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Iacctg3 - Job-Order Costing & Process Order Costing

The document outlines two primary costing methods in managerial accounting: job-order costing and process costing. Job-order costing is used for individual products with unique costs, while process costing is applied in manufacturing sectors for mass production. It also discusses the accumulation of manufacturing costs, the flow of costs in both systems, and the role of predetermined overhead rates.

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Zhackie Zoave Plaza
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20 views31 pages

Iacctg3 - Job-Order Costing & Process Order Costing

The document outlines two primary costing methods in managerial accounting: job-order costing and process costing. Job-order costing is used for individual products with unique costs, while process costing is applied in manufacturing sectors for mass production. It also discusses the accumulation of manufacturing costs, the flow of costs in both systems, and the role of predetermined overhead rates.

Uploaded by

Zhackie Zoave Plaza
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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MANAGERIAL

ACCOUNTING

iNSTRUCTOR: Z. PLAZA

01
Agenda
01 JOB-ORDER COSTING

02 PROCESS COSTING

02
JOB-ORDER COSTING
A costing method which is used to
determine the cost of manufacturing
each product.

It involves looking at direct and


indirect costs, and it's usually broken into
three specific categories: labor, materials
and overhead.
COST ACCOUNTING SYSTEM

A cost accounting system consists of accounts for the various


manufacturing costs. These accounts are fully integrated into a
company's general ledger.

There are two basic types of cost accounting systems:

Job-order cost Process cost


system system
Job-Order Costing System

is a costing method which is used to


determine the cost of manufacturing each
product. This costing method is usually
adopted when the manufacturer produces a
variety of products which are different from
one another and needs to calculate the cost
for doing an individual job.
Process Cost System

is a method typically used within


certain sectors of the manufacturing
industry to determine the total production
cost for each unit of product. It
accumulates cost from each process or
department and allocates them to the
individual products produced.
Job-order Process cost
VS
costing system system

Job-order cost and process cost systems are SIMILARITIES in three ways:

The manufacturing cost elements

The accumulation of the costs of materials, labor, and overhead

The flow of costs


The Manufacturing cost elements.

Both costing systems track three


manufacturing cost elements—direct
materials, direct labor, and
manufacturing overhead.
The elements of cost include all the different expenses
which are incurred during the production of an item and
should be included in its final price. These include:.

1. Material cost
2. Direct labor cost
3. Direct expenses
4. Factory overhead
The Accumulation of the Costs of
Materials, Labor, and Overhead
In both costing systems, raw
materials are debited to Raw Materials
Inventory, factory labor is debited to
Factory Labor, and manufacturing
overhead costs are debited to
Manufacturing Overhead.
The flow of costs

Costs are accumulated by debits to Raw


Materials Inventory, Factory Labor, and
Manufacturing Overhead. These costs are then
assigned to the same accounts in both costing
systems—Work in Process, Finished Goods
Inventory, and Cost of Goods Sold.
DIFFERENCES
OPERATIONS COSTING
Is similar to process costing since companies
use standardized methods to manufacture a product.
At the same time, the product may have some
customized, individual features that require the use
of a job-order cost system.

Operations Costing is also called Hybrid Cost System.

The combination of process costing and job-costing


system is called Operating Costing
Basic Flow of Costs
The illustration below shows you the basic flow of costs in Job-Order
Cost and Process Cost System.

Illustration 1. Job-Order Cost and Process Cost Flow Systems

Job-Order Cost System


Basic Flow of Costs

Illustration 2. Job-Order Cost and Process Cost Flow Systems

Process Cost System


JOB-ORDER COSTING SYSTEM

Job-Order Cost Flow

the costs of jobs flow through the Inventory


asset accounts until the product is sold. At that time
the costs are transferred to Cost of goods sold.
Job-Order Cost Flow

As shown in Illustration 2

Manufacturing costs are assigned to the Work


in Process Inventory account. When a job is
completed, the cost of the job is transferred to the
Finished Goods Inventory account. Later, when the
goods are sold, their cost is transferred to Cost of
Goods Sold.
Accumulating Manufacturing Costs

In a job-order cost system,


manufacturing costs are recorded in the
period when they are incurred. To
illustrate, we will use the January
transactions of Merry Manufacturing
Company, which makes machine tools.
RAW MATERIAL COSTS

When Merry receives the raw materials that it has


purchased, it debits the invoice cost and freight costs of the
materials to Raw Materials Inventory. To illustrate, assume
that Merry Manufacturing purchases 2,000 handles at P5
per unit (2,000 x P5.00 = P10,000) and 800 modules at P40
per unit (800 x P40.00 = P32,000) for a total cost of
P42,000 (P10,000 + P32,000). The entry to record this
purchase on January 4 is?
FACTORY LABOR COSTS

Some of a company's employees are


involved in the manufacturing process, while
others are not. Costs related to manufacturing
employees are accumulated in Factory Labor to
ensure their treatment as product costs.
FACTORY LABOR COST

To illustrate, assume that Merry


Manufacturing incurs P32,000 of factory labor
costs. Of that amount, P27,000 is for wages
payable and P5,000 is for payroll taxes incurred in
January. The entry is as follows:
MANUFACTURING OVERHEAD COSTS

Companies assign raw materials costs


when their materials storeroom issues the
materials. Requests for issuing raw materials are
made on a prenumbered materials requisition slip.
The materials issued may be used directly on a
job, or they may be considered indirect materials.
MANUFACTURING OVERHEAD COSTS

For example,

if P24,000 of direct materials and P6,000 of indirect


materials are used by Merry Manufacturing in
January, the entry is?
FACTORY LABOR COSTS

Companies assign factory labor costs to jobs on the basis


of time tickets prepared when the work is performed. The time
ticket indicates the employee, the hours worked, the account
and job to be charged, and the total labor cost. The
employee's supervisor should approve all time tickets. The
time tickets are later sent to the payroll department, which
applies the employee's hourly wage rate and calculates the
total labor cost. Finally, the company journalizes the time
tickets. It debits the account Work in Process Inventory for
direct labor and debits Manufacturing Overhead for indirect
labor.
FACTORY LABOR COSTS

For example:

If the P32,000 total factory labor cost consists of


P28,000 of direct labor and P4,000 of indirect labor, the entry
is?
Predetermined Overhead Rate

Is based on the relationship between the


estimated annual overhead costs and the
estimated annual operating activity. This
relationship is expressed through a common
activity base. The activity may be stated in terms
of direct labor costs, direct labor hours, machine
hours, or any other measure that will provide a fair
basis for applying overhead costs to jobs.
The formula for Predetermined Overhead Rate
Predermined Overhead Rate

Example:

During the year, manufacturing overhead costs are


estimated to be P160,000, and estimated machine usage is
40,000 hours. The company assigns overhead based on
machine hours. Project XYZ used 2,000 machine hours.

Calculate the predetermined overhead rate, determine the


amount of overhead to allocate to Project XYZ, and prepare the
entry to assign overhead to Project XYZ on March 31.
Thank You

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