Professional Documents
Culture Documents
Chapter 03
Chapter 03
Job-Order Costing
Chapter Three
Learning Objective 1
Distinguish between
process costing and job-
order costing and identify
companies that would use
each costing method.
Process Job-order
Costing Costing
Process Job-order
Costing Costing
Process Job-order
Costing Costing
Process Job-order
Costing Costing
Job-Order Process
Number of jobs worked Many
Individual Single Product
Cost accumulated by Job Department
Average cost computed by Job Department
Quick Check
Quick Check
Learning Objective 2
Charge
Direct Materials
Job No. 1 direct
material and
Direct Labor direct labor
Job No. 2
costs to
each job as
Manufacturing Job No. 3
Overhead work is
performed.
Manufacturing
Overhead,
Direct Materials including
Job No. 1 indirect
materials and
Direct Labor indirect labor,
Job No. 2
are allocated
Manufacturing to all jobs
Job No. 3
Overhead rather than
directly traced
to each job.
McGraw-Hill/Irwin Copyright © 2008, The McGraw-Hill Companies, Inc.
3-13
Will E. Delite
Learning Objective 3
Compute predetermined
overhead rates and
explain why estimated
overhead costs (rather
than actual overhead
costs) are used in the
costing process.
$640,000
POHR =
160,000 direct labor hours (DLH)
Quick Check
Quick Check
Learning Objective 4
Materials used
may be either Direct Job Cost
direct or materials Sheets
indirect.
Materials
Requisition
Manufacturing
Indirect
Overhead
materials
Account
An employee’s
time may be either Direct Job Cost
direct or indirect. Labor Sheets
Employee Time
Ticket
Manufacturing
Indirect
Overhead
Labor
Account
Employee Indirect
Time Ticket Labor
Other Manufacturing
Applied Job Cost
Actual OH Overhead
Overhead Sheets
Charges Account
Materials Indirect
Requisition Material
Mfg. Overhead
Actual Applied
Indirect
Materials
Labor Labor
Mfg. Overhead
Actual Applied
Indirect
Materials
Indirect
Labor
McGraw-Hill/Irwin Copyright © 2008, The McGraw-Hill Companies, Inc.
3-40
Labor Labor
Mfg. Overhead
Actual Applied
Indirect
Materials
Indirect
Labor
Other
McGraw-Hill/Irwin
Overhead Copyright © 2008, The McGraw-Hill Companies, Inc.
3-42
Learning Objective 5
Labor Labor
Overhead
Mfg. Overhead
Actual Applied Applied
Indirect
If actual and applied
Materials Overhead
Indirect
manufacturing overhead
Applied to are not equal, a year-end
Labor Work in adjustment is required.
Other
Process
McGraw-Hill/Irwin
Overhead Copyright © 2008, The McGraw-Hill Companies, Inc.
3-45
Examples:
1. Salary expense of employees
who work in a marketing, selling,
or administrative capacity.
2. Advertising expenses are expensed
in the period incurred.
Learning Objective 6
Applied
Learning Objective 8
Compute underapplied or
overapplied overhead cost
and prepare the journal
entry to close the balance
in Manufacturing
Overhead to the
appropriate accounts.
Quick Check
Quick Check
b. $50,000 underapplied.
c. $60,000 overapplied.
d. $60,000 underapplied.
PearCo’s Method
Cost of Cost of
Goods Sold Goods Sold
Percent of Allocation of
Amount Total $30,000
Work in process $ 68,000 10% $ 3,000
Finished Goods 204,000 30% 9,000
Cost of Goods Sold 408,000 60% 18,000
Total $ 680,000 100% $ 30,000
Overhead - Summary
PearCo’s
Method
Alternative 1 Alternative 2
If Manufacturing Close to Cost
Overhead is . . . of Goods Sold Allocation
Quick Check
Quick Check
Appendix 3A
Learning Objective 9
(Appendix 3A)
Understand the implications of
basing the predetermined
overhead rate on activity at
capacity rather than on
estimated activity for the
period.
An Example
An Example
Capacity $100,000
= = $2.00 per unit
Method 50,000
Quick Check
Quick Check
Quick Check
Quick Check
Quick Check
Quick Check
Quick Check
Quick Check
Revenue $ 1,600,000
Cost of goods sold 1,040,000
Gross margin 560,000
Cost of idle capacity 20,000
Selling and admin. expense 500,000
Net operating income $ 40,000
Revenue $ 1,600,000
Cost of goods sold 1,060,000
Gross margin 540,000
Cost of idle capacity -
Selling and admin. expense 500,000
Net operating income $ 40,000
End of Chapter 3