COST ACCOUNTING NORMAL JOB COSTING by ewghwehws

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```									Job Costing System
   Actual Costing
   Traces direct costs to a cost object by using the actual direct cost-
rates times the actual quantities of the direct-cost inputs.
   Normal Costing
   Traces direct costs to a cost object by using the actual direct-cost
rates times the actual quantities of the direct cost-inputs and that
allocates indirect cost based on the budgeted indirect-cost rates
times the actual quantities of the cost-allocation bases.
Normal Job Costing
Job Costing System
Actual Costing                Normal costing

Direct Costs     Actual Direct Cost Rates x    Actual Direct Cost Rates x
Actual Quantities of Direct   Actual Quantities of Direct
Cost Inputs                   Cost Inputs
Indirect Costs   Actual Indirect Cost Rates x Budgeted Indirect Cost
Actual Quantities of Cost    Rates x
Allocation Bases             Actual Quantities of Cost
Allocation Bases
General Approach To Normal Job Costing
 Step1  : Identify the Job That is Chosen Cost Object
 Step 2 : Identify the Direct Cost of the Object

 Step 3 : Select the Cost-Allocation Bases To Use For
Allocating Indirect Costs to the Job
 Step 4 : identify the Indirect Costs Associated with Each
Cost-Allocation Base
General Approach To Normal Job Costing
 Step5  : Compute the Rate per Unit of Each Cost-Allocation
Base Used to Allocate Indirect Costs to the Job
 Step 6 : Compute the indirect costs Allocated To The Job

 Step 7 : Compute the Total Cost of the job by Adding All
Direct and Indirect Costs Assigned To The Job
Time period Used To Compute Indirect Cost Rates
 There are two reasons for using longer periods, such as year, to
calculate indirect cost rates.
 1. The numerator reason(indirect-cost pool) : The shorter the
period, the greater the influence of seasonal patterns on the
amount of costs.
 2. The denominator reason(quantity of the cost allocation
base) : Some indirect costs may be variable each month with
respect to the cost allocation base(for example, supplies).
Budgeted Indirect Costs and End-of-Accounting
 Because of the numerator and denominator reasons, we do not
expect actual overhead costs incurred each month to equal
 Underallocated Indirect Costs occur when the allocated
amount of indirect costs in an accounting period is less than the
actual(incurred) amount.
 Overallocated Indirect Costs occur when the allocated amount
of indirect costs in an accounting period is greater than the
actual(incurred) amount.
Budgeted Indirect Costs and End-of-Accounting
 There are three main approaches to accounting for the
underallocated or overallocated overhead caused by
underestimated or overestimated the quantity of cost
allocation base. These are :
 2. Proration Approach
 3. Write-off to Cost of Goods Sold Approach
 Restates all overhead entries in the general ledger and
subsidiary ledgers using actual rates rather than budgeted
cost rates.
 Yields the benefits of both the timeliness and convenience
of normal costing during the year and the accuracy of
actual costing at year-end.
2. Proration Approach
overhead among ending work in process, finished goods,
and cost of goods sold.
 Based on ending balances is frequently justified as being
an expedient way of approximating the more-accurate
results from using indirect costs allocated.
3. Write-Off to Cost of Goods Sold Approach
 The total under or overallocated overhead is included in
this year’s Cost of Goods Sold.
Example:
Allocation of Costs (Direct Method)
SERVICE DEPARTMENTS           PRODUCING DEPARTMENTS
Department X,     Department Y,    Department A,   Department B,
Building and    General Factory    Machinery        Assembly
Maintenance
Total Budgeted Costs        \$10,000            \$7,500          \$36,500         \$44,600
Allocated To Producing       (10,000)                          2,500 (1)       7,500 (2)
Departments A and B
(7,500)         5,250 (3)       2,250 (4)
Balance after Allocation     \$      0          \$     0         \$44,250         \$54,350

Application Rates (per
direct labor hour)                                            \$24.58 (5)      \$57.21 (6)
Example:
Allocation of Costs (Direct Method) Cont’d
of Department X, Building and Ground
 Allocation
Maintenance :

Square Feet x Rate Per Square Foot
(1)To Department A, Machinery   \$2,500 (1)   (1,000      x \$2.50)
(2)To Department B, Assembly     7,500 (2)   (3,000      x 2.50)
Total                           \$10,000
Example:
Allocation of Costs(Direct Method) Cont’d
 Allocationof Department Y, General Factory

