ACCT CH19

Here are detailed and comprehensive notes based on the PowerPoint presentation “Chapter 19: Job Order Costing” from the Cost Accounting Systems course by Professor Li.

Chapter 19: Job Order Costing — Detailed Notes

📌 Overview

Job Order Costing is used when products are manufactured based on specific customer orders. Each job is treated as a unique project with separate cost tracking for materials, labor, and overhead.

🏭 Production Activities in Job Order Costing

• Direct Materials:

• Identifiable with a specific job.

• Direct Labor:

• Employee effort that directly converts materials to finished products for a specific job.

• Factory Overhead:

• Indirect manufacturing costs shared across multiple jobs.

🔁 Manufacturing Cost Flows

• Subsidiary Records:

• Store cost data for each individual job.

• Job Cost Sheet:

• Main document tracking materials, labor, and overhead for each job.

• Linked to accounts in the general ledger.

📦 Materials and Labor Costs

• Receiving Report:

• Source document confirming receipt of materials.

• Materials Ledger Cards:

• Updated with each purchase and use of materials (perpetual records).

• Materials Requisition:

• Prepared by the production manager when materials are needed.

• Used to authorize material use for jobs.

💰 Materials Purchases & Use

• Example:

• Road Warriors purchased $2,750 of materials (direct + indirect) on March 4.

• Journal Entry:

• Posted to record the cost and application to jobs (based on requisition).

🧑‍🏭 Labor Cost Flows

• Labor Time Ticket:

• Document tracking the amount of time an employee spends on a job.

• Direct Labor Posting:

• Labor cost is posted to both job cost sheets and accounts.

🧮 Factory Overhead Accounting

(1) Set a Predetermined Overhead Rate (POHR)

• Formula:

\text{POHR} = \frac{\text{Estimated Overhead Costs}}{\text{Estimated Activity Base}}

• Example:

• Road Warriors estimated:

• Direct Labor: $125,000

• Overhead: $200,000

• POHR = 160% of direct labor cost.

(2) Apply Estimated Overhead to Jobs

• Exercise Example:

• Estimated overhead = $560,000

• Estimated machine hours = 1,400

• POHR = $400 per machine hour

• Job 65A uses 13 hours → Overhead Applied = $5,200

(3) Record Actual Overhead Costs

• Examples:

• Indirect materials: $550

• Indirect labor: $1,100

• Other overhead (e.g., depreciation, rent, utilities): $5,270

• Depreciation: $2,400

• Rent: $1,620

• Utilities: $250

• Insurance: $1,000

📈 Accounting for Cost Flows

• Period Costs:

• Not part of manufacturing costs (e.g., administrative or selling expenses).

• Journal Entries:

• Entries record:

• Material purchases and usage

• Labor costs

• Applied and actual overhead

📊 Financial Statements

📄 Schedule of Cost of Goods Manufactured (COGM)

• Prepared monthly.

• Summarizes total manufacturing costs.

• Used to compute cost of goods completed and transferred.

📑 Income Statement

• Includes:

• Revenue

• Cost of Goods Sold (COGS)

• Gross profit

• Period expenses

🧾 Balance Sheet

• Reports inventory:

• Raw Materials

• Work in Process

• Finished Goods (if applicable)

🧾 Closing Overhead Accounts

⚖ Factory Overhead T-Account

• Applied Overhead is credited.

• Actual Overhead is debited.

• Over/Under Applied Overhead:

• Overapplied: Applied > Actual → Credit Balance

• Underapplied: Applied < Actual → Debit Balance

🧮 Adjustment Entry

• Example:

• Applied: $6,720

• Actual: $6,920

• Underapplied = $200 (debit balance) → Adjustment required

🧑‍💼 Job Order Costing in Service Companies

• Applies to:

• Advertising

• Consulting

• Legal services, etc.

Key Differences:

• No raw materials or finished goods inventory.

• Use Services in Process Inventory and Services Overhead.

• Overhead applied using direct labor instead of physical goods.

Example:

• Estimated Job Cost: $17,077

• Price Quote (with markup):

17,077 \times 1.18 = 20,151

• Gross Profit Ratio is calculated similarly to manufacturing.

Let me know if you want a study guide, flashcards, or practice problems based on these notes!