Chapter 4 Job Costing This chapter covers the different types of costing systems specifically job costing and the journal entries that correlate with it I Product Costing Systems product costing the process of accumulating classifying and assigning direct materials direct labor and manufacturing overhead to products and services A Cost Accumulation Method job or process costing B Cost Measurement Method actual normal or standard costing C Overhead Assignment Method volume or activity based costing II Cost Accumulation Method A Job Costing job batches are cost object manufacturing costs are assigned to jobs specific products batches contracts small to medium firms individual cost sheets t accounts are created Job 1 Job 2 Job 3 10K 30K 20K WIP Inventory 60K B Process Costing 1 DM DL OH III Cost Measurement Method A Actual Costing production process departments are cost objects homogenous products mass production costs are transferred from one process to the next adding value large firms 2 3 DM DL OH DM DL OH COGM actual costing costs incurred for all product costs DM DL OH rarely used potential errors due to fluctuation overhead is ONLY known at the end of the period B Normal Costing normal costing actual costs for DM and DL normal costs for OH estimated overhead to be assigned to each product is more timely Overhead Rate Estimated factory overhead amount for the year from the budget Estimated level of cost driver for the year 2 Apply OH to jobs Beg 1 Get OH rate predetermined 3 Compare actual applied OH End C Factory Overhead ACTUAL overhead comes from indirect materials and indirect labor APPLIED overhead comes from and overhead applied to work in process Overhead applied OH rate actual activity The factory overhead t account is temporary Actual and applied overhead are almost never equal requiring an end of the year adjustment D Over applied and Under applied Overhead If ACTUAL APPLIED then the overhead is under applied o Cost of goods sold is less than it should be and an If ACTUAL APPLIED then the overhead is over applied o Cost of goods sold is more than it should be and an adjustment must be made o COGS xx MOH xx adjustment must be made o MOH xx COGS xx Example 1 Prepare the journal entries and t accounts to record these transactions 1 Direct materials purchased on account 174 000 DM Inventory Accounts Payable 174 000 174 000 2 Direct materials issued from the storeroom 160 000 90 direct materials 10 3 Employee salaries and wages incurred 240 000 80 direct labor 10 indirect indirect materials WIP Inventory MOH DM Inventory 144 000 16 000 160 000 90 160 000 10 160 000 labor 10 selling administrative 192 000 WIP Inventory 24 000 MOH SeA 24 000 Salary Wages Payable 240 000 240 000 80 240 000 10 240 000 10 4 Overhead was applied to production at a rate of 75 of direct labor costs WIP Inventory MOH 144 000 144 000 192 000 75 5 Factory utility cost incurred 42 000 this is a product cost MOH 42 000 42 000 6 Depreciation on factory equipment 35 000 this is a product cost Utilities Payable 8 Factory rent was prepaid The rent expense for this period was 28 000 this is a 7 Deprecation on autos used by the sales staff 25 000 this is a period cost MOH 35 000 Accumulated Depreciation 35 000 Depreciation Expense 25 000 Accumulated Depreciation 25 000 product cost MOH Prepaid Rent 28 000 28 000 MOH Taxes Payable 4 500 4 500 Advertising Expense 12 500 Cash 12 500 FG Inventory WIP Inventory 420 000 420 000 9 Factory property taxes accrued 4 500 this is a product cost 10 Advertising costs paid 12 500 this is a period cost 11 Goods costing 420 000 were transferred from work in process to finished goods DM Inventory 174 000 160 000 420 000 WIP Inventory FG Inventory MOH DM 144 000 DL 192 000 OH 144 000 420 000 Actual Applied 16 000 144 000 24 000 42 000 35 000 28 000 4 500 149 500 144 000 5 500 under applied COGS 5 500 MOH 5 500