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, aJob order costingsystem 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

In job order costing, the costs in Work in Process and Finished Goods can be related to specific jobs.

Finished Goods:

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

$

$

$

$

Complete the table and determine the following account

Work in Process $

Finished Goods $

Feedback

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 accounted for in WIP until they are complete.

Job Cost Sheets

A job cost sheet is used to accumulate the following costs for each job:direct materials,direct laborandoverhead.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 usenormal costingto 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

APPLY THE CONCEPTS: Complete the job cost sheets for In the Doghouse Company

In the Doghouse Company builds doghouses. They have three sizes: small, medium and large. Each size can be built in one of two styles, standard or deluxe. All doghouses are built with treated lumber and have shingled roofs. The deluxe model is insulated and has a covered porch. In the Doghouse sells mostly to local hardware and garden stores.

The costs for direct materials and direct labor for each type of doghouse are shown in the table below. Thedirect materials costincludes costs for lumber, shingles, stain or paint, and insulation. Nails and glue are also used in the construction and are consideredindirect materialswhich make them part of overhead. The company employs two carpenters and a part-time student to maintain the equipment and clean the shop. The carpenters' wages aredirect labor.The student's wages areindirect laborand, therefore, part of overhead. Other overhead costs include depreciation of equipment and the building, insurance, utilities, and taxes. Overhead is applied at 10% of direct labor cost. In the Doghouse summarizes costs by direct materials, direct labor, and overhead on its job cost sheets.

Direct

Materials

Direct

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 large, deluxe doghouses. As of September 1, $1,843.20 of direct materials have been used, $1,728.00 of direct labor have been charged to the job and $172.80 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 small, deluxe doghouses. This isjob number 901and was completed by the end of the month.

Another order was received during the month,job 902, for 20 medium, standard doghouses. At the end of September, job 902 was still in process. $888 of direct materials has been used, $720 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 large, deluxe doghouses

Direct materials

$

Direct labor

Overhead

Total job cost

$

Job 901

16 small, deluxe doghouses

Direct materials

$

Direct labor

Overhead

Total job cost

$

Job 902

20 medium, 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?Direct materials

+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 large, deluxe doghouses

Direct materials

$1,843.2

Direct labor

1728

Overhead

172.8

Total job cost

$3,744

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 Job 3 Materials, Labor, OH Work in Process: Job 4 Materials, Labor, OH In job order costing, the costs in Work in Process and Finished Goods can be related to specific jobs. Job 1 Materials, Labor, OH Finished Goods: 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 Mat $504 $350 $285 $354 eria ls Lab 750 or 475 430 230 Ove rhe 275 ad 227 114 142 $ $ $ Tota $ l 1529 1052 829 726 Complete the table and determine the following account Work in Process $ 1555 Finished Goods $ 2581 Feedback 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 accounted for in WIP until they are complete. 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: Estimated Annual Overhead Predetermined Overhead Rate = Estimated Cost Driver APPLY THE CONCEPTS: Complete the job cost sheets for In the Doghouse Company In the Doghouse Company builds doghouses. They have three sizes: small, medium and large. Each size can be built in one of two styles, standard or deluxe. All doghouses are built with treated lumber and have shingled roofs. The deluxe model is insulated and has a covered porch. In the Doghouse sells mostly to local hardware and garden stores. The costs for direct materials and direct labor for each type of doghouse are shown in the table below. The direct materials cost includes costs for lumber, shingles, stain or paint, and insulation. Nails and glue are also used in the construction and are considered indirect materials which make them part of overhead. The company employs two carpenters and a part-time student to maintain the equipment and clean the shop. The carpenters' wages are direct labor. The student's wages are indirect labor and, therefore, part of overhead. Other overhead costs include depreciation of equipment and the building, insurance, utilities, and taxes. Overhead is applied at 10% of direct labor cost. In the Doghouse summarizes costs by direct materials, direct labor, and overhead on its job cost sheets. Direct Materials Direct Labor Small $64 $60 Medium 111 90 Large 135 150 Small $78 $120 Medium 152 180 Large 256 240 Standard: Deluxe: 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 large, deluxe doghouses. As of September 1, $1,843.20 of direct materials have been used, $1,728.00 of direct labor have been charged to the job and $172.80 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 small, 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 medium, standard doghouses. At the end of September, job 902 was still in process. $888 of direct materials has been used, $720 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 large, deluxe doghouses Direct materials Direct labor $ Overhead Total job cost $ Job 901 16 small, deluxe doghouses Direct materials $ Direct labor Overhead Total job cost $ Job 902 20 medium, standard doghouses Direct materials $ 888 Direct labor 720 Overhead 72 Total job cost $ 1680 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? Direct materials + 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 large, deluxe doghouses Direct materials $1,843.2 Direct labor 1728 Overhead 172.8 Total job cost $3,744 Feedback The units of direct materials can be directly traced into specific jobs, while the units of indirect materials are much harder to track. At the end of September, the first two jobs are complete, so their complete direct materials, direct labor and applied overhead should be reflected. The last job, however, is still in process, and so only those DL and DM costs recorded, as well as overhead applied up to this point, should be reflected. Feedback