Reference no: EM13948533

Cost flows

The price quoted to the customer is closely tied to the estimated cost in environments in which products are made according to the customer's specifications. Therefore, a company must be able to determine the unit cost of its products for pricing as well as for financial reporting purposes. To track costs in these environments, a Job order costing system is generally used. A job order costing system must be able to identify each individual job and accumulate its costs separately from the costs of other jobs. Recall the flow of costs used to determine cost of goods manufactured and cost of goods sold. The following flowchart illustrates the flow of costs into Work in Process and Finished Goods.

APPLY THE CONCEPTS: Determine the costs for Work in Process and Finished Goods

Complete the table and determine the following account

Job Cost Sheets

A job cost sheet is used to accumulate the following costs for each job: direct materials, direct labor and overhead. It is an internal document, so the format varies by company. Some companies prefer a detailed cost sheet that shows the details for direct materials (such as quantity, type, and requisition numbers for each material used) and details for direct labor (such as hours and wage rate for each employee who worked on the job). Other companies prefer a summary showing a total for direct materials and a total for direct labor. Overhead applied is reported on all job cost sheets. Recall that firms use normal costing to determine unit cost. Normal costing requires the use of predetermined overhead rates, which are calculated as follows:

APPLY THE CONCEPTS: Complete the job cost sheets for In the Doghouse Company

In the Doghouse Company builds doghouses. They have three sizes: small, medium and large. Each size can be built in one of two styles, standard or deluxe. All doghouses are built with treated lumber and have shingled roofs. The deluxe model is insulated and has a covered porch. In the Doghouse sells mostly to local hardware and garden stores.

The costs for direct materials and direct labor for each type of doghouse are shown in the table below. The direct materials cost includes costs for lumber, shingles, stain or paint, and insulation. Nails and glue are also used in the construction and are considered indirect materials which make them part of overhead. The company employs two carpenters and a part-time student to maintain the equipment and clean the shop. The carpenters' wages are direct labor. The student's wages are indirect labor and, therefore, part of overhead. Other overhead costs include depreciation of equipment and the building, insurance, utilities, and taxes. Overhead is applied at 10% of direct labor cost. In the Doghouse summarizes costs by direct materials, direct labor, and overhead on its job cost sheets.

At the beginning of June, the company has one job, job number 506, in progress from the previous month. This job is for an order of 16 medium, standard doghouses. As of June 1, $1,065.60 of direct materials have been used, $864.00 of direct labor have been charged to the job and $86.40 of overhead was applied to the job. Click on the link below to get more detail on job number 506.

During June, In the Doghouse received an order for 12 large, deluxe doghouses. This is job number 601 and was completed by the end of the month.

Another order was received during the month, job 602, for 20 small, standard doghouses. At the end of June, job 602 was still in process. $512 of direct materials has been used, $480 of direct labor has been charged to the job, and overhead was applied to job 602 using the predetermined overhead rate of 10% of direct labor cost.

Complete the following job cost sheets for the month of June In the Doghouse and answer the following questions.

What is the balance in Work in Process on June 1? $_____

What is the balance in Work in Process on June 30? $_____

Think outside the box:

What element would most likely be missing from a job cost sheet for a service organization? Direct Materials