Total Labor Hours x Rate Per Total Labor Hours

(3)To Department A, Machinery   \$5,250 (3) (2,800           x \$1.875)
(4)To Department B, Assembly     2,250 (4) (1,200          x    1.875)
Total                            \$7,500
Example:
Allocation of Costs (Direct Method) Cont’d
 Factory  Overhead Application rate (on the basis of direct
labor hours) for producing departments
Total Cost After Allocation / Direct Labor Hours

(5)For Department A, Machinery   \$24.58/dlh   (44,250                    / 1,800)

(6)For Department B, Assembly    \$57.21/dlh   (54,430                    /      950)
Example: Allocation of Actual Service Department
Costs To Producing Departments (Cont’d)
 Total   Actual Costs
Service Departments:
Department X – Building    \$11,000
and Ground Maintenance
Department Y – General       7,900
Producing Departments :
Department A - Machinery    38,400
Department B - Assembly     43,700
Example: Allocation of Actual Service Department
Costs To Producing Departments (Cont’d)
DEPARTMENT                ACTUAL DIRECT   ACTUAL SQUARE   ACTUAL TOTAL
LABOR HOURS          FEET       LABOR HOURS
X – Building and Ground         -              650           1,400
Maintenance
Y – General Factory             -              550             900
A – Machinery                1,700            1,300          3,000

B – Assembly                 1,000            2,600          1,500

Total                        2,700            5,100          6,800
Example : Allocation of Actual Service Department
Costs To Producing Departments(Cont’d)
machinery                    machinery
\$38,400                                    \$41,786*
3,667
5,267
*24.58/DLH x 1,700 actual DLH
47,334
Example: Allocation of Actual Service Department
Costs To Producing Departments (Cont’d)

assembly                      assembly
\$43,700                                    \$57,210*
7,333
2,633                                   *57.21/DLH x 1,000 actual DLH

53,666
Example : Allocation of Actual Service Department
Costs To Producing Departments(Cont’d)

Building and Grounds          General Factory
maintenance cost control   administration Cost Control
\$11,000                     \$7,900
Example : Allocation of Actual Service Department
Costs To Producing Departments(Cont’d)

SERVICE DEPARTMENTS           PRODUCING DEPARTMENTS
Department X,     Department Y,    Department A,   Department B,
Building and    General Factory    Machinery        Assembly
Maintenance
Total Actual Costs          \$11,000            \$7,900          \$38,400         \$43,700
Allocated To Producing       (11,000)                          3,667 (1)       7,333 (2)
Departments A and B
(7,900)         5,267 (3)       2,633 (4)
Balance after Allocation     \$      0          \$     0         \$47,334         \$53,666
Example : Allocation of Actual Service Department
Costs To Producing Departments (Cont’d)

of Department X, Building and Ground
 Allocation
Maintenance :

Square Feet x Rate Per Square Foot

(1)To Department A, Machinery   \$3,667 (1)   (1,300      x \$2.82)

(2)To Department B, Assembly     7,333 (2)   (2,600      x 2.82)

Total                           \$11,000
Example : Allocation of Actual Service Department
Costs To Producing Departments(Cont’d)

 Allocation    of Department Y, General Factory

Total Labor Hour x Rate Per Total Labor hours
(3)To Department A, Machinery   \$5,267 (3)   (3,000           x \$1.75)
(4)To Department B, Assembly     2,633 (4)   (1,500           x 1.75)
Total                            \$7,900
Example : Allocation of Actual Service Department
Costs To Producing Departments(Cont’d)

 The Computation of under – or overapplied factory
MACHINERY   ASSEMBLY
End of period balance in factory     \$47,334    \$53,666
End of period balance in factory      41,786     57,210
Example : Allocation of Actual Service Department
Costs To Producing Departments(Cont’d)

 The   recording of underapplied factory overhead :
Factory overhead applied – machinery..............          41,786
Underapplied factory overhead – machinery...                 5,548
Factory overhead control – machinery................            47,334
(\$38,400 + \$3,667 + \$5,267 = \$47,334)
Example : Allocation of Actual Service Department
Costs To Producing Departments(Cont’d)

