Job-order Costing - Cost Flow

Cost Flow

The journal entries to record the costs as flow through and out of the firm follow:

* Purchases of raw materials
Raw materials
Accounts payable

* Issue direct materials to production
Work in process
Raw materials

* Employ direct labor

Work in process
Accrued payroll

* Incur actual manufacturing OH expenses
Manufacturing OH
Accounts payable, accumulated depreciation, etc.

* Apply manufacturing OH to production
Work in process
Manufacturing OH

* Complete jobs
Finished goods
Work in process

* Sell goods
Accounts receivable
Sales
Cost of goods sold
Finished goods


* Close over (under) applied OH

1. To cost of sales

a) If manufacturing OH is underapplied

Cost of goods sold
Manufacturing OH


b) If manufacturing OH is overapplied

Manufacturing OH
Cost of goods sold

2. Prorate to cost of sales, finished goods and work in process on the basis of the balances in the accounts.

a) If manufacturing OH is underapplied

Cost of goods sold
Finished goods
Work in process
Manufacturing OH

b) If manufacturing OH is overapplied

Manufacturing OH
Cost of goods sold
Finished goods
Work in process


Example: Monthly activities to be journalized using a job-order costing system:

* Raw materials purchased, $150,000

Raw materials 150,000
Accounts Payable 150,000

* Raw materials issued to jobs, $120,000. (90% direct, 10% indirect)

Work in process 108,000
Manufacturing OH 12,000
Raw materials 120,000

* Factory payroll, $200,000, of which $140,000 is for direct labor

Work in process 140,000
Manufacturing OH 60,000
Accrued payroll 200,000

* Depreciation of factory equipment $18,000

Manufacturing OH 18,000
Accumulated depreciation 18,000

* Other manufacturing OH incurred during the month, $90,000

Manufacturing OH 90,000
Accounts payable, etc. 90,000

* OH is applied at $9 per machine hour. 21,000 MH used during the month

Work in process 189,000
Manufacturing OH 189,000

* Jobs finished amounted to $450,000

Finished goods 450,000
Work in process 450,000

* Orders shipped to customers, which cost $400,000, were billed at 50% above cost

Accounts receivable 600,000
Sales 600,000

Cost of sales 400,000
Finished goods 400,000

* Over (under) applied manufacturing O/H is closed to cost of sales

Manufacturing O/H 9,000
Cost of sales 9,000

What is the ending balance in the following accounts? Assume that the beginning balance in work in process is $33,000.

Cost of sales $391,000
Work in Process 20,000
Finished goods 50,000