Section C Job-Order Costing Job-Order Costing Job-order costing is a method in which all of the costs associated with a specific job (or client) are accumulated and charged to that job (or client). The costs are accumulated on what is called a job-cost sheet. All of the job sheets that are still being worked on equal the work-in-progress at that time. In this system, costs are recorded on the job-cost sheets, and not necessarily in an inventory account. This method can be used when all of the products or production runs are identifiable and unique from each other. A good example of this is an audit or legal firm. As employees work on a particular client or case, they charge their time and any other costs to that specific job. At the end of the project, the company simply needs to add up all of the costs assigned to it to determine the cost. Performance measurement can be done by comparing each individual job to its budgeted amounts or by using a standard cost system. While direct materials and direct labor are accumulated on an actual base, manufacturing overhead must be allocated to each individual job. This is done in much the same manner as has already been explained. A predetermined rate is calculated and applied to each product based either on: 1) Actual usage of the allocation base (normal costing), or 2) Standard usage of the allocation base (standard costing). Note: In the allocation method called extended normal costing, the direct costs (materials and labor) are also allocated by multiplying the actual usage by a standard rate. Note: Under job-order costing, selling and administrative costs are not allocated to the products in order to determine the COGS per unit. They are expensed as period costs. Question 145: Lucy Sportswear manufactures a line of T-shirts using a job-order cost system. During March, the following costs were incurred completing Job ICU2: direct materials, $13,700; direct labor, $4,800; administrative, $1,400; and selling, $5,600. Factory overhead was applied at the rate of $25 per machine hour, and Job ICU2 required 800 machine hours. If Job ICU2 resulted in 7,000 good shirts, the cost of goods sold per unit would be: a) $6.50 b) $6.30 c) $5.70 d) $5.50 (CMA Adapted) Note: On the Exam a numerical question about job-order costing is most likely to be nothing more than a question where you need to use a standard overhead application rate to apply overhead to specific jobs.
Posted on: Sun, 19 Jan 2014 08:11:38 +0000
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