JobCostingCopyright?2015PearsonEducation4-1CHAPTER4CHAPTER4LEARNINGOBJECTIVESDescribethebuilding-blocksconceptsofcostingsystemsDistinguishjobcostingfromprocesscostingDescribetheapproachestoevaluatingandimplementingjob-costingsystemsOutlinetheseven-stepapproachtonormalcostingDistinguishactualcostingfromnormalcosting4-2CHAPTER4LEARNINGOBJECTIVES,concludedTracktheflowofcostsinajob-costingsystemDisposeofunder-orover-allocatedmanufacturingoverheadcostsattheendofthefiscalyearusingalternativemethodsUnderstandvariationsfromnormalcosting4-3BasicCostingTerminology…Severalkeypointsfrompriorchapters:CostobjectsareanythingforwhichameasurementofcostisdesiredDirectcostsofacostobjectarecoststhatcanbetracedtothatcostobjectinaneconomicallyfeasiblewayIndirectcostsofacostobjectarecoststhatcannotbetracedinaneconomicallyfeasibleway4-4AndsomenewtermsCostpool—agroupingofindividualindirectcostitemsCost-allocationbase—asystematicwaytolinkanindirectcostorgroupofindirectcoststocostobjects4-5CostingSystemsInaJOBCOSTINGSYSTEM,thecostobjectisaunitormultipleunitsofadistinctproductorservicewhichwecallajob.Eachjobgenerallyusesdifferentamountsofresources.InaPROCESSCOSTINGSYSTEM,thecostobjectismassesofidenticalorsimilarunitsofaproductorservice.Inthistypeofsystem,wedividethetotalcostofproducinganidenticalorsimilarproductorservicebythetotalnumberofunitsproducedtoobtainaper-unitcost.4-6CostingSystemsIllustrated 4-7CostingApproachesActualcosting—allocates:Indirectcostsbasedontheactualindirect-costratestimestheactualactivityconsumption.NormalCosting—allocates:Indirectcostsbasedonthebudgetedindirect-costratestimestheactualactivityconsumption.Bothmethodsallocatedirectcoststoacostobjectthesameway:byusingactualdirect-costratestimesactualconsumption.4-8CostingApproachesSummarized4-9Seven-StepJobCostingIdentifythejobthatisthechosencostobject.Identifythedirectcostsofthejob.Selectthecost-allocationbase(s)touseforallocatingindirectcoststothejob.IdentifytheIndirectcostsassociatedwitheachcost-allocationbase.(Determinetheappropriatecostpoolsthatarenecessary.)4-10Seven-StepJobCosting,cont’dComputetheRateperUnitofeachcost-allocatebaseusedtoallocateindirectcoststothejob(normalcostingsousebudgetedvalues)

Computetheindirectcostsallocatedtothejob:

BudgetedAllocationRatex

ActualBaseActivityFortheJobBudgetedManufacturingOverheadRate=BudgetedManufacturingOverheadCostsBudgetedTotalQuantityofCost-AllocationBase4-11Seven-StepJobCosting,concluded7.Computetotaljobcostsbyaddingalldirectandindirectcoststogether.4-12DirectManufacturingCostsDirectMaterialsxxxxDirectLaborxxxxxxxxManufacturingOverhead(IndirectCosts)xxxxTotalMfgCostsofJobXYZ xxxxContrastingActualCostingBothactualcostingandnormalcostingtracedirectcoststojobsinthesamewaybecausesourcedocumentsidentifytheactualquantitiesandactualratesofdirectmaterialsanddirectmanufacturinglaborforajobastheworkisbeingdone.TheonlydifferencebetweencostingajobwithnormalcostingandactualcostingisthatnormalcostingusesBUDGETEDindirect-costrateswhereactualcostingusingACTUALindirect-costratescalculatedannuallyattheendoftheyear.4-13Job

