Chapter 2: Job Order Costing

Question 1

Prepare the entries for manufacturing/service jobs

1. completed and
2. sold

Answer 1

1. When Job is completed:

Finished Goods Inventory

Work in Process Inventory

2. When sold:

Acc. Receivable

Sales Revenue

COGS

Finished Goods Inventory

Question 2

Höhe der Activity Base wird entnommen aus ???

• Direct labor cost
• Direct material cost

Answer 2

• Direct material Cost: Material requisition slip ​
• Direct labor Cost: Time Tickets

Achtung:

• Enthält auch Overhead Cost (diese sind nicht mit einzubeziehen)

Question 3

Manufacturing Overhead Rate and

Predetermined Overhead Rate

Answer 3

Issue with Manufacturing Overhead Cost:

• Cannot be assigned to a specific job based on actual costs incurred

Solution:

• Companies assign them to Work in Process and to specific jobs on an estimate basis through the use of a Predetermined Overhead Rate

Question 4

Job Order Cost Flow:

Raw Materials

Answer 4

The physical flow of the materials as they are converted into finished goods

• Manufacturing Costs are assigned to Work in Process (WIP) Inventory account
• Cost of completed jobs is transferred to the Finishied Goods Inventory account
• When units are sold, the cost ist transferred to the Cost of Goods Sold account

Question 5

Accumulating Manufacturing Cost

Factory Labor Cost

Answer 5

Consists of three costs:

1. Gross earnings of factory workers
2. Employer payroll taxes on these earnings
3. Fringe benefits
   
   • sick pay
   • pensions
   • …

Assigend to jobs on the basis of a time ticket

Question 6

Job Cost Sheet

Answer 6

• Used to record costs chargeables to specific jobs
• Summarizes the cost of jobs completed and not completed at the end of the accounting period

Question 7

Predetermined Overhead Rate

Large Companys vs. Small Companies

Answer 7

1. Large Companies:

• use a diffrent rate for each department
• each department may even have a diffrent Activty Base

2. Small Companies:
   * often use a single, company-wide predetermined rate

Question 8

Process Cost System

Answer 8

• Costs are accumulated for a time period (week or month)
• Costs are assigned to departmens or processes for a specific period of time
• Used when a large volume of similar products are manufactured (Müsli, Eis,…)

Question 9

Raw Matieral Cost

Direct Materials and Indirect Materials

Answer 9

• Assigned to a Job, hence for to WiP or Manufacturing Overhead, when materials are issued in response of a request via the Materials requisition slip
• Direct Materials are charged to WiP
• Indirect Materials are charged to Manufacturing Overhead

Question 10

Job Cost Sheet and WiP relationship

Answer 10

Each entry to WiP MUST be accompanied by a corresponding posting to one or more job cost sheets

Question 11

Work in Process Account under Job Order Costing

Answer 11

• Only ONE WiP Account under Job Order Costing
• NO distinction between Jobs! Every Job is recorded to WiP

Question 12

Predetermined Overhead Rate:

Answer 12

• Based on the relationship between estimated annual overhead costs and expected annual operation activity
• Expressed in terms of an ACTIVY BASE such as:
  
  • Direct labor costs
  • Direct labor hours
  • Machine hours
• Formula:

Question 13

Under- or Overapplied in Manufacturing Overhead

Answer 13

• Debit Balance in Manufacturing overhead means that overhead is UNDERAPPLIED
• Credit Balance… is OVERAPPLIED

Any year-end Balance in manufacturing overhead is eliminated by adjusting COGS:

• UNDERAPPLIED Overhead is debited to COGS
• OVERAPPLIED Overhead is credited to COGS

Question 14

Job Order Cost System

Answer 14

• Products have a UNIQUE CHARATERISTIC
• Costs are assigned to EACH JOB/BATCH
• Objective is to compute the cost per job
• Measures costs for each job completed (NOT for a set of time periods !!!!)

Important feature:

• Each Job/Batch has its own distinguishing characteristics

Question 15

Advantages and Disadvantages of Job Order Costing compared to Process Costing

Answer 15

Advantge:

• More precise in assignment of costs to projects than process costing
• Provides more useful information for determining the profitability of particular projects and for estimating costs when bids on future jobs

Disadvantage:

• Requires a significant amount of data entry

Question 16

Raw Material Costs

Answer 16

• Assigned to a job when materials are issued -> by using a Material requisition slip

Material requisition slip:

• Direct Materials:
  
  • Directly issued to use on a job
  • Charged to Work in Process Inventory
• Indirect Materials:
  
  • Charged to Manufacturing Overhead

Buchungsatz:

WiP Inventory XXX Manufactoring Overhead YYY

Raw Materials ZZZ

Question 17

Accumulating Manufacturing Cost

Manufactoring Overhead

Answer 17

• Ex: Propertay taxes, depreciation, insurance,…
• Cost UNRELATED to manufactoring process are expensed
• Costs RELATED to manufactoring process are accumlated in Manufactoring Overhead account

-> Manufactoring Overhead subsequently assignd to work in process

Question 18

1. Einbuchung der Manufacturing Overhead
2. Assigning manufacturing cost to work in process

Answer 18

1. Einbuchung: -> DEBIT eingebucht

(Dr.) Manufacturing Overhead

(Cr.) Utilie Payable

Prepaid Insurane etc.

2. Assigning: -> CREDIT ausgebucht

(Dr.) Work in Process

(Cr.) Manufacturing Overhead

Question 19

Factory Labor Costs

Answer 19

• Assigned to jobs on the basis of time tickets
  
  • ​Buchung auf Basis des Time Tickets durchführen für Factory Labor
  • Achtung: Enthält auch Manufactoring Overhead Cost

Buchung:

Wip Inventory

Manufactoring Overhead

Factory Labor