Mastery Problem: Job Order Costing (Advanced) Cost flows The price quoted to the customer is closely tied to the estimated cost in environments in which products are made according to the customer's specifications. Therefore, a company must be able to determine the unit cost of its products for pricing as well as for financial reporting purposes. To track costs in these environments, a Job order costing system is generally used. A job order costing system must be able to identify each individual job and accumulate its costs separately from the costs of other jobs. Recall the flow of costs used to determine cost of goods manufactured and cost of goods sold. The following flowchart illustrates the flow of costs into Work in Process and Finished Goods. Materials Labor Overhead Work in Process: Job 3 Materials, Labor, OH Job 4 Materials, Labor, OH I In job order costing, the costs in Work in Process and Finished Goods: In job order costing, the costs in Work in Process and Finished Goods can be related to specific jobs. Job 1 Materials, Labor, OH Job 2 Materials, Labor, OH APPLY THE CONCEPTS: Determine the costs for Work in Process and Finished Goods Job 1 Job 2 Job 3 Job 4 Materials $504 $350 $285 $354 Labor 750 475 430 230 Overhead 275 227 114 142 Total $ x $ X $ $ Complete the table and determine the following account Work in Process $ Feedback Incorrect X X Check My Work Note that Jobs 1 and 2 have been completed, and so are accounted for in Finished Goods. Jobs 3 and 4 are still in process, and so will be Job Cost Sheets A job cost sheet is used to accumulate the following costs for each job: direct materials, direct labor and overhead. It is an internal document, so the format varies by company. Some companies prefer a detailed cost sheet that shows the details for direct materials (such as quantity, type, and requisition numbers for each material used) and details for direct labor (such as hours and wage rate for each employee who worked on the job). Other companies prefer a summary showing a total for direct materials and a total for direct labor. Overhead applied is reported on all job cost sheets. Recall that firms use normal costing to determine unit cost. Normal costing requires the use of predetermined overhead rates, which are calculated as follows: Predetermined Overhead Rate = Estimated Annual Overhead Estimated Cost Driver Direct Direct Materials Labor Standard: Small $64 $60 Medium 111 90 Large 135 150 Deluxe: Small $78 $120 Medium 152 180 Large 256 240 At the beginning of September, the company has one job, job number 807, in progress from the previous month. This job is for an order of 12 medium, standard doghouses. As of September 1, $799.20 of direct materials have been used, $648.00 of direct labor have been charged to the job and $64.80 of overhead was applied to the job. Click on the link below to get more detail on job number 807. During September, In the Doghouse received an order for 16 large, deluxe doghouses. This is job number 901 and was completed by the end of the month. Another order was received during the month, job 902, for 20 small, standard doghouses. At the end of September, job 902 was still in process. $512 of direct materials has been used, $480 of direct labor has been charged to the job, and overhead was applied to job 902 using the predetermined overhead rate of 10% of direct labor cost. Complete the following job cost sheets for the month of September In the Doghouse and answer the following questions. * Job 807 12 medium, standard doghouses Direct materials Direct labor Overhead Total job cost Job 901 16 large, deluxe doghouses Direct materials Direct labor Overhead Total job cost $ $ Job 902 20 small, standard doghouses Direct materials Direct labor Overhead Total job cost What is the balance in Work in Process on September 1? $ What is the balance in Work in Process on September 30? $ Think outside the box: What element would most likely be missing from a job cost sheet for a service organization? + Job number 807 Job number 807: The following job cost sheet was prepared at the end of the previous month and shows the direct materials, direct labor, and overhead costs as of the end of the month. When the job is completed in September, the amounts should show the totals for direct materials, direct labor, and overhead. Job 807 12 medium, standard doghouses Direct materials $799.2 Direct labor 648 Overhead 64.8 Total job cost $1,512