulate its costs separately from the costs of other jobs. In manufacturing, the jobs may be for a single item or a batch of similar items. The flowchart illustrates the flow of costs into Work in Process and Finished Goods in a job order costing system.

Cost Flows in a Job Cost System

Materials

Work in Process-Assembly Dept

Work in Process- Test & Packaging Dept

Finished Goods

Beg Inventory
+ Purchases		Direct Materials
End Inventory

Job#1, Job#2

Job#3, Job#4

Beg Inventory		Cost of Units
+ Direct Materials		transferred out
+ Direct Labor
Job#1,#2,#3,#4
+ Factory Overhead
appliedJob#1,#2,#3,#4
End Inventory Job#4

Job#1, Job#2

Job#3

Beg Inventory		Cost of Units
+ Cost of units		transferred out
transferred in
+ Direct Labor
Job#1,#2,#3
+ Factory Overhead
applied Job#1,#2,#3
End Inventory Job#2,#3

Job#1

Beg Inventory
+ Cost of units		Cost of Goods
transferred in		Sold
End InventoryJob#1

Factory Overhead

Actual Factory Overhead:
+ utilities expense		Factory overhead
+ depreciation of machinery		applied
+ supplies

Costs to date by job are shown.

Source: Job Cost Sheets:
	Job#1		Job#2		Job#3		Job#4
Direct materials	$	725	$	632	$	424	$	429
Direct labor		82		76		78		117
Overhead		160		137		118		165
	$	967	$	845	$	620	$	711

Use the flow chart to complete the following sentences.

The ending inventory balance in the Work in Process-Assembly Dept is $

The cost of goods transferred into the Work in Process-Test & Packaging Dept is $

The cost of goods transferred out of the Work in Process- Test & Packaging Dept is $

The ending inventory balance in the Work in Process- Test & Packaging Dept is $

A - Select your answer -time sheetmaterials requisitionpurchase orderjob-order cost sheetCorrect 1 of Item 2 is the primary document for accumulating all costs related to a specific job. Materials are recorded to jobs based on a materials requisition and labor is charged to jobs based on a timecard, or labor accumulation system. Overhead is applied based on a - Select your answer -scorecardmaterials requisitionpredetermined overhead ratejob-order cost sheetCorrect 2 of Item 2. The rate may be based on direct labor hours, machine hours, or another activity. It may be a dollar amount or a percentage.

Assume the company has estimated overhead costs for the coming year of $831,600 and expected activity is 92,400 direct labor hours.

The formula for calculating the overhead rate is:

Overhead rate =	Estimated overhead costs	=	$
	Activity		direct labor hours
			= $ per direct labor hour

Overhead is applied to jobs based on this rate. It is likely that the actual overhead costs and activity level will be different than the estimated overhead cost and estimated activity level. The result is an amount of over/under applied overhead that is expensed to cost of goods sold.

At the beginning of the year, Carentan Company estimated the following:

	Machining Department	Assembly Department	Total
Overhead	$317,645	$233,250	$550,895
Direct labor hours	113,700	155,500	269,200
Machine hours	171,700	-	171,700

Carentan uses departmental overhead rates. In the machining department, overhead is applied on the basis of machine hours. In the assembly department, overhead is applied on the basis of direct labor hours. Actual data for the month of January are as follows:

	Machining Department	Assembly Department	Total
Overhead	$25,599	$21,716	$47,315
Direct labor hours	9,580	13,380	22,960
Machine hours	14,820	-	14,820

Complete the following table: If required, round your answers to the nearest cent.

	Machining Department	Assembly Department
Predetermined overhead rate	$ per machine hour	$ per direct labor hour
Overhead applied in January
Variance
Over-or-underapplied	- Select your answer -OverappliedUnderappliedCorrect 7 of Item 3	- Select your answer -OverappliedUnderapplied Correct 8 of Item 3