Chapter 3 - Job-order costing. Managers need to assign costs to products to facilitate external financial reporting and internal decision making. This chapter illustrates an absorption costing approach to calculating product costs known as job-order costing. | Job-Order Costing Chapter 3 Job-Order Costing: An Overview Job-order costing systems are used when: Many different products are produced each period. Products are manufactured to order. The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job. Job-Order Costing: An Overview Examples of companies that would use job-order costing include: Boeing (aircraft manufacturing) Bechtel International (large scale construction) Walt Disney Studios (movie production) Job No. 1 Job No. 2 Job No. 3 Charge direct material and direct labor costs to each job as work is performed. Job-Order Costing – An Example Direct Materials Direct Labor Direct Costs Manufacturing Overhead, including indirect materials and indirect labor, are allocated to all jobs rather than directly traced to each job. Job-Order Costing – An Example Direct Materials Direct Labor Job No. 1 Job No. 2 Job No. 3 Manufacturing Overhead Direct Costs Indirect Costs PearCo | Job-Order Costing Chapter 3 Job-Order Costing: An Overview Job-order costing systems are used when: Many different products are produced each period. Products are manufactured to order. The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job. Job-Order Costing: An Overview Examples of companies that would use job-order costing include: Boeing (aircraft manufacturing) Bechtel International (large scale construction) Walt Disney Studios (movie production) Job No. 1 Job No. 2 Job No. 3 Charge direct material and direct labor costs to each job as work is performed. Job-Order Costing – An Example Direct Materials Direct Labor Direct Costs Manufacturing Overhead, including indirect materials and indirect labor, are allocated to all jobs rather than directly traced to each job. Job-Order Costing – An Example Direct Materials Direct Labor Job No. 1 Job No. 2 Job No. 3 Manufacturing Overhead Direct Costs Indirect Costs PearCo Job Cost Sheet Job Number A - 143 Date Initiated 3-4-14 Date Completed Department B3 Units Completed Item Wooden cargo crate Direct Materials Direct Labor Manufacturing Overhead Req. No. Amount Ticket Hours Amount Hours Rate Amount Cost Summary Units Shipped Direct Materials Date Number Balance Direct Labor Manufacturing Overhead Total Cost Unit Product Cost The Job Cost Sheet Why Use an Allocation Base? An allocation base, such as direct labor hours, direct labor dollars, or machine hours, is used to assign manufacturing overhead to individual jobs. We use an allocation base because: It is impossible or difficult to trace overhead costs to particular jobs. Manufacturing overhead consists of many different items ranging from the grease used in machines to the production manager’s salary. Many types of manufacturing overhead costs are fixed even though output fluctuates during the period. The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the .
