SYSTEMS DESIGN: JOB-ORDER COSTING
Chapter 19
Cost
Measurement
Cost
Accumulation
Cost
Assignment
Direct
Direct
Materials
Materials
Direct
Direct Work-in-
Work-in- Finished
Finished Cost-of
Cost-of
Labor
Labor Process
Process Goods
Goods Goods
Goods Sold
Sold
Mfg.
Mfg.
Overhead
Overhead Goal: Accurately costed
products.
The same basic purpose exists in both
systems.
Job-Order
Costing Vs. To assign direct
Process 1 material, direct labor
and manufacturing
Costing - overhead to products.
Similarities
t ’
2 Le
s
To provide a mechanism for
computing unit cost.
The same basic purpose exists in both
systems.
Job-Order
Costing Vs. Both systems maintain
Process 3 and use the same
manufacturing
Costing - accounts.
Similarities
t ’
4 Le
s
The flow of costs through the
accounts is basically the same.
Differences arise from two
factors . . . These units are
t ’
Le indistinguishable from one
s another.
Job-Order
The flow of units in
Costing Vs.
a process costing
system is more or 1 Process
less continuous. Costing -
Differences
Difference
s
COMPARING JOB ORDER AND PROCESS OPERATION
Job-Order Costing
Job
100
DM Cost of
Finished Goods
DL Job
Goods Sold
MOH 101
Job
102
Work in Process Finished Goods Cost of Goods Sold
C A S E S T U DY
• March production activity of Road Warriors, which installs
security devices into cars and trucks.
Flow
Flow of
of Documents
Documents in
in aa Job-Order
Job-Order Costing
Costing System
System
A sales order is prepared as
Sales
SalesOrder
Order a basis for issuing a . . .
A production order initiates
work on a job, whereby Production
ProductionOrder
Order
costs are charged through:
Materials
Materials Direct
DirectLabor
Labor Predetermined
Predetermined
Requisition
Requisition Time
TimeTicket
Ticket Overhead
OverheadRates
Rates
Form
Form
Job
JobCost
Cost
Sheet
Sheet
JOB COSTING STEP BY STEP
• Identify cost object
• Identify direct cost-DM/DL
• Identify MOH cost pool (All indirect costs)
• Identify cost allocation base (DL hours or machine hours)
• Estimate pre-determined OH rate/unit
• Apply OH -> PDR x Actual machine hours or labor hours
• Job cost= DM + DL + Applied OH
OVERHEAD COST FLOWS AND
DOCUMENTS
• To assign the single indirect cost pool to jobs, a link needs to
be made that can methodically and consistently explain how
a change in the use of one input can explain changes to the
cots assigned to the job.
• The link is referred to as a cost driver ( cost allocation base)
• The most common cost drivers:
• Direct materials
• Direct labour hours
• Direct machine hours
• Goal is make sure that that the economic fact of how much a
job costs is captured in the choice of the cost driver
COST ALLOCATION RATE
• The result of dividing the indirect cost pool by the
cost allocation base (the cost driver)
• This rate is usually determined at the start of a fiscal
year ands applied to all jobs going through the plant
during the year
• It is also referred to as a pre-determined rate
S U M M A RY O F C O S T F L O W
ADJUSTING FACTORY OVERHEAD
• Factory Overhead T-account.
• When less overhead is applied than is actually incurred, the remaining debit balance in the
Factory Overhead account is called under applied
• When the overhead applied in a period exceeds the overhead incurred, the resulting credit
balance in the Factory Overhead account is called over applied overhead.
E XA MP LE
