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    CH 4 Job Costing PDF

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    Mohamed Diab
    1) The document discusses job costing, which assigns costs to specific jobs or cost objects. It involves identifying direct and indirect costs for each job. 2) It compares process costing, which is for mass production of homogeneous goods, to job costing, which is for distinct, non-uniform jobs. Job costing requires assigning costs to each job and its units. 3) The document illustrates the 7 step process for job order costing, including identifying direct costs, selecting an allocation base, calculating overhead rates, and allocating and totaling costs for a job.

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    CH 4 Job Costing PDF

    Uploaded by

    Mohamed Diab
    168 views11 pages
    1) The document discusses job costing, which assigns costs to specific jobs or cost objects. It involves identifying direct and indirect costs for each job. 2) It compares process costing, which is for mass production of homogeneous goods, to job costing, which is for distinct, non-uniform jobs. Job costing requires assigning costs to each job and its units. 3) The document illustrates the 7 step process for job order costing, including identifying direct costs, selecting an allocation base, calculating overhead rates, and allocating and totaling costs for a job.

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    1) The document discusses job costing, which assigns costs to specific jobs or cost objects. It involves identifying direct and indirect costs for each job. 2) It compares process costing, which is for mass production of homogeneous goods, to job costing, which is for distinct, non-uniform jobs. Job costing requires assigning costs to each job and its units. 3) The document illustrates the 7 step process for job order costing, including identifying direct costs, selecting an allocation base, calculating overhead rates, and allocating and totaling costs for a job.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    168 views11 pages

    CH 4 Job Costing PDF

    Uploaded by

    Mohamed Diab
    1) The document discusses job costing, which assigns costs to specific jobs or cost objects. It involves identifying direct and indirect costs for each job. 2) It compares process costing, which is for mass production of homogeneous goods, to job costing, which is for distinct, non-uniform jobs. Job costing requires assigning costs to each job and its units. 3) The document illustrates the 7 step process for job order costing, including identifying direct costs, selecting an allocation base, calculating overhead rates, and allocating and totaling costs for a job.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 11

    Cost Accounting

    Chapter 4
    Job Costing
    Chapter (4)
    Job Costing
    Learning Objective (1): Introduction.
    - Basic Definitions :
    Terminology Definition
    Any object to which costs are attached
    Cost object Ex : Apple --- ( Iphone – Ipad – Ipod )
    Ex : Samsung --- ( Note 10 )
    Cost driver Some event that causes costs to occur
    A cost driver is used as a basis upon which
    Cost allocation
    to build a systematic method of
    base
    distributing indirect costs.

    Learning Objective (2): Costing Systems.


    Process Costing Vs. Job order costing
    Process-Costing Job-Costing
    System accounting for System accounting for distinct
    Definition

    mass production of cost objects called Jobs. Each


    identical or similar job may be different from the
    products next, and consumes different
    Ex : Oil refining, orange resources
    juice, soda pop Ex : Wedding announcements,
    aircraft, advertising
     Large quantities of
     Small quantities of distinct
    Details

    homogeneous products or
    More

    products or services
    services
     Assign costs to job and then to
     Using an averaging technique,
    units within the job
    assign costs directly to units
    produced during the period
    Examples

    Learning Objective (3): illustrating Job-Order Costing


    system.
     NOTES :
     Total product cost = DM + DL + OH
     In order to determine the total cost of each job or product we
    have to do (7) Steps :
    1. Identify the Job that is the Chosen Cost Object
    2. Identify the Direct Costs of the Job
    3. Select the Cost-Allocation base(s) to use for allocating
    Indirect Costs to the Job
    4. Match Indirect Costs to their respective Cost-Allocation
    base(s)
    5. Calculate an Budgeted Overhead Allocation Rate:
    Budgeted MOH Costs ÷ Budgeted TQ of Cost Allocation Base
    6. Allocate Overhead Costs to the Job:
    Budgeted Allocation Rate x Actual Base Activity For the Job
    7. Compute Total Job Costs by adding all direct and indirect
    costs together
    Illustration (1):
    Solution (Diab)
    DM $ 50,000
    DL $ 19,000
    Total Product Cost ( job 650 ) =
    MOH ??
    TPC
    Total MOH (All jobs ) $65,100 ( 2,480 MH)
    Overhead Rate = $65,100 / 2480 MH = $26.25/MH
    MOH ( job 650 ) = 26.25 X 500 MH = $13,125

