Transcript
JOB ORDER COSTING NOTES and ILLUSTRATIVE PROBLEMS
System of Cost Accumulation Actual (Historical) Cost System. Under this system, direct materials, direct labor, and factory overhead costs are determined as they occur simultaneously with the manufacturing operation but the total of these costs is known only as the operation has been completed. An actual cost system collects the a c t u a l a m o u n t s o f d i r e c t m a t er er i a l s , d i r e c t l a b o r , a n d f a c t o r y o v e r h e a d that are incurred for each product. Standard (Predetermined) Cost System. Under this system, costs are determined in advance from analysis and forecasts made before the actual production begins. In a standard cost system, s t a n d a rd rd u n i t c o s t s a r e c o m p u t e d f o r t h e d i r e c t m a t er er i a l s , d i r e c t l a b o r , a n d f a c t o r y o v e r h e ad ad ;
these amounts rather than the actual costs are carried to Finished Goods. Normal Cost System. This system is a combination of the actual cost system and the standard cost system. It accumulates only the a c t u a l a m o u n t s o f d i r e c t m a t er e r i a l s an a n d d i r e c t l ab ab o r c o s t s . F ac ac t o r y o v e r h e a d c o s t s are accumulated on the basis of p r e d e t e rm r m i n e d o v e r h e ad a d r a t e. e.
Cost Accumulation Procedures (Methods) 1. Job Order Costing 2. Process Costing 3. Blended Method/Hybrid Method 4. Backflush Costing
Job Order Costing. A. products are manufactured within a department or cost center are heterogeneous or dissimilar products. B. they are manufactured individually or in distinct lots or batches. C. Each job requiring different amounts of materials, labor and overhead.
A job is a cost object that can be distinguished easily because: (1) they are unique in some way
(2) separate documents are kept that record the costs of the jobs.
Job cost is determined in six steps: 1. Select an allocation base for computing the predetermined overhead rate(s). 2. Estimate overhead for each overhead cost pool. 3. Calculate the predetermined overhead rate(s) by dividing the estimated overhead by the estimated allocation base. 4. Record direct costs for each job as they are incurred. 5. Apply overhead using the predetermined rates as jobs are completed or when the financial statements are prepared. 6. If there is over- or under-applied overhead, either write it off directly to Cost of goods sold or allocate it.
ILLUSTRATION:
Black Polo, Inc. specializes in custom steel frames and uses job costing to account for its operations. The following information is available as of May 1 for the workin-process inventory account. Job# 304 306 Total costs
Direct materials P3,000 4,000 P7,000
Direct labor P1,800 2,100 P3,900
Manufacturin g overhead P2,520 2,940 P5,460
Total costs P7,320 9,040 P16,360
Black Polo pays an hourly rate of P15 for direct labor. The manufacturing overhead costs are applied to jobs based on the direct labor hours. During the month of May, Black Polo spends P5,800 for materials and P4,650 for manufacturing overhead. The operations in May are summarized below. Job# 304 306 307 308 Total
Material requisition summary P1,100 900 2,800 750 P5,550
Time card summary (Hours) 40 30 110 25 205
Jobs 304, 306, and 307 are completed in May but only Jobs 304 and 307 are delivered to customers.
Requirements: 1. Calculate the predetermined overhead rate used. 2. Calculate the Over / (under) applied overhead. 3. Calculate the ending balance of Work In process (assuming that over / under applied overhead is insignificant or immaterial.) 4. Calculate the Ending Balance of Finished Goods Inventory Account. (assuming that over / under applied overhead is insignificant or immaterial.) 5. Calculate the Cost of Goods Sold if over/ under applied overhead is immaterial. 6. Prepare the necessary journal entries for May (assuming any over- or under-applied manufacturing overhead is written off to Cost of goods sold account monthly)
Materials inventory Accounts payable (Materials purchased)
5,800
Work-in-process inventory Materials inventory (Materials put into production)
5,550
Work-in-process inventory Wages payable (Direct labor incurred)
3,075
5,800
5,550
3,075
Manufacturing overhead control 4,650 Accounts payable, etc. (Manufacturing overhead incurred)
4,650
Work-in-process inventory 4,305 Applied manufacturing overhead (Manufacturing overhead applied)
4,305
Finished goods inventory Work-in-process inventory
27,640 27,640
(Jobs 304, 306, and 307 completed) Cost of goods sold 16,620 Finished goods inventory
16,620
(Jobs 304 and 307 delivered to customers) Applied manufacturing overhead Cost of goods sold
4,305 345
Manufacturing overhead control
4,650
(Under-applied manufacturing overhead written off to Cost of goods sold)
Costs added during May Direct Direct Manufacturing Job# BB materials labor overhead 304 P7,320 P1,100 P600 P840 9,040 900 450 630 306 307 2,800 1,650 2,310 308 750 375 525 Total P16,360 P5,550 P3,075 P4,305
EB P9,860 11,020 6,760 1,650 P29,290
FINISHED GOODS: Jobs 304, 306, and 307 completed WORK IN PROCESS: Job 308 remaining COST OF GOODS SOLD: Jobs 304 and 307 delivered to customers
EXERCISE PROBLEM YELLOW-KITTY CORPORATION manufactures one product and accounts for costs using a job-order cost system. You have obtained the following information for the year ended December 31, 2011 from the Corporation’s books and records:
Total manufacturing cost added during 2011 was P1,000,000 based on actual direct material, actual direct labor, and factory overhead applied based on actual direct labor pesos.