 The   recording of overapplied factory overhead :
Factory overhead applied – assembly..............          57,210
Overapplied factory overhead – assembly...                      3,544
Factory overhead control – assembly................            53,666
(\$43,700 + \$7,333 + \$2,633 = \$53,666)
Accounting For the Difference Between Applied and

 Assuming    that we have the following information :
Units sold.................................................... 1,000
Type A....   750 & Type B.....   250
Units in finished goods inventory............                  200
Type A....   150 & Type B.....   50
Units in Work-In process Inventory.........                    400
Type A....   300 & Type B.....   100
Accounting For the Difference Between Applied and

 Prorating         the underapplied factory overhead cost \$5,548:
DOLLARS   PERCENTAGE   PRORATION
of TOTAL    of \$5,548
Cost of goods sold (750x \$24,58/dlh x 0.9dlh/unit) TA         \$24,580      62,5%      \$3,467.5
(250x \$24,58/dlh x 1.3dlh/unit) TB
Finished Goods Inventory (150 x 24,58/dlh x 0.9dlh/unit) TA     4,916      12,5%        693.5
(50 x 24,58/dlh x 1.3dlh/unit) TB
Work-In-Process Inventory (300x 24,58/dlh x 0.9dlh/unit) TA     9,832       25%         1,387
(100x 24,58/dlh x 1.3dlh/unit) TB

TOTAL                                                         \$39,328      100%        \$5,548
Accounting For the Difference Between Applied and

   After proration of underapplied factory overhead cost \$5,548
to machinery department:
BEFORE    PRORATION      AFTER
PRORATION    of \$5,548   PRORATION

Cost of goods sold (750x \$24,58/dlh x 0.9dlh/unit) TA          \$24,580     \$3,467.5    \$28,047.5
(250x \$24,58/dlh x 1.3dlh/unit) TB
Finished Goods Inventory (150 x 24,58/dlh x 0.9dlh/unit) TA      4,916       693.5        5609.5
(50 x 24,58/dlh x 1.3dlh/unit) TB
Work-In-Process Inventory (300x 24,58/dlh x 0.9dlh/unit) TA      9,832       1,387       11,219
(100x 24,58/dlh x 1.3dlh/unit) TB
TOTAL                                                          \$39,328      \$5,548      \$44,876
Accounting For the Difference Between Applied and

 Prorating         the overapplied factory overhead cost \$3,544:
DOLLARS   PERCENTAGE   PRORATION
of TOTAL    of \$3,544
Cost of goods sold (750x \$24,58/dlh x 0.9dlh/unit) TA         \$24,580      62,5%       \$2,215
(250x \$24,58/dlh x 1.3dlh/unit) TB
Finished Goods Inventory (150 x 24,58/dlh x 0.9dlh/unit) TA     4,916      12,5%         443
(50 x 24,58/dlh x 1.3dlh/unit) TB
Work-In-Process Inventory (300x 24,58/dlh x 0.9dlh/unit) TA     9,832       25%          886
(100x 24,58/dlh x 1.3dlh/unit) TB

TOTAL                                                         \$39,328      100%        \$3,544
Accounting For the Difference Between Applied and

 So   after proration of overapplied factory overhead cost
\$3,544 to assembly department:
BEFORE    PRORATION      AFTER
PRORATION    of \$3,544   PRORATION
Cost of goods sold (750x \$24,58/dlh x 0.9dlh/unit) TA          \$24,580      \$2,215      \$22,365
(250x \$24,58/dlh x 1.3dlh/unit) TB
Finished Goods Inventory (150 x 24,58/dlh x 0.9dlh/unit) TA      4,916        443         4,473
(50 x 24,58/dlh x 1.3dlh/unit) TB
Work-In-Process Inventory (300x 24,58/dlh x 0.9dlh/unit) TA      9,832        886         8,946
(100x 24,58/dlh x 1.3dlh/unit) TB
TOTAL                                                          \$39,328      \$3,544      \$35,784
Example : Allocation of Actual Service Department
Costs To Producing Departments(Cont’d)
machinery                    machinery
\$38,400                                    \$41,786*
3,667                                      5,548**
5,267                                       47,334
47,334                                    * 24.58/DLH x 1,700 actual DLH
** Proration of Underapplied cost
Example: Allocation of Actual Service Department
Costs To Producing Departments (Cont’d)