which of the following would be accounted for using a job order cost system? This is a topic that many people are looking for. bluevelvetrestaurant.com is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, bluevelvetrestaurant.com would like to introduce to you Job Order Costing – Part 1 – Management Accounting. Following along are instructions in the video below:
“This series of videos. We re going to talk about job order costing in our our first video. I m going to explain what job order costing is and some the sort of qualitative elements of job order costing in the next video. We ll walk through a long comprehensive problem on job order costing.
But let s get started so in our previous video series on preparing a schedule of cost of goods manufactured. We learned that any product cost is the cost of the material. The labor and the overhead. What we said was we add material plus labor plus override together and we get the cost of the product now we also said something very specific here.
We said material and labor are very easy because at the time we make the product. We know the actual amount overhead. Though is not so easy to deal with because it has to be estimated and let s think about what material in labor. Are so let me think of it i m going to give an example of making a hamburger.
So if i m making a hamburger. The material the direct material that goes into a hamburger is stuff like the meat the buns maybe the condiments the ketchup the onions. The pickles all that stuff. But meeting button is basically that the main direct material of a hamburger.
The direct labor is the cost of the wages of the person who actually prepared the burger. It s not the wages of the the shift supervisor. It s not the wages of the manager. It s the wages of the person who prepared the burger.
So wages of a call front line worker and that s the guy who made the burger. The overhead cost that go into a burger are things like well you got to have power to heat. The grill. So we re going to have some sort of utilities cost ah.
We ve also got to have either if we own the building. We ll pay property tax or if we rent the building. We ll pay rent let s assume we own the building. Well.
We we have to have a building to have our kitchen in and and if we own it we ll pay property tax on that building. We also have indirectly not direct. But you know the time that that employee who makes our burgers is standing around doing nothing idle. Time is indirect labor.
The supervisor who works by the grill that watches the employees and make sure they re making the burger right that s indirect labor indirect labor are indirect costs that occur in the kitchen or the factory. The place where i make my product on the same line..
We could have indirect materials and indirect materials. Our cost of the products that we use up to make burgers. But they don t actually go in the burger. So a real common example here might be cleaning supplies you know cleaning supplies absolutely you need them to run a kitchen.
But you wouldn t want them actually in the product. It s not a part of the the material that goes into the product. So here s a few. But there s a lot more types of moh cost as we ll see so the meat in the buns.
You can immediately determine what the meat in the buttons cost and i m gonna you know think about a mcdonald s burger probably they re meeting the buns cost them maybe 50 cents maybe 25 to let s say 25 cents. Can t cost them too much for the meat. The buttons. Because you know they do it on such a mass scale uh.
The labor costs okay in canada and bc our minimum wages around 10 per hour. Let s do a bit of math here. Let s assume a burger takes three minutes to make okay. So the wage is 10 per hour.
One burger is three minutes. So a bit of math here. One burger is three minutes three minutes out of 60 minutes in an hour is did i do that right five percent. Yeah.
If you go three divided by 60 you ll see it s five percent of an hour. So if i get paid 10. An hour and three minutes is five percent of that hour. I take five percent of my ten dollars and i go okay ten times five percent.
This isn t really critical to the problem. But to make one burger cost me fifty cents in which is in other words three minutes worth of somebody s time at 10. An hour cost you fifty cents three minutes and fifty cents six minutes is a dollar and you know an hour is ten dollars so this person s wages to make one burger costs mcdonald s or whatever the company is fifteen cents so fair enough you know it s easy to track you can say okay this person worked on the burger. They worked for three minutes that cost me 50 cents in wages this burger took 25 cents worth of meat and buns and condiments and all that stuff that s 25 cents.
The overhead. Though how much utilities went into that but how much power went into that bird how much property tax went into that burger how much how many dollars worth of cleaning supplies. When is that burger way harder to track. These factory costs are way harder to track and so what job order costing says is use something called the predetermined overhead rate and what do we mean well don t take utilities per burger let s take utilities for the year or for the month.
Most likely for the year so we re going to say utilities for the year are for example 10000 property taxes for the year. 4000 indirect labor for the year well let s say 15000 and indirect materials for the year let s say 1000..
So i add up all of my overhead costs and in a real company. There would be more than this and i get a total and i say total estimated. Moh my total estimated mohe the total of this list is 30000. Bucks.
