Notesale: Turn your study into money

Document Preview

Extracts from the notes are below, to see the PDF you'll receive please use the links above

---

JOB COSTING
Your goals for Job Order Costing System are to learn about
1
...
Information systems for job costing environments
3
...

Multiple persons, parts, and processes may be needed to bring about a deliverable output
...

Note that job costing is best suited to those situations where goods and services are produced upon
receipt of a customer order, according to customer specifications, or in separate batches (as a result
many companies would refer to this costing method as the job order costing method)
...
An aircraft manufacturer would
find this method logical
...
Each job is somewhat unique
...
Jack Castle
owns an electrical contracting company, Castle Electric
...
Jack has four employees, maintains a neat (rented) shop, a broad inventory of
parts and equipment, and a fleet of five service trucks
...
Around 8:00 a
...
, his
electricians begin to arrive, and he gives them their assignments, as well as the necessary parts and
equipment they will need
...

One of Jack’s electrician is Donnie Odom
...
m
...
His three tasks for the day included:
•
•
•

Job A: Cleaning and reconnecting the electrical connections and replacing a flood light atop a
billboard (materials required include one lamp at $150)
Job B: Replacing the breakers on an old electrical distribution panel at an office building
(materials required include 20 breakers at $20 each)
Job C: Pulling wire for a new residence under construction (material required include 500
feet of wire at $0
...
He spent 1 hour on the billboard, 2 hours
on the electrical panel, and 3 hours on the residential installation
...
During the day, Donnie also used a roll of

electrical panel, and 3 hours on the residential installation
...
During the day, Donnie also used a roll of electrical
tape ($3) and a box of wire nuts (60 nuts at $0
...
Donnie is paid $18 per hour
...
Jack is paid $25 per hour, and he does not usually work on any specific job
...

The “ job costing” question is: How much did it “cost” to change the light on the billboard, etc?
Obviously, the job cost included the direct costs of the job; specifically, Donnie’s direct labour time
(1 hour) and the direct material (one lamp at $150)
...

These latter items constitute the indirect costs, or overhead, for the job
...
Donnie, and
the other electricians, fill out a time report documenting time spent on each job, as well as the time
spent on tasks that cannot be traced to a specific job:

Castle Electric

Daily Time sheet

Employee: Donnie Odom
Date:

7/14/X5

Start/Stop Time

Job Name

Task

client

Admin
Hours

Direct
Labour
Hours

8:00

8:30

Admin

Assignment and load

8:30

8:45

Travel

8:45

9:45

Job A

9: 45

10:15

Travel

10:15

12:15

Job B

Replace breakers

12:15

1

Lunch

n/a

1:00

4:00

Job C

Pull wiring

4:00

4: 45

Travel
and
Admin

Return to shop and
unload

Service and replace bulb

n/a

0
...
25

Image Advertising
n/a

1
...
5

TechWay Office Park

2
...
00

n/a

0
...
00

6
...
The direct labor for the billboard task (Job A) was one hour of Donnie’s time (at $18 per
hour)
...

Tracking Direct Materials
Jack keeps detailed records of the material released to each job
...
The document that is used for this process is called a materials
request” or “materials requisition” form
...
Sometimes a separate form is prepared for each
item, and sometimes a running list similar to the following is used:

Castle Electric

Material Requisition

Employee: Donnie Odom
Date:
7/14/X5
Material
Job Name
Light Bulbs
Job A
Breakers
Job B
Wire
Job C

Quantity
1 Unit
20 Units
500 feet

Per Unit Cost
$150
$20 each
$0
...
05 each

$3
$3

Indirect Material
Indirect Material

This form provides essential documentation to safeguard and track inventory; a manager that fails to
control and monitor inventory does so at great peril! It also reveals that the “direct material” for the
billboard will be dealt with as overhead which is discussed later
...

