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Example:
An example of a complete job cost sheet is given below:
After direct materials requirement has been determined, the production process
starts with issuance of direct materials. For this purpose, production department
prepares a document known as materials requisition form. An authorized person
from production department writes the type, quantity, and job number (to which
the materials cost is to be charged) on materials requisition form. A signed copy of
this form is then sent to the storeroom clerk who completes the form by entering on
it per unit and total cost of materials to be issued. After necessary verification,
storeroom clerk issues direct materials to production department.
A complete materials requisition form is also used by accounting department to
record direct materials cost on the job cost sheet of the related job order.
An example/sample of materials requisition form is given below:
In job order costing system, any labor charges that are not directly traceable to a particular job
are known as indirect labor cost. In example of time ticket given above maintenance is indirect
labor. Other examples of indirect labor are cleanup costs and supervision etc. Indirect labor is not
included in direct labor cost and, therefore, becomes a part of the manufacturing overhead.
These days, many companies have replaced the manual process of recording direct materials cost
with the computerized approaches. They use a bar code technology to enter data into a computer.
This technology increases the speed and accuracy of the whole process.
Journal entry to record direct labor cost:
After collecting time tickets by accounting department, wages of workers are computed and
labor costs are classified as direct or indirect on the basis of information provided by time
tickets. As discussed earlier, indirect labor is a part of manufacturing overhead and its accounting
treatment has been discussed in measuring and recording manufacturing overhead article. The
journal entry of direct labor cost is made as follows:
Work in process
xxxx
Wages payable
xxxx
Example:
Suppose the GX company has completed a job order. The time tickets show that
the workers have worked for 27 hours to complete the job. The predetermined
overhead rate computed at the beginning of the year is $8 per direct labor hour.
The manufacturing overhead cost would be applied to this job as follows:
The manufacturing overhead cost assigned to the job is recorded on the job cost
sheet of that particular job.
To understand how entries for non-manufacturing costs are made, consider the
following example:
GX company uses job order costing system and has incurred the following nonmanufacturing expenses for the most recent period:
1. Selling and administrative salary $ 60,000
Depreciation on office expenses
furniture
3. Advertising expenses
Other selling and administrative
4.
expenses
2.
14,000
84,000
16,000
Journal entries:
1. Salaries expenses
60,000
Depreciation expense
60,000
14,000
Accumulated depreciation
3 &
Advertising expenses
4.
Other
selling
administrative expenses
Accounts payable
14,000
84,000
and
16,000
100,000
The debit or credit balance in manufacturing overhead account at the end of a month is carried
forward to the next month until the end of a particular period usually one year.
Disposition of over or under-applied manufacturing overhead:
At the end of the year, the balance in manufacturing overhead account (over or under-applied
manufacturing overhead) is disposed off by either allocating it among work in process, finished
goods and cost of goods sold accounts or transferring the entire amount to cost of goods sold
account. These two methods have been discussed below:
Allocation among work in process, finished goods and cost of goods sold account:
Under this method, the amount of over or under-applied overhead is disposed off by allocating it
among work in process, finished goods and cost of goods sold accounts on the basis of overhead
applied in each of the accounts during the period. The following journal entry is made to dispose
off an over or under-applied overhead:
When overhead is under-applied:
Work in process
xxxx
Finished goods
xxxx
xxxx
Manufacturing overhead
xxxx
xxxx
Finished goods
xxxx
xxxx
This method is more accurate than second method. The only disadvantage of this method is that
it is more time consuming.
Transferring the entire amount of over or under-applied to cost of goods sold:
Under this method the entire amount of over or under applied overhead is transferred to cost of
goods sold. The following entry is made for this purpose:
xxxx
xxxx
This method is not as accurate as first method. Companies use this method because
it is less time consuming and easy to use.
Example:
During the year 2012, Beta company started two jobs job A and job B . Job A consisted of
1000 units and job B consisted of 500 units. At the end of the year 2012, job A was completed
but job B was in process. The information about manufacturing overhead cost applied to job A
and B was as follows:
Job A: $ 65,000
Job B:
35,000
Total
$ 100,000
The actual manufacturing overhead cost incurred by the company during 2012 was $108,000.
Out of 1,000 units in job A, 750 units had been sold before the end of 2012.
Required: Calculate over or under applied manufacturing overhead and make journal entries
required to dispose off over or under applied manufacturing overhead assuming:
1. It is disposed off by allocating between inventory and cost of goods sold accounts.
2. It is disposed off by transferring to cost of goods sold.
Solution:
Calculation of over or under-applied manufacturing overhead:
Total manufacturing overhead applied to work
$ 100,000
in process
Total manufacturing overhead cost actually
108,000
incurred
Example:
Suppose GX company uses direct labor hours to assign manufacturing overhead
cost to job orders. The budget of the GX company shows an estimated
manufacturing overhead cost of $8,000 for the forthcoming year. The company
estimates that 1,000 direct labors hours will be worked in the forthcoming year.
Using the above information, we can compute the predetermined overhead rate as
follows:
Solution:
1. Journal entries:
Filename:
Job order costing syste1.docx
Directory:
C:\Users\user\Documents
Template:
C:\Users\user\AppData\Roaming\Microsoft\Templates\Normal.dotm
Title:
Subject:
Author:
user
Keywords:
Comments:
Creation Date:
12/30/2016 4:32:00 AM
Change Number:
53
Last Saved On:
12/30/2016 5:15:00 AM
Last Saved By:
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Total Editing Time:
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Last Printed On:
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As of Last Complete Printing
Number of Pages: 18
Number of Words: 3,707 (approx.)
Number of Characters:
21,131 (approx.)