Cost Accounting Foundations and Evolutions Kinney and Raiborn

Cost Accounting Foundations and Evolutions Kinney and Raiborn

Cost Accounting Foundations and Evolutions Kinney and Raiborn Seventh Edition Chapter 5 Job Order Costing COPYRIGHT 2009 South-Western, a part of Cengage Learning. South-Western is a trademark used herein under license .

Learning Objectives (1 of 3) Contrast the job order and process costing systems and their valuation methods Explain the purpose of the documents used in a job order costing system Learning Objectives (2 of 3) List the journal entries that are used to accumulate costs in a job order costing systems Describe cost flows in job order costing systems

Learning Objectives (3of 3) Explain how standard costs are used in a job order costing system Describe how job order costing information supports management decision making Explain how losses are treated in a job order costing system Job Order or Process Costing

Job Order Small quantities Batches of identifiable, tailor-made products User-specific services

Tracks costs by job Process Large quantities Homogeneous goods Tracks costs by batch of goods by department Job Order Costing

A job is a single unit or group of units identifiable as being produced to distinct customer specifications A job can be a Client Engagement Project

Contract Methods of Product Costing Cost Accumulation System defines cost object method of assigning costs to production Valuation Method specifies how product costs will be measured Six Possibilities V

A L U A T I O N COST ACCUMULATION SYSTEM M

E T H O D Job Order Process Actual Normal

Standard Actual Normal Standard Job Order Costing System Each job is a cost object Costs are accumulated for each job A job can consist of one or more units of output There is a subsidiary ledger for each job

Job Order Costing System WIP Subsidiary Ledger Job 1 100 Job 2 Job 3 200

500 Job 1 + Job 2 + Job 3 = = WIP Control Job 1 Job 2

Job 3 Total 100 200 500 800 WIP Control Material Requisition Form Tracks who is responsible for materials

Verifies flow of materials from warehouse to department to job Job Order Cost Sheet All financial information about a job direct material (from material requisition) direct labor (from time sheets or labor tickets)

applied overhead budgeted cost information When job is complete, use job order cost sheet to analyze actual costs compared to budgeted costs Employee Time Sheet Time worked on each job Job Order Costing and Technology Automate data collection and data entry

Accounting software includes job costing modules Share information using intranet Intranet Restricted network for sharing information and delivering data from corporate databases to local-area network (LAN) desktops Standard Cost System Actual cost

Normal cost Standard cost Predetermined norms (or standards) for materials, labor, and overhead Compare actual costs to standard costs difference is a variance Management Use of Job Order Costing Systems

Estimate future job costs Establish realistic bids and selling prices Develop budgets and standards Compare actual costs to estimated costs Furnish performance evaluation information based on profitability of jobs Product and Material Losses Shrinkage Evaporation

Leakage Oxidation Production errors Defects can be economically reworked Spoilage cannot be economically reworked Product and Material Losses Normal Loss expected during production Abnormal Loss exceeds what is expected during production

Product and Material Losses Normal Loss Loss for most jobs Loss identified with a specific job Abnormal Loss

In overhead rate Period cost Charge to specific job Period cost Questions What is the difference between job

order and process costing systems? How do actual, normal, and standard costing valuation methods differ? How is the job order cost sheet used? Potential Ethical Issues Inflating costs assigned to cost-plus contracts Assigning costs from a fixed-fee contract to a cost-plus contract Substituting materials with inferior quality

Potential Ethical Issues Overstating costs included in Work in Process Using methods or materials that violate intellectual property rights of other firms Recording sales value of defective work as Other Revenue

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