    Learning Objective (4): Distinguish actual costing normal


    costing .
    How to Allocate OHs
    We have (2) methods

    Actual costing
    Indirect costs based on the
    Indirect costs based on the
    Allocates :

    budgeted indirect-cost rates


    actual indirect-cost rates
    times the actual activity
    times the actual activity
    consumption
    consumption

    Both methods allocate Direct costs to a cost object the same


    Note

    way: by using actual direct-cost rates times actual


    consumption
    calculation
    s

    NOTES :
     Which one better?!
     Normal product costing and standard costing are
    preferable
     Reasons :
     Under actual costing, the product cost will be delayed until
    the end of the accounting period. However, the product
    cost should be obtained beforehand for setting selling price
     Since monthly productivity may vary due to holiday
    periods and seasonal variation, actual overhead is
    fluctuating and cannot reflect normal production
    conditions
    Illustration :
    Important Examples
    Ex 1 :
    Sky High Company has two departments, X and Y. The following estimates are
    for the coming year:
    X Y
    Direct manufacturing labor-hours 20,000 40,000
    Machine-hours 40,000 20,000
    Manufacturing overhead $200,000 $400,000

    1) A single indirect-cost rate based on direct manufacturing labor-hours for the entire plant is
    A) $15 per direct labor-hour
    B) $10 per direct labor-hour
    C) $21 per direct labor-hour
    D) $12 per direct labor-hour
    2) The budgeted indirect-cost driver rate for Y based on the number of machine-hours is in excess
    of X by
    A) $15 per machine-hour
    B) $10 per machine-hour
    C) $20 per machine-hour
    D) $8 per machine-hour
    Solution
    1-
    Indirect Cost Rate = MOH / A.B
    MOH (20,000 + 400,000) =$ 600,000
    A.B (20,000 + 40,000 ) = 60,000 LH
    Indirect Cost Rate = $600,000 / 60,000 = $10/LH
    2-
    X Y Excess
    Indirect Cost Rate = MOH / A.B MOH / A.B
    5 – 20 =
    MOH $200,000 $400,000
    $15/MH
    A.B 40,000 20,000
    Indirect Cost Rate = $5/MH $20/MH
    Ex 2 : Answer the following questions using the information
    below:
    Comfort Manufacturing is a small textile manufacturer using machine-hours as the single
    indirect-cost rate to allocate manufacturing overhead costs to the various jobs contracted during
    the year. The following estimates are provided for the coming year for the company and for the
    Winton High School band jacket job.
    Company Winton High School Job
    Direct materials $40,000 $2,000
    Direct labor $10,000 $400
    Manufacturing overhead costs $45,000
    Machine-hours 100,000 mh 900 mh
    1) For Comfort Manufacturing, what is the annual manufacturing overhead cost-allocation rate?
    2) What amount of manufacturing overhead costs will be allocated to this job?
    3) What are the total manufacturing costs of this job?
    4) What is the bid price for the Winton High School job if the company uses a 40% markup of total
    manufacturing costs?
    Solution
    1) OH Rate = MOH / A.B (M.H) = 45,000 / 100,000 = $0.45/MH
    2) And 3)
    DM $ 2,000
    Total Product Cost (Winton DL $ 400
    High School Job) = MOH $ ??
    TPC
    $2,805
    Overhead Rate = $0.45/MH
    MOH = $0.45 X 900 MH = $405
    4) Price = TC + (40% x TC ) = $2,805 + (40% X 2,805 ) = $3,927
    Learning Objective (5): End-Of-Period Adjustments.
     Actual costs will almost never equal to budgeted costs
    accordingly, an imbalance situation exists between the two
    overhead accounts
     We have two cases :
    Budgeted Overhead (Control)
    Underallocated
    >
    Overhead
    Actual Overhead
    Budgeted Overhead (Control)
    Overallocated
    <
    Overhead
    Actual Overhead

     How to calculate the difference?!


    Actual OH – Budgeted OH
     For instance :
    Situation Case
    Underallocated OH
    Budgeted OH (62,000) / Actual OH (65,000)
    = $ 3000
    Overallocated OH
    Budgeted OH (55,000) / Actual OH (50,000)
    = $ 5000

     Approaches to disposing underallocated or overallocated OH:

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