Mastery Problem: Job Order Costing (Advanced)

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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	$550	$400	$315	$411
Labor	818	525	475	623
Overhead	325	258	126	164
Total	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank

Complete the table and determine the following account

Work in Process $fill in the blank

Finished Goods $fill in the blank

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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.

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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. The

direct materials costindirect materials costdirect materials cost

includes costs for lumber, shingles, stain or paint, and insulation. Nails and glue are also used in the construction and are considered

direct materialsindirect materialsindirect 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.indirect labor.direct labor.

The student's wages are

direct laborindirect laborindirect 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
Standard:
Small	$64	$60
Medium	111	90
Large	135	150
Deluxe:
Small	$78	$120
Medium	152	180
Large	256	240

At the beginning of May, the company has one job,job number 405, in progress from the previous month. This job is for an order of 12 large, standard doghouses. As of May 1, $324.00 of direct materials have been used, $360.00 of direct labor have been charged to the job and $36.00 of overhead was applied to the job. Click on the link below to get more detail on job number 405.

During May, In the Doghouse received an order for 20 medium, standard doghouses. This isjob number 501and was completed by the end of the month.

Another order was received during the month,job 502, for 16 small, deluxe doghouses. At the end of May, job 502 was still in process. $748.8 of direct materials has been used, $1,152 of direct labor has been charged to the job, and overhead was applied to job 502 using the predetermined overhead rate of 10% of direct labor cost.

Complete the following job cost sheets for the month of May In the Doghouse and answer the following questions.

Job 405
12 large, standard doghouses
Direct materials	$fill in the blank
Direct labor	fill in the blank
Overhead	fill in the blank
	Total job cost	$fill in the blank

Job 501
20 medium, standard doghouses
Direct materials	$fill in the blank
Direct labor	fill in the blank
Overhead	fill in the blank
	Total job cost	$fill in the blank

Job 502
16 small, deluxe doghouses
Direct materials	$fill in the blank
Direct labor	fill in the blank
Overhead	fill in the blank
	Total job cost	$fill in the blank

What is the balance in Work in Process on May 1?

$fill in the blank

What is the balance in Work in Process on May 31?

$fill in the blank