Question

In: Accounting

Describe job cost flows and determine the cost of jobs. please explain

Describe job cost flows and determine the cost of jobs. please explain

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Expert Solution

Ans:- Job costing means amount of cost involved for creating a unique product or specialized services/jobs example- building a particular home. With the help of job costing, accountants are able to understand the expenses for each job which help them to make various analysis for the business and also to compute tax easily.

Job Cost Flows

The basic flow of cost in a job cost system is to record the costs of material, labor and manufacturing overhead.

  • Direct material and direct labor are debited to work in process account and the indirect material and indirect labor are debited to overhead control account along with any other overhead incurred during the period.Manufacturing overhead is applied to Work in Process using the predetermined rate ie we are debiting work in process account and crediting overhead control account.
  • The cost of finished goods is debited to finished goods account and credited to work in process account.
  • When units are sold, then finished goods account is credited and and we debit cost of goods sold account.
  • If any difference occurs between overhead cost incurred and overhead cost applied then there will be a balance in the overhead control account. A debit balance is called underapplied overhead and a credit balance is called overapplied overhead.
  • The simple approach is to close out the under/overapplied overhead to cost of goods sold.
  • The second approach is to allocate the under/overapplied balance to cost of goods sold and work ion process and finished goods and the basis of allocation would be the amount of overhead applied in the ending balance of each of these accounts.

Cost of Jobs:-

The cost of job will include material,labor and overhead cost.

Material Cost:- When we start a job materials are required to complete the job. The materials are acquired from the storeroom with the help of an authorization document called materials requisition form. This form identifies the job to which the materials are to be charged. Material should be categorized in 2 heads direct material and indirect material.

Labor Cost:- The labor cost is recorded in a document called time ticket or time sheet. Each labor records the amount of time spent on each job and this is recorded in the time ticket. The amount of time spent on a particular job is direct labor and the cost is charged for that particular job. The time spent on some other tasks which cannot to traced to a particular type of job is considered to be a part of manufacturing overhead.

Manufacturing Overhead Cost:- Manufacturing overhead includes all the cost which are not traced to a particular job. Since, manufacturing overhead costs are not traced to jobs the must be allocated to jobs if absorption costing is used.

In order to allocate overhead cost allocation base is used. The allocation is done on direct labor hours,direct labor costs and machine hours. This means, x% change in allocation base should cause an x% change in overhead costs. At any rate, the actual amount of the allocation base incurred by a job is recorded in the job cost sheet. The actual amount of allocation base is then multiplied by the predetermined overhead rate to calculate the applied overhead for the job.


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