Costing

Overview4-14FLOWOFCOSTSINJOBCOSTING4-15JournalEntriesJournalentriesaremadeateachstepoftheproductionprocess.Thepurposeistohavetheaccountingsystemcloselyreflecttheactualstateofthebusiness,itsinventories,anditsproductionprocesses.4-16JournalEntries,cont’dAllproductcostsareaccumulatedinthework-in-processcontrolaccount.DirectmaterialsusedDirectlaborincurredFactoryoverheadallocatedorappliedActualindirectcosts(overhead)areaccumulatedinthemanufacturingoverheadcontrolaccount.4-17JournalEntries,cont’d1.Purchaseofmaterials(direct&indirect)oncredit:MaterialsControl XXAccountsPayableControl XX2.Usageofdirectandindirect(OH)materialsintoproduction:Work-in-ProcessControl XX ManufacturingOverheadControl XX MaterialsControl XX4-18JournalEntries,cont’d3.ManufacturingPayroll(direct&indirect)Work-in-ProcessControl(direct) XX ManufacturingOverheadControl (indirect) XX Cash Control XX4-19JournalEntries,cont’d4.Othermanufacturingoverheadcostsincurredduringtheperiod:ManufacturingOverheadControl XX CashControl XXAccumulatedDepreciationControl XX

4-20JournalEntries,cont’d5.Allocation(orapplication)ofindirectcosts(overhead)tothework-in-processaccountisbasedonapredeterminedoverheadrate.Work-in-ProcessControl XX ManufacturingOverheadAllocated XXNote:Actualoverheadcostsareneverposteddirectlyintowork-in-process.4-21JournalEntries,cont’d6.Productsarecompletedandtransferredoutofproduction(Work-in-Process)toFinishedGoods(inpreparationforbeingsold).FinishedGoodsControl XX Work-in-ProcessControl XX4-22JournalEntries,cont’d7.Theassociatedcostsaretransferredtoanexpense(cost)account.CostofGoodsSold XX FinishedGoodsControl XXNote:Thedifferencebetweenthesalesandcostofgoodssoldamountsrepresentsthegrossmargin(profit)onthisparticulartransaction.4-23JournalEntries,cont’d8.Whenmarketingorcustomer-servicecostsareincurred,theappropriateexpenseaccountisincreasedandCashControlisdecreased(orAccountspayableControlwouldbeincreased,iftheitems/servicesarepurchasedonaccount)MarketingExpense XXCustomer-ServiceExpense XX CashControl XX4-24JournalEntries,concluded9.Productsaresoldtocustomersoncredit.

AccountsReceivableControl XX Sales XX4-25IllustratedGeneralLedger

inaJobCostEnvironment4-26IllustratedSubsidiaryLedger

inaJobCostEnvironment4-27AccountingforOverheadRecallthattwodifferentoverheadaccountswereusedintheprecedingjournalentries:Manufacturingoverheadcontrolwasdebitedfortheactualoverheadcostsincurred.Manufacturingoverheadallocatedwascreditedforestimated(budgeted)overheadappliedtoproductionthroughthework-in-processaccount.4-28AccountingforOverheadActualcostswillalmostneverequalbudgetedcosts.Accordingly,animbalancesituationexistsbetweenthetwooverheadaccounts.IfOverheadControl>OverheadAllocated,thisiscalledUnderallocatedOverheadIfOverheadControl<OverheadAllocated,thisiscalledOverallocatedOverhead4-29AccountingforOverheadThisdifferencewillbeeliminatedintheend-of-periodadjustingentryprocess,usingoneofthreepossiblemethods.4-30ThreeMethodsforAdjustingOver/UnderappliedOverheadAdjustedallocationrateapproach—allallocationsarerecalculatedwiththeactual,exactallocationrate.Prorationapproach—thedifferenceisallocatedbetweencostofgoodssold,work-in-process,andfinishedgoodsbasedontheirrelativesizes.Write-offapproach—thedifferenceissimplywrittenofftocostofgoodssold.4-31ChoosingamongapproachesWhenmanagementisdecidingbetweenapproaches,theyshouldconsiderthefollowing:thepurposeoftheadjustmentThesizeoftheamountthatwasover-orunderallocatedWhetherthevariancewasover-orunderallocatedThechoiceofmethodshouldbebasedonsuchissuesasmateriality,consistency,andindustrypractice.4-32JobcostingintheservicesectorJobcostingisoftenassociatedwiththemanufacturingsectorbutitisalsoveryusefulinserviceorganizationssuchasautorepairshops,advertisingagencies,hospitalsandaccountingfirms.Inanaccountingfirm,forexample,managementmaywishtodeterminethecostforeachaudit.Inthatcase,eachauditwouldbeajobandcostswouldbetracedorproperlyallocatedtoit.4-33TERMstolearn

TERMStoLEARNP