So i estimate my over and you might say okay well i got 25 cents of making puns 50 cents of wages and 30000 of my acceptance and make sense that s not you know my moh cost per burger. How do i decide how much moh goes into a burger well the answer is i estimate based on some base. We make an allocation base. And it s a little bit complicated.
But you ll see it s difficult to explain the first time once you practice this it s not that um so we can estimate moh and we said well what what drives our moh. What s a driver for our over and the driver might be very common examples. I ll give you three common examples here direct labor hours. If we have a very labor intensive job.
We might say okay the more labor. I have the morrow bread. I have the less labor. I have the less overhead.
I have and so on the driver might be machine hours and that s very common if i have a machined product. You know i say okay the more machine hours. I have the more indirect costs. I m going to have those more moh.
I m going to have or the less machine hours. The less overhead costs and another one you often see is direct labor cost and so again kind of for the same reasons. That s direct labor hours. The more i spend on direct labor being more i should have overhead theoretical and so will predetermined or what job order costing.
Says is we re going to use this formula we re going to use something called the predetermined overhead rate and i appreciate over at always as moh manufacturing overhead and that formula is estimated total moh divided by estimated base and whatever the base is for applying over it so in this case. It might be labor hours machine hours or labor costs or something else i m going to just make one up. I m going to say it s the labor hours for our company then in the company s management gets to choose whatever or probably. Their accountant gets to choose whatever they think is logical.
So i m going to say okay. Our base is the estimated total direct labor. Hours okay so i ve given us our estimated total overhead 30000. I haven t given an estimated base.
But why don t i give one now our estimated base is going to be direct labor hours and i m going to say during the. Year i protect that we re going to have let s say 15000..
Direct labor hours and you might say well. How do i estimate that like how would i figure that out well you just add up your employees. You say okay. These are my frontline employees.
This is how many hours they re going to be working and you get their estimate of the labor. Hours so i m saying i m gonna have 15000. Direct labor hours in my company for these so now i have a rate. 200 per direct labor.
Hour great 200. Per direct labor hour. Well what does that mean for my burger at the beginning here. I ve said okay my burger is material costs are 25 cents.
I ve said my burgers labor costs are 50 cents. What about it overhead costs. What s overhead costs are 2 per hour. And we said a burger takes three minutes or five percent of an hour.
So what s 5 of two dollars. That s how much overhead cost needs to land on my burger. So let me just change pens here. Where is it draw there we go so.
If i have two dollars times five percent. I get zero point one zero. I get 10 cents of labor cost going on my burger so my materials cost 25 cents my wages cost 50 cents. My overhead costs 10 cents the total cost of my burger.
One two three twenty five plus fifty plus ten cents. The cost of my burger is going to be 75 85 cents. Now i fear that i overcomplicated this with my explanation and the real purpose of this video is to illustrate the idea of predetermined overhead rate. So i want you to focus in on that material and labor are really easy to deal with and they re not controversial right you just okay how much actually did i spend on the meat that went in the burger.
How much did i actually spend on the buns. The condiments all those direct materials. Direct labor. Again uncontroversial.
How long did the person actually sit making the burger or whatever product ending the widget doesn t matter the overhead. Though these are things that you can t just sort of say okay how much how many dollars where the power went into the projects..
It s hard to do like it doesn t really directly go into the product. And that s why they call overhead indirect costs so job order costing. Says okay well let s apply overhead let s estimate our overhead based on this thing called the predetermined overhead rate the predetermined overhead rate says estimate your total overhead so we add up all of our overhead costs for the year in this. Case we got 30000.
Estimate your total base or your total allocation base for overhead in this case we said. Okay it s our labor hours and we re gonna have 15000. Labor hours again these numbers are all made up off the top of my. Head here so we have a.
30000 an estimated total. Overhead we have a 15000. Labor. Our base it means we re going to apply over at a rate of 2 bucks.
An hour going back to original burger. Our burger took us three minutes to make 5 percent of an hour like 3 minutes out of 60 minutes. That s five percent of an hour. So if it cost me two dollars per direct labor hour five percent of two dollars is 10 cents.
My burger is going to eat or share or have allocated to it ten cents of overhead again the twenty five and fifty cents easy peasy it s going to be given in accounting questions. The ten cents. That s where you got to do your work um a total cost of our burger. Then is 85 cents.
So we know when we charge our customers a dollar fifty for the burger. We know how much money we re making right. We know our markup over cost cost is so crucial a lot of times. When people think of their cost.
They only think of the material on the labor. They forget to think about the overhead. But the overhead is critical in our next video. We re going to walk through the journal.
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