Job Order Costing System

Session # 2
 Full product cost of a cost object
Cost Cost Cost
Pools Accumulation Object
Traced
Through
Material Cost
Direct Costs Records
Labour Assignment
Depreciation
Full
Shared
Indirect using an Cost
Power
Costs (of appropriate
Cost
Printing production Basis Allocation
and service
Quality check dept.)
Logistic
A Two-Level Job Costing System
Direct Costs
(Resource Cost)
Through cost drivers
Through resource drivers Job # 1

Indirect Costs –
Dept. A
Job # 2
Rent Indirect Costs –
Dept. B
Power Indirect Costs –
Dept. C Job # 3

COST COST ALLOCATION

ACCUMULATION
Process Flow at Colorscope
JOB
PREPARATION
Cutting & Pasting Text/ Graphics/ Photographs + Marking for
Changes in Font, Colour and Shading

SCANNING Digitizing Pictures through Scanners

ASSEMBLY Text + Scanned Pictures → Soft Copy → Four Color Film

OUTPUT Fully assembled large sheet of four color film

QUALITY Matching Output with Customer Specification → Rework/ Delivery

CONTROL
Profitability of Colorscope
Revenues : $ 3,15,200
Less: Total Material Expenses : -$ 75,000
Less: Total Overheads : -$ 2,25000
Profits $ 15,200
 Cost Allocation in Colorscope
Cost of Resources:
Material Direct Cost traced for each job
Wages Traced for each Department, to be allocated to each job
Depreciation Traced for each Department, to be allocated to each job
Rent Traced for Colorscope, to be allocated to each Department and
then to each job
Other O/H Traced for Colorscope, to be allocated to each Department and
then to each job

6
 Exhibit 1 Jobs completed in June 2012
Job # Pages Revenue $ Revenue per page Diff.

601 32 19200 600 22

602 32 23000 719 140
603 32 23000 719 140
604 112 76000 679 100
605 128 50000 391 -188
606 48 26600 554 -24
607 32 16000 500 -78
608 16 11000 688 109
609 16 11000 688 109
610 32 20000 625 47
611 8 3400 425 -153
612 32 18000 563 -16
613 8 6000 750 172
614 17 12000 706 128
Total 545 315200 578
Stage 1: Costs allocated to Cost Centers (Departments)
Cost of Resources JP SC AS OT QC Idle Total

Floor space sq. feet 1000 1000 4000 2000 500 6500 15000

Labor capacity (Hrs.) 160 640 1280 200 160 - 2440

Wages ($) 8000 32000 64000 10000 11000 - 125000

Depreciation ($) 500 25000 10000 14000 500 - 50000

Rent ($) , sq. feet 2000 2000 8000 4000 1000 13000 30000

Others ($), Lab. Hrs. 1311 5246 10492 1640 1311 - 20000

Total O/H ($) 11811 64246 92492 29640 13811 13000 225000

- -
O/H per Lab. Hr. 73.82 100.38 72.25 148.20 86.32
 Allocation of Indirect Costs to Jobs
Dept. JP SC AS OT QC
O/H Rate 73.82 100.38 72.26 148.20 86.32
Exhibit 2 Department Wise Hours Booked Statement of Overhead Allocation
Job# JP SC AS OT QC JP SC AS OT QC Total
601 7 56 80 16 15 517 5622 5781 2371 1295 15585
602 7 40 75 16 8 517 4015 5419 2371 691 13013
603 8 32 58 8 8 591 3212 4191 1186 691 9870
604 23 112 212 28 25 1698 11243 15319 4150 2158 34567
605 15 130 250 32 30 1107 13050 18065 4742 2590 39554
606 13 56 104 12 13 960 5622 7515 1778 1122 16997
607 8 39 66 12 10 591 3915 4769 1778 863 11916
608 4 21 39 4 4 295 2108 2818 593 345 6160
609 4 20 40 8 7 295 2008 2890 1186 604 6983
610 7 26 60 8 9 517 2610 4336 1186 777 9425
611 4 10 21 3 2 295 1004 1517 445 173 3434
612 8 40 80 8 8 591 4015 5781 1186 691 12263
613 3 10 23 3 2 221 1004 1662 445 173 3505
614 6 20 44 5 6 443 2008 3179 741 518 6889
Idle Time 43 28 128 37 13 3174 2811 9249 5483 1122 21840
Total 160 640 1280 200 160 11811 64246 92492 29639 13811 212000
 Statement of Job Profitability
Job No. Revenue Direct Cost Indirect Cost Net Margin
601 19200 8900 15585 -5285
602 23000 4500 13013 5487
603 23000 3300 9870 9830
604 76000 11400 34567 30033
605 50000 13000 39554 -2554
606 26600 5900 16997 3703
607 16000 7000 11916 -2916
608 11000 2200 6160 2640
609 11000 3600 6983 417
610 20000 3300 9425 7275
611 3400 1600 3434 -1634
612 18000 4600 12263 1137
613 6000 3300 3505 -805
614 12000 2400 6889 2711
Idle Time 0 0 21840 -21840
Total 315200 75000 212000 28200
Less: Rent of Idle Floor -13000
NET MARGIN 15200
10
 Example: Rework Cost of Job# 605
Customer Initiated In – House Error
Material $1,000 $1,000
Overhead: JP 2 hr@ 73.82 147.64 1 hr@ 73.82 73.82

5 hr@ 100.38 501.9 3 hr@ 100.38 301.14

SC
10 hr@ 72.25 722.5 4 hr@ 72.25 289
AS
2 hr@ 148.2 296.4 1 hr@ 148.2 148.2
OT
2 hr@ 86.32 172.64 1 hr@ 86.32 86.32
QC
Total Rework Cost $2,841 $1,899
Total Rework Cost = $4740 11
Profitability prior to Rework of Job# 605
Total Cost $52,551

Less: Rework Cost (4,740)

Pre-rework Cost $47,811

Revenue $50,000

Less: Pre-rework Cost (47811)

Profit $2,189

12
 Customer induced rework cost
Job # Material JP SC AS OT QC Rework hrs. Total Cost

601 3800 0 2409 1156 1186 432 53 8983

605 1000 148 502 723 296 173 21 2841

609 1500 74 402 578 148 0 14 2702

613 2000 74 201 506 148 0 11 2929

Total 8300 296 3512 2963 1778 604 99 17453

13
 Rework cost due to in- house errors
Job# Material JP SC AS OT QC Total Hrs. Total Cost

605 1000 74 301 288 148 86 10 1898

607 2000 0 1907 2168 593 259 36 6927

611 500 74 301 217 148 0 8 1240

Total 3500 148 2510 2673 889 345 74 10064

14
 Attention Directing Information

Cost of rework (customer induced) 17453

Cost of rework (in-house error) 10063
Cost of Idle hours 21840
Cost of idle space 13000
Total 62356

15