Sometimes, a business will not be particularly interested in letting employees see cost information,
or cost information may not be readily available
...
A subsequent clerical task will be to identify the cost of the particular parts that
were put into production
...
For example, the 500 feet of wire may be on one roll, but it is priced by the
foot, and the quantity should be 500 feet, not 1 roll; the job cost calculation would be incorrect if
only $0
...
For instance:
•

•

How hard would it be to track the “indirect material”? How many wire nuts were used on
the billboard? How many inches of electrical tape were used? What was the cost of these
items?
What about indirect labor? Donnie spent two hours on job-related administration and travel
issues for the six hours of direct labour time on the 14th
...
How does this impact the cost per hour of output on the 15th
versus the 14th? What about jack’s time? He is supervising 4 electricians
...
Donnie needed a
ladder to scale the billboard
...


Tracking overhead is tricky
...
Assume
Jack sat down at the beginning of the year with his accountant
...
The expected total came to about $150,000
...
By comparing
these two numbers ($ 150,000 and 7,500 hours), it is now possible to “model” that overhead is $20
per direct labor hour
...

Now, two things should be made clear
...
Jack decided to apply
overhead based on direct labor hours; this is a common choice, but not the only choice
...
Ordinarily, one would try to establish
some correlation between the application base and overall cost incurrence
...
Cost allocation necessarily involves
some degree of arbitrary methodology
...
For
instance, Jack will likely discover that actual overhead is more or less than $150,000
...
When all
is said and done, Jack will need to deal with the actual cost
...
e
...

Job Cost Sheets
The preceding information can be logically transferred to a job cost sheet that is a compilation of
cost data for a specific job:

Castle Electric
Job:

Job A – Image Advertising
Form Reference

July 14
...
14X5
...
07
...
DO

1

$150

$150
Labor
Hours

1

$18

1

$20

$150

$20

$150
$20

$20

$188

The direct labour information found on the job cost sheet is taken from Donnie Odom’s daily time
sheet (a cross-reference is created as “DTS
...
14X5
...
In similar fashion, Donnie’s material requisition form was used as the
source document for compiling the direct material information
...
Overhead was applied directly to the job cost sheet based upon the predetermined
overhead application scheme of $20 per direct labor hour
...
All direct material
and direct labor must be transferred to specific jobs
...


Castle Electric
Job:

Job Cost Sheet

Job B – TechWay Office Park
Form Reference

July 14
...
14X5
...
07
...
DO

Direct Material
Qty Unit Total
cost

Total
Total

$36
20

$20

$400
Labor
Hours

2

$36

2

$20

$400

Castle Electric
Job:

Applied Overhead
Basis
Qty Rate

$40

$400
$40

$40

$476

Job Cost Sheet

Job C – Lybrand Home
Form Reference

Direct Labor

Direct Material

Applied Overhead

Total

July 14
...
14X5
...
07
...
DO

5

$14

$70
Labor
Hours

3

Rate

$54

3

$20

$70

$60

$70
$60

$60

$184

Another Expansion of the Illustration
Thus far, the illustration has focused only on Donnie’s activities
...
But, remember
that Jack has three other electricians and many other jobs
...
One such job was the new home of Aba Obekie
...
The resulting job
cost sheet appeared as follows:

Castle Electric
Job:

Job Cost Sheet

Job B – Obekie Home
Form Reference

Direct Labor
Hrs Rate Total

Direct Material
Qty
U/C Total

Applied Overhead
Basis
Qty Rate

Total
Total

July14,20X5
Andy Axon

DTS 07
...
AA

7

$10

$70

$70

BEV Bentson
Wire

DTS
...
14X5
...
07
...
BB

7

$22

$154

Junction Boxes
July 15,20X5
Andy Axon
Bev Bentson
July 16,20X5
Andy Axon
Bev Bentson
Can Lights
Applied
Overhead

MR
...
14X5
...
15X5
...
15X5
...
15X5
...
15X5
...
07
...
AA

6
8

$10
$22

$60
$176

2000

$14

$280

$154
$280

50

$2

$100

$100
$80
$176
$60

25

$15

$716

$880

$2,351

$375
Labor
Hours

44

$880

$176
$375
$880

$375

44

$20



---