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Enter the appropriate amount or item in the shaded cells. Use the drop-down lists when available. An asterisk (*) will appear next to an incorrect entry in the outlined cells. Leave no cell blank. Ensure to enter "0" wherever applicable.

Job Order Cost Flow:

1. Materials Inventory:

  • Work in Process Inventory

  • Beginning balance

  • Ending balance

  • Finished Goods Inventory

  • Overhead

  • Accounts Receivable

  • Payroll Payable

  • Sales

  • Cost of Goods Sold

Ending Work in Process Inventory:

  • Job 24-A

  • Job 24-B

  • Job 24-C

  • Job 24-D

Cost of ending Work in Process Inventory: Direct:

  • Direct Materials

  • Direct Labor

  • Overhead

  • Total

Cost of Goods Completed and Transferred:

Costs of Units Completed:

Add ending Work in Process Inventory:

Job Costing:

  • Direct Labor

  • Direct Material

  • Total Cost

  • Overhead (130%)

Round your answer to two decimal places.

Paper For Above Instructions

The job order cost flow system is utilized by companies to track production costs associated with specific jobs. This comprehensive system helps businesses in accurately capturing direct materials, direct labor, and overhead costs incurred for each job or project. Understanding the cost flow is crucial for effective financial management, ensuring that all expenses are accounted for, and informing pricing strategies. The objective of this paper is to demonstrate the methodology to allocate costs in job order costing for a hypothetical company, "Nature Cosmetics Company," and provide insights into the overhead application process.

Materials Inventory and Work in Process

One of the initial steps in job order costing involves maintaining accurate records of the materials inventory used throughout the production process. Materials inventory is reflected by the beginning balance, any additional purchases made during the period, and the ending balance. It is essential to ensure that no cell is left blank and to input “0” where necessary. For example, if 5,000 units of specific raw materials were available at the beginning, and additional purchases throughout the month amounted to 2,000 units, the materials used must also be calculated accurately.

The work in process (WIP) inventory represents costs incurred for unfinished goods. The beginning WIP from prior periods, along with incurred costs for the current month, contributes to the total WIP. For instance, if the beginning WIP balance is $15,112 and additional costs for direct materials and direct labor are recorded, this must be updated and reflected in the WIP balance at the end of the period.

Finished Goods Inventory and Overhead

In a typical job order costing system, finished goods inventory tracks the costs associated with completed jobs that are ready for sale. An essential aspect is the allocation of overhead costs, which often requires a predetermined overhead rate. This rate is typically calculated using estimates of total overhead costs and expected activity level, often expressed as a percentage of direct labor hours or machine hours.

For example, if the forecasted annual overhead costs are $132,800 and the expected direct labor hours amount to 55,000, the predetermined overhead rate would be set at $2.41 per hour. Applying this rate allows businesses to estimate total job costs with respect to overhead costs incurred during production.

Allocating Overhead Costs

The overhead costs incurred are allocated based on the overhead rate applied. This requires careful planning and accurate tracking of labor hours across various jobs. For instance, if Job 24-A required 1,200 machine hours, the overhead allocated would be calculated as follows:

Overhead Allocated to Job 24-A = Predetermined Overhead Rate x Machine Hours UsedOverhead Allocated to Job 24-A = $2.41 x 1,200 = $2,892.

In this calculation, we see how critical accurate data entry is as even minor errors can significantly distort financial statements. Any discrepancies must be reviewed, and corrections are made to ensure that the data presented is reliable and trustworthy.

Cost of Goods Sold Calculation

Calculating the cost of goods sold (COGS) involves understanding the total costs associated with production and deducting the ending inventory. The COGS calculation can be articulated through the equation: COGS = Beginning Inventory + Purchases - Ending Inventory. This approach provides insights into the profitability and operational efficiency of the business.

For instance, if the beginning goods on hand were $20,000, total purchases during the period amounted to $50,000, and the ending inventory is assessed at $15,000, the COGS would be calculated as follows:

COGS = $20,000 + $50,000 - $15,000 = $55,000.

Conclusion

In essence, the job order costing system provides a structured methodology for tracking costs associated with individual jobs within an organization like Nature Cosmetics Company. Accurate calculations and timely updates ensure that financial reports reflect true costs, facilitating informed decision-making and strategic planning. Understanding job costs—materials, labor, and overhead—is crucial for effective management, budgeting, and operational forecasting.

References

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  • Hansen, D. R., & Mowen, M. M. (2018). Cost Management: A Strategic Emphasis. Cengage Learning.

  • Rayburn, J. D. (2017). Cost Accounting. Pearson.