Costs of goods manufactured was P970,000 also based on actual direct material, actual direct labor, and applied factory overhead.
Factory overhead was applied to work-in-process at 75% of direct labor pesos. Applied factory overhead for the year was 27% of the total manufacturing cost.
Beginning work-in-process inventory, January 1, was 80% of ending work in process inventory, December 31.
Requirements: 1. Calculate the amount of Factory overhead applied. 1. Calculate the amount of Direct Labor Costs. 2. Calculate the ending balance of the work in process. 3. Calculate the beginning balance of the work in process. 4. Calculate the amount of total manufacturing costs to account for.
Prepare the necessary journal entries from the following information for Carmella Company, which uses a perpetual inventory system. a. Purchased raw material on account, 56,700. b. Requisitioned raw material for production as follows: direct material-80 percent of purchases; indirect material-15 percent of purchases. c. Direct labor wages of 33,100 are accrued as are indirect labor wages of 12,500. d. Overhead incurred and paid for is 66,900. e. Overhead is applied to production based on 110 percent of direct labor cost. f. Goods costing 97,600 were completed during the period. g. Goods costing 51,320 were sold on account for 77,600.
a. Raw Material Inventory A/P b. WIP Inventory MOH Raw Material Inventory c. WIP Inventory MOH Wages Payable d. MOH Cash e. WIP Inventory MOH f. FG Inventory WIP Inventory g. CGS FG Inventory A/R Sales
56,700 56,700 45,360 8,505 53,865 33,100 12,500 45,600 66,900
66,900 36,410 36,410 97,600 97,600
51,320 51,320 77,600 77,600
Wages are payments made an hourly, daily, or piecework basis, whereas salaries are fixed payments for managerial services. Other terms necessary for any discussion of labor costs are best defined by equations, as follows: G r o s s E a r n i n g s = Regular wage + Overtime Premium R eg u l a r W a g e = Total hours worked (including overtime) x Regular hourly
rate O v e r t i m e P r em i u m = Overtime hours worked x Extra hourly compensation
for overtime Other Additional Compensation chargeable to Factory Overhead Control: • Overtime premium and Shift premium or differential • Bonus, Vacation and Holiday Pay, Pensions and Incentive Plans • Fringe costs. Vacation and pension plans are only two of the most common employee benefits. Other fringe costs are listed below: Employer’s share in (not employees’ share): Social Security System PhilHealth Contribution
Scrap includes:
the filings or excessive trimmings of materials after the manufacturing operations
defective materials that cannot be returned to vendor or not suitable for manufacturing operations, and
broken parts as a result of an employee error or machine breakdowns
that causes the product in a poor quality condition
Scrap Sales are accounted for as: A. Additional Revenue B. Reduction to Cost of Goods Sold C. Reduction to Factory Overhead Control D. Reduction in Cost of Materials traceable to a job
Spoiled goods or spoilage differ from scrap, in the manner that they are either partially or fully completed unit. For reason of being spoilage, they cannot be corrected either because it is not technically possible to correct them or it is not economical to correct them.
Waste as distinguish to scrap materials refers to any amount of raw materials left-over from a production process or production cycle for which there is no further use. Waste is not usually saleable at any price and must be discarded.
Spoilage loss
Charged to all production or Factory Overhead due to internal failure brought by worn out machinery or employee error.
Charged to a particular job attributable to the exacting specifications imposed by customers
Rework is the process of correcting defective goods in order to bring them into a saleable condition.
Charged to all production or Factory Overhead due to internal failure brought by worn out machinery or employee error.
Charged to a particular job attributable to the exacting specifications imposed by customers
EXERCISE PROBLEM Yellow-Arrow company manufactures picture frames and uses job order costing system. The following cost relate to the current run: Estimated Overhead(exclusive of spoilage) -----Spoilage (Estimated)-----------------------------------Sales Value of the Spoiled frames-------------------Labor hours---------------------------------------------------
P80,000 12,500 5,750 50,000
The actual cost of a spoiled frame is P 7. During the production, 150 frames are considered spoiled. Each spoiled frames can be sold for P 4. 1. Assume that spoilage is part of all jobs, What is the predetermined overhead rate using labor hours as the activity base? 2. Prepare the Journal Entry for the spoilage. 3. Assume that the spoilage relate to a specific job # 143, What is the predetermined overhead rate using labor hours as activity base? 4. prepare the Journal Entry for the spoilage.
