JOB ORDER COSTINGNOTES and ILLUSTRATIVE PROBLEMS System of Cost Accumulation Actual (Historical) Cost System. Under this system, direct materials, direct labor, and factory overhead costs are determined as they occur simultaneously with the manufacturing operation but the total of these costs is known only as the operation has been completed. An actual cost system collects the actual amounts of direct materials, direct labor, and factory overhead that are incurred for each product. Standard (Predetermined) Cost System. Under this system, costs are determined in advance from analysis and forecasts made before the actual production begins. In a standard cost system, standard unit costs are computed for the direct materials, direct labor, and factory overhead; these amounts rather than the actual costs are carried to Finished Goods. Normal Cost System. This system is a combination of the actual cost system and the standard cost system. It accumulates only the actual amounts of direct materials and direct labor costs. Factory overhead costs are accumulated on the basis of predetermined overhead rate. Backflush Costing Job Order Costing. . B. Blended Method/Hybrid Method 4. labor and overhead.Cost Accumulation Procedures (Methods) 1. Process Costing 3. Each job requiring different amounts of materials. they are manufactured individually or in distinct lots or batches. products are manufactured within a department or cost center are heterogeneous or dissimilar products. A. C. Job Order Costing 2. Estimate overhead for each overhead cost pool. 4. Calculate the predetermined overhead rate(s) by dividing the estimated overhead by the estimated allocation base. Job cost is determined in six steps: 1. Record direct costs for each job as they are incurred. 5.or under-applied overhead. Select an allocation base for computing the predetermined overhead rate(s). . Apply overhead using the predetermined rates as jobs are completed or when the financial statements are prepared. If there is over. 2. 3. either write it off directly to Cost of goods sold or allocate it.A job is a cost object that can be distinguished easily because: (1) they are unique in some way (2) separate documents are kept that record the costs of the jobs. 6. Job# 304 306 307 308 Total Material requisition summary P1. .000 4.100 900 2.360 Black Polo pays an hourly rate of P15 for direct labor. The operations in May are summarized below.520 2.940 P5.000 Direct labor P1. During the month of May.320 9. specializes in custom steel frames and uses job costing to account for its operations.ILLUSTRATION: Black Polo. Inc. Job# 304 306 Total costs Direct materials P3. The manufacturing overhead costs are applied to jobs based on the direct labor hours. and 307 are completed in May but only Jobs 304 and 307 are delivered to customers.100 P3.800 for materials and P4.800 750 P5.900 Manufacturin g overhead P2. The following information is available as of May 1 for the workin-process inventory account.650 for manufacturing overhead.800 2.000 P7.550 Time card summary (Hours) 40 30 110 25 205 Jobs 304.460 Total costs P7. Black Polo spends P5.040 P16. 306. 3. (assuming that over / under applied overhead is insignificant or immaterial. 2. Calculate the Over / (under) applied overhead.Requirements: 1. Calculate the Cost of Goods Sold if over/ under applied overhead is immaterial.) 5. Calculate the Ending Balance of Finished Goods Inventory Account. Calculate the ending balance of Work In process (assuming that over / under applied overhead is insignificant or immaterial. Prepare the necessary journal entries for May (assuming any over. 6.) 4. Calculate the predetermined overhead rate used.or under-applied manufacturing overhead is written off to Cost of goods sold account monthly) . 800 Work-in-process inventory Materials inventory (Materials put into production) Work-in-process inventory Wages payable (Direct labor incurred) 5.305 Applied manufacturing overhead (Manufacturing overhead applied) 4. (Manufacturing overhead incurred) Work-in-process inventory 4.550 5.075 Manufacturing overhead control 4.075 3.800 5.650 4.Materials inventory Accounts payable (Materials purchased) 5.550 3.305 .650 Accounts payable. etc. Finished goods inventory Work-in-process inventory 27.640 27.640 (Jobs 304.620 Manufacturing overhead control (Under-applied manufacturing overhead written off to Cost of goods sold) .650 16.620 Finished goods inventory (Jobs 304 and 307 delivered to customers) Applied manufacturing overhead Cost of goods sold 4. and 307 completed) Cost of goods sold 16. 306.305 345 4. 760 308 750 375 525 1.Costs added during May Direct Direct Manufacturing Job# BB materials labor overhead EB 304 P7.100 P600 P840 P9.290 FINISHED GOODS: Jobs 304.650 Total P16.360 P5. and 307 completed WORK IN PROCESS: Job 308 remaining COST OF GOODS SOLD: Jobs 304 and 307 delivered to customers .075 P4.020 307 2. 306.305 P29.800 1.650 2.860 306 9.310 6.550 P3.040 900 450 630 11.320 P1. was 80% of ending work in process inventory. and factory overhead applied based on actual direct labor pesos. . Applied factory overhead for the year was 27% of the total manufacturing cost. Costs of goods manufactured was P970. and applied factory overhead. 