Systems Design:

Job-Order Costing

UAA – ACCT 202

Principles of Managerial Accounting
Dr. Fred Barbee

Chapter
 Cost
Measurement
Cost
Accumulation
Cost
Assignment

Direct
Materials

Direct Work-in- Finished Cost-of

Labor Process Goods Goods Sold

Mfg.
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
Costing - and manufacturing
overhead to products.
Similarities

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
Costing - manufacturing
accounts.
Similarities

The flow of costs through the

accounts is basically the same.
 Cost Flows in a Manufacturing Firm

Manufacturing Costs Balance Sheet

Unused
DM DM Inv.

Used Unfinished
DL WIP WIP Inv.

MOH FG Inv.

Sales
- COGS
Income = Gross Margin
Statement
- S&A

= Net Income
Differences arise from two factors . . .
These units are indistinguishable
from one another.

Job-Order
The flow of units in a
Costing Vs.
process costing
system is more or less 1 Process
continuous. Costing -
Differences
 Job-Order Costing
Job 100

Cost of
DM Finished
Job 101 Goods
DL Goods
MOH Sold

Job 102

Work in Process Finished Goods Cost of Goods Sold

 Process Costing System
Process A

DM
Process B
DL
MOH
Finished Cost of
Process C Goods Goods Sold
Equivalent Units
Total Cost
of Production

Information
Information
provided
Providedby
by a
Cost System
cost system.

Cost of Units
Cost Per Unit
in WIP
 Usefulness of Cost Information

Valuing Pricing
Inventory Products

Decision
Making

Planning & Financial

Control Reporting
 Unit Cost
Is based on an
1 averaging
process . . .

. . . With the averaging process being

dependant on the system used.
 Flow of Documents in a Job-Order Costing System

A sales order is prepared as

Sales Order
a basis for issuing a . . .
A production order initiates
work on a job, whereby Production Order
costs are charged through:

Materials
Direct Labor Predetermined
Requisition
Time Ticket Overhead Rates
Form

Job Cost
Sheet
 Direct
Materials

Direct Work-in- Finished Cost-of

Labor Process Goods Goods Sold

Mfg.
Overhead
 Direct
Materials

Direct Work-in- Finished Cost-of

Labor Process Goods Goods Sold

Mfg.
Overhead
 Direct
Materials

Direct Work-in- Finished Cost-of

Labor Process Goods Goods Sold

Mfg.
Overhead
 Cost Assignment Dilemma
Direct
Materials

Traceable
Mfg. Process Unit Cost
Direct
for Finished
Labor (Work in
Goods
Process)

Assigned
Problem Overhead

Costs must be assigned using some activity

base and a predetermined overhead rate.
 Cost Assignment Dilemma
Direct
Materials

Traceable
Mfg. Process Unit Cost
Direct
for Finished
Labor (Work in
Goods
Process)

Assigned
Problem Overhead
Solution?

Estimated Overhead
POR = -------------------------------------------
Estimated Units in Activity Base
Simplify Why
Record- 2 1 Timeliness
keeping
Allocate?

Avoid
Seasonal
Factors
 Selecting an Allocation Base
Possible Criterion: Cause- POR
Drivers
and-Effect
Relationship

 Units produced
 Direct Labor Hours Choice of activity
base used in the
 Direct Labor $
calculation of the
 Machine Hours Predetermined
 Direct Materials
Overhead Rate.
 Basic Concept of Applied Overhead

Applied overhead = Overhead rate x Actual production

activity
Two points to
consider in the
application of MOH

 Applied overhead is the basis for computing per-

unit overhead cost.
 Applied overhead is rarely equal to a period's
actual overhead costs.
 Summary of Overhead Concepts

Estimated The amount of

Overhead Cost estimated overhead
costs.

The amount of
Actual overhead costs
Overhead Cost Difference
actually incurred. equals
Under- or Ove
The amount of applied
Applied Overhead.
Overhead Cost overhead costs
applied to WIP.
The Manufacturing Overhead Account

Amounts rarely agree

Actual
Overhead Costs

MOH
xxx xxx

A “Clearing”
Account

Overhead Applied
to WIP