EXERCISE PROBLEM Burblurry Co’s Job 168 for the manufacture of 4,400 coats, which was completed in September at unit costs presented below. Final Inspection of Job 168 disclosed 400 spoiled coats which were sold to a jobber for P12,000 Direct Materials-------------------------------Direct Labor -----------------------------------Factory Overhead (includes an allowance for P 2 overhead) --------------------
P40 36 36 P112
1. If the spoilage loss is charged to all production , what would be the unit cost of good coats produced on Job 168?
2. If the spoilage loss is attributable to exacting specifications, what would be the unit cost of good coats produced on Job 168?
EXERCISE PROBLEM Blackbike Co’s incurred the following costs on Job 999 for the manufacture of 400 motors during April:
Direct Materials-------------------------------Direct Labor -----------------------------------Factory Overhead (150% of DL) -----------
P1,320 1,600 2,400 P 5,320
Direct Costs of reworking 10 units: Direct Materials--------------------Direct Labor -------------------------
P 200 320 P 520 1. If the rework costs were attributable to internal failure or charged to Factory overhead , what would be the unit cost of Job 999? 2. If the rework costs were attributable to exacting specifications of Job 999, what would be the unit cost of Job 999?
EXERCISE PROBLEM Camille Co. manufactures electric drills to the exacting specifications of various customers. During May 2012, Job 143 for the production of 2,200 drills was completed at the following costs per unit: Direct Materials-------------------------------P20 Direct Labor -----------------------------------16 Applied Factory Overhead (P 3 allowance)--- 24 P 60 Final inspection of Job 143 disclosed 100 defective units and 200 spoiled units. The defective drills were reworked at total cost of P1,000, and the spoiled drills were sold to a jobber for P 3,000.
What would be the unit cost of goods produced?
Carmella Mfg. Co. started 150 units in process on job order # 5. The prime costs placed in process consisted of P30,000 for direct material in which this amount is 62.5 percent of the said prime costs. The predetermined overhead rate was used to charged factory overhead to production at 133.33 % of the direct labor cost. Upon completion of the job order, units equal to 20 percent of good output were rejected for failing to meet the strict quality control requirements. The company sells rejected units as scrap at only 1/3 of its production cost, and bills the customers at 150% of the production cost. 1. If the rejected units were due to machine breakdown, the billing price of job order # 5 would be? 2. If the rejected units were due to customer specification, the billing price of job order # 5 would be?
Silver Metal Products accumulates metal shavings from the shop floor and sells them periodically to a nearby scrap dealer. Scrap sales, on account, for the period just ended total P2,300. Required: Indicate the journal entries when: (1)The scrap sales are viewed as additional revenue.
(2)The scrap sales are viewed as a reduction of the cost of goods sold during the period. (3)The scrap sales are viewed as a reduction of factory overhead.
(4)The scrap sales are traceable to individual jobs and are viewed as a reduction in the cost of materials used on the jobs.
(1) Accounts Receivable 2,300 Scrap Sales (or Other Income)
2,300
(2)Accounts Receivable 2,300 Cost of Goods Sold
(3)Accounts Receivable 2,300 Factory Overhead Control
(4)
Accounts Receivable 2,300 Work in Process
2,300
2,300
2,300
A current job consisted of 31,000 total units, of which 28,500 good units were produced and 2,500 units were defective.
1. What is the amount of abnormal spoilage on this job if the normal spoilage rate is 5% of the total units produced? 2. What is the amount of abnormal spoilage on this job if the normal spoilage rate is 5% of the good units produced? 3. What is the amount of abnormal spoilage on this job if the normal spoilage rate is 5% of the normal input?
Harper Co.’s Job 501 for the manufacture of 2,200 coats was completed during August at the unit costs presented as follows.
Direct materials Direct labor Factory overhead (includes an allowance of P1 for spoiled work)
P20 18 18 P56
Final inspection of Job 501 disclosed 200 spoiled coats, which were sold to a jobber for P6,000. 1. Assume that spoilage loss is charge to all production during August. What would be the unit cost of the good coats produced on Job 501?
2. Assume instead that the spoilage loss is attributable to the exacting specifications of Job 501 and is charged to this specific job. What would be the unit cost of the good coats produced on Job 501?
Hoyt Co. manufactured the following units:
Saleable Unsaleable (normal spoilage) Unsaleable (abnormal spoilage)
5,000 200 300
Manufacturing costs totaled P99,000. What amount should Hoyt debit to finished goods?
