Job order costing objective we choose job order costing

Group assignment IM2019 - SEM 2021/2022 Ho Chi Minh City University of Technology Faculty of Industrial Management Subject: marginal accouting oOo Job order costing Instructor: Dương Như Hùng Group member STT Name Student ID number Nguyễn Gia Bảo 1952577 Bùi Anh Dũng 1952627 Nguyễn Thị Quỳnh Như 1952906 Đỗ Văn Hoàng 1952697 Hoàng Nguyễn Đức Huy 1852400 Table of contents I Introduction .1 Background Why did we choose this topic? Objective we choose job order costing .1 II Theory Product Costing Systems 2 Cost accumulation systems Job order costing system .2 Job order cost sheet .3 III Practice Hoang Viet Trading Construction Co., Ltd Wedding store .7 Hoa Bon Mua factory: 11 IV Analysis 17 Similarities between companies: 17 Differences between companies: 17 V Conclusion 19 VI References 22 VII Appendix: 23 Profile 23 Profile 24 Profile 25 I Introduction Background When numerous different items with various characteristics are created over a period of time, task order costing is employed This method enables businesses to allocate all of the expenditures incurred in their operations, whether direct or indirect, to specific roles We'll go through service and manufactured projects, as well as follow a handful of jobs from start to finish We'll go over what absorption costing is and how it may help businesses see a bigger picture when determining prices for their goods and services Why did we choose this topic? Because it can help we know more about the elements of cost such as:  Material cost  Direct labor cost  Direct expenses  Factory overhead Moreover, this topic also helps us know how to calculate job order costing Objective we choose job order costing Better understand job order costing and be able to solve problems related to this topic:  Determine the cost of each work, as well as the profit or loss  Determine which occupations are more profitable and which jobs are not or are less profitable  One of the goals of job costing is to keep expenses under control by comparing actual costs to predicted costs  Determine estimate is wrong, or the real cost is too high and control  Offer a foundation for predicting or evaluating the cost of future comparable tasks II Theory Product Costing Systems: used to assign production or performance costs to products or services for internal and external financial purposes; range from very simple to very complex; More complex system = expensive operation and maintenance more inputs are needed; more inputs