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    (AFAR) (P01) - Job Order and Process Costing - PDF

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    RHEYNLE JOHN MESIAS
    Job order costing and process costing are two systems used to allocate manufacturing costs. [1] Job order costing tracks costs for unique products while process costing is for continuous production of similar goods. [2] Both systems estimate and allocate overhead costs using predetermined rates and track under/overapplied amounts. [3] Spoilage costs are charged to specific jobs or overhead depending on the cause of spoilage.

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    (AFAR) (P01) - Job Order and Process Costing - PDF

    Uploaded by

    RHEYNLE JOHN MESIAS
    26 views19 pages
    Job order costing and process costing are two systems used to allocate manufacturing costs. [1] Job order costing tracks costs for unique products while process costing is for continuous production of similar goods. [2] Both systems estimate and allocate overhead costs using predetermined rates and track under/overapplied amounts. [3] Spoilage costs are charged to specific jobs or overhead depending on the cause of spoilage.

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    Job order costing and process costing are two systems used to allocate manufacturing costs. [1] Job order costing tracks costs for unique products while process costing is for continuous production of similar goods. [2] Both systems estimate and allocate overhead costs using predetermined rates and track under/overapplied amounts. [3] Spoilage costs are charged to specific jobs or overhead depending on the cause of spoilage.

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    © All Rights Reserved
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    Download as pdf or txt
    26 views19 pages

    (AFAR) (P01) - Job Order and Process Costing - PDF

    Uploaded by

    RHEYNLE JOHN MESIAS
    Job order costing and process costing are two systems used to allocate manufacturing costs. [1] Job order costing tracks costs for unique products while process costing is for continuous production of similar goods. [2] Both systems estimate and allocate overhead costs using predetermined rates and track under/overapplied amounts. [3] Spoilage costs are charged to specific jobs or overhead depending on the cause of spoilage.

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    JOB ORDER AND PROCESS

    COSTING
    JOB ORDER COSTING
    A system for allocating costs to groups of unique products

    Applicable to production of customer-specified products and event to cost a


    particular service
    Each job becomes a cost center for which costs are accumulated

    A subsidiary record is needed to keep track of all unfinished jobs (WIP) and finished
    jobs (Finished Goods)
    Balances are used as basis in transferring from WIP to FG to COGS
    ACCOUNTING FOR OVERHEAD
    Overhead items are grouped by cost behavior (fixed or variable)

    Fixed and variable overhead costs are estimated for the coming
    period
    An activity base is chosen: commonly used are direct labor hours
    or machine hours
    Actual activity level is estimated for the coming year
    ACCOUNTING FOR OVERHEAD
    Determine the normal capacity of the facility

    Determine predetermined overhead rates (actual for variable;


    normal for fixed)
    Actual overhead costs are debited to FOH accounts

    Applied overhead uses predetermined rates


    ACCOUNTING FOR OVERHEAD

    Underapplied – less
    Overapplied – more is
    overhead is applied than
    applied than incurred
    incurred
    • Costs were overestimated • Costs were underestimated
    • Actual activity greater than • Actual activity less than
    normal capacity normal capacity
    • Actual overhead costs • Actual overhead costs
    were less than expected were more than expected
    If amount is immaterial, it is
    frequently written off to cost of
    Disposition of goods sold
    Under and
    Over Applied If amount is material, adjustments
    FOH must be made to all goods which
    were costed: Work in Process,
    Finished Goods, and Cost of Goods
    Sold
    SPOILAGE IN JOB ORDER COSTING
    Spoiled Goods Defective goods

    • Items that cannot be sold as good • Items that are found defective where
    items and cannot be corrected by reworking is possible to make items
    reworking salable
    • Cost is debited at their estimated • Additional cost of materials, labor, or
    sales value overhead are charged either to a
    • The loss in the difference between specific job or the entire production
    the cost of producing them and their
    resale value is either charged to the
    specific job or to the entire
    production
    SPOILAGE IN JOB ORDER COSTING
    When spoilage is attributable to general factory conditions, net spoilage costs are
    allocated to all jobs through overhead application

    When spoilage is attributable to exacting job specifications, net spoilage costs are
    charged to specific jobs

    Under both methods, the net spoilage cost (proceeds from sale and cost of spoiled
    goods produced) is charged to FOH in the first case and left in WIP in the second case

    Defects or spoilages caused by extra-ordinary circumstances are taken up as abnormal


    loss and treated as a period cost
    PROCESS COSTING

    Applicable to a continuous process of production of the same


    or similar goods (oil refining, chemical production, etc.)

    Since the product is uniform, there is no need to determine


    costs of different groups of products

    Each processing department becomes a cost center


    PROCESS COSTING COMPUTATIONS
    1. Visualize the physical flow of units
    2. Compute the equivalent units of production
    3. Determine costs to allocate
    4. Compute unit costs
    5. Allocate total costs to:
    1. Finished and Transferred Goods
    2. Ending Work in Process
    EQUIVALENT UNITS OF PRODUCTION
    (EUP)
    • EUP is the amount of work equivalent to completing one unit from
    start to finish
    • Two primary EUP methods used
    • Weighted Average – current costs are combined with prior costs, and all units
    are carried at an average cost of production
    • FIFO – the first batch into production is assumed to be the first batch
    completed. The batch is treated as a separate, distinct layer – separate from
    goods that are started and completed during the period
    EUP Computation
    SPOILAGE
    IN
    PROCESS
    COSTING
    Included in the computation of EUP,
    to the extent of work done where
    ABNORMAL the spoilage occurs. The cost of
    SPOILAGE abnormal spoiled units is computed
    separately from the cost of the good
    units
    THE END.

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