2011 from the Corporation’s books and records: Total manufacturing cost added during 2011 was P1. You have obtained the following information for the year ended December 31. actual direct labor. December 31.EXERCISE PROBLEM YELLOW-KITTY CORPORATION manufactures one product and accounts for costs using a job-order cost system. January 1.000 also based on actual direct material. Beginning work-in-process inventory.000 based on actual direct material.000. actual direct labor. Factory overhead was applied to work-in-process at 75% of direct labor pesos. 1.Requirements: 1. Calculate the beginning balance of the work in process. Calculate the amount of Factory overhead applied. Calculate the amount of Direct Labor Costs. 4. 3. . Calculate the ending balance of the work in process. 2. Calculate the amount of total manufacturing costs to account for. which uses a perpetual inventory system.600. b. d. Requisitioned raw material for production as follows: direct material-80 percent of purchases. g. Goods costing 51.100 are accrued as are indirect labor wages of 12. Purchased raw material on account. Overhead incurred and paid for is 66. a. . c.700. e.600 were completed during the period.320 were sold on account for 77. Overhead is applied to production based on 110 percent of direct labor cost.Prepare the necessary journal entries from the following information for Carmella Company. Goods costing 97.900. indirect material-15 percent of purchases. Direct labor wages of 33. f.500. 56. 500 45.410 97. WIP Inventory MOH Raw Material Inventory c.100 12.600 66. FG Inventory WIP Inventory g.700 45. Raw Material Inventory A/P b. CGS FG Inventory A/R Sales 56.600 51.505 53. WIP Inventory MOH Wages Payable d.865 33.a.600 97.600 . WIP Inventory MOH f.900 66.320 77. MOH Cash e.320 51.410 36.900 36.700 56.360 8.600 77. daily. Vacation and Holiday Pay. Other terms necessary for any discussion of labor costs are best defined by equations. Other fringe costs are listed below: Employer’s share in (not employees’ share): Social Security System PhilHealth Contribution .Wages are payments made an hourly. as follows: Gross Earnings = Regular wage + Overtime Premium Regular Wage = Total hours worked (including overtime) x Regular hourly rate Overtime Premium = Overtime hours worked x Extra hourly compensation for overtime Other Additional Compensation chargeable to Factory Overhead Control: • Overtime premium and Shift premium or differential • Bonus. whereas salaries are fixed payments for managerial services. or piecework basis. Pensions and Incentive Plans • Fringe costs. Vacation and pension plans are only two of the most common employee benefits. Reduction to Cost of Goods Sold C. Reduction to Factory Overhead Control D. Additional Revenue B. Reduction in Cost of Materials traceable to a job . and broken parts as a result of an employee error or machine breakdowns that causes the product in a poor quality condition Scrap Sales are accounted for as: A.Scrap includes: the filings or excessive trimmings of materials after the manufacturing operations defective materials that cannot be returned to vendor or not suitable for manufacturing operations. Spoiled goods or spoilage differ from scrap. For reason of being spoilage. in the manner that they are either partially or fully completed unit. they cannot be corrected either because it is not technically possible to correct them or it is not economical to correct them. Waste is not usually saleable at any price and must be discarded. Waste as distinguish to scrap materials refers to any amount of raw materials left-over from a production process or production cycle for which there is no further use. . Charged to a particular job attributable to the exacting specifications imposed by customers Rework is the process of correcting defective goods in order to bring them into a saleable condition. Charged to a particular job attributable to the exacting specifications imposed by customers . Charged to all production or Factory Overhead due to internal failure brought by worn out machinery or employee error.Spoilage loss Charged to all production or Factory Overhead due to internal failure brought by worn out machinery or employee error. EXERCISE PROBLEM Yellow-Arrow company manufactures picture frames and uses job order costing system.000 The actual cost of a spoiled frame is P 7. Prepare the Journal Entry for the spoilage.750 50. . 3. Assume that spoilage is part of all jobs. 150 frames are considered spoiled. What is the predetermined overhead rate using labor hours as the activity base? 2. Each spoiled frames can be sold for P 4. During the production.000 12. The following cost relate to the current run: Estimated Overhead(exclusive of spoilage) -----Spoilage (Estimated)-----------------------------------Sales Value of the Spoiled frames-------------------Labor hours--------------------------------------------------P80. Assume that the spoilage relate to a specific job # 143. 1. What is the predetermined overhead rate using labor hours as activity base? 4.500 5. prepare the Journal Entry for the spoilage. which was completed in September at unit costs presented below.EXERCISE PROBLEM Burblurry Co’s Job 168 for the manufacture of 4. what would be the unit cost of good coats produced on Job 168? 2.400 coats. what would be the unit cost of good coats produced on Job 168? .000 Direct Materials-------------------------------Direct Labor -----------------------------------Factory Overhead (includes an allowance for P 2 overhead) -------------------P40 36 36 P112 1. Final Inspection of Job 168 disclosed 400 spoiled coats which were sold to a jobber for P12. If the spoilage loss is charged to all production . If the spoilage loss is attributable to exacting specifications. 320 1. If the rework costs were attributable to internal failure or charged to Factory overhead .400 P 5. what would be the unit cost of Job 999? . If the rework costs were attributable to exacting specifications of Job 999. what would be the unit cost of Job 999? 2.320 P 200 320 P 520 1.EXERCISE PROBLEM Blackbike Co’s incurred the following costs on Job 999 for the manufacture of 400 motors during April: Direct Materials-------------------------------Direct Labor -----------------------------------Factory Overhead (150% of DL) ----------Direct Costs of reworking 10 units: Direct Materials--------------------Direct Labor ------------------------- P1.600 2. EXERCISE PROBLEM Camille Co.200 drills was completed at the following costs per unit: Direct Materials-------------------------------P20 Direct Labor -----------------------------------16 Applied Factory Overhead (P 3 allowance)--. During May 2012.000.24 P 60 Final inspection of Job 143 disclosed 100 defective units and 200 spoiled units.000. and the spoiled drills were sold to a jobber for P 3. Job 143 for the production of 2. manufactures electric drills to the exacting specifications of various customers. The defective drills were reworked at total cost of P1. What would be the unit cost of goods produced? . Co. and bills the customers at 150% of the production cost. the billing price of job order # 5 would be? . 1. the billing price of job order # 5 would be? 2.Carmella Mfg. If the rejected units were due to customer specification. The predetermined overhead rate was used to charged factory overhead to production at 133. started 150 units in process on job order # 5. If the rejected units were due to machine breakdown. Upon completion of the job order.5 percent of the said prime costs. units equal to 20 percent of good output were rejected for failing to meet the strict quality control requirements.000 for direct material in which this amount is 62.33 % of the direct labor cost. The company sells rejected units as scrap at only 1/3 of its production cost. The prime costs placed in process consisted of P30. on account. (2)The scrap sales are viewed as a reduction of the cost of goods sold during the period.300. Scrap sales. for the period just ended total P2. . Required: Indicate the journal entries when: (1)The scrap sales are viewed as additional revenue.Silver Metal Products accumulates metal shavings from the shop floor and sells them periodically to a nearby scrap dealer. (3)The scrap sales are viewed as a reduction of factory overhead. (4)The scrap sales are traceable to individual jobs and are viewed as a reduction in the cost of materials used on the jobs. 300 (3)Accounts Receivable 2.300 Factory Overhead Control (4) Accounts Receivable 2.300 .300 Cost of Goods Sold 2.300 Scrap Sales (or Other Income) 2.(1) Accounts Receivable 2.300 (2)Accounts Receivable 2.300 Work in Process 2.300 2. 500 good units were produced and 2. What is the amount of abnormal spoilage on this job if the normal spoilage rate is 5% of the total units produced? 2.000 total units. What is the amount of abnormal spoilage on this job if the normal spoilage rate is 5% of the normal input? .500 units were defective. of which 28. 1.A current job consisted of 31. What is the amount of abnormal spoilage on this job if the normal spoilage rate is 5% of the good units produced? 3. Direct materials Direct labor Factory overhead (includes an allowance of P1 for spoiled work) P20 18 18 P56 Final inspection of Job 501 disclosed 200 spoiled coats. Assume that spoilage loss is charge to all production during August. What would be the unit cost of the good coats produced on Job 501? 2. Assume instead that the spoilage loss is attributable to the exacting specifications of Job 501 and is charged to this specific job. which were sold to a jobber for P6.Harper Co.000.200 coats was completed during August at the unit costs presented as follows. What would be the unit cost of the good coats produced on Job 501? .’s Job 501 for the manufacture of 2. 1. Hoyt Co. What amount should Hoyt debit to finished goods? . manufactured the following units: Saleable Unsaleable (normal spoilage) Unsaleable (abnormal spoilage) 5.000.000 200 300 Manufacturing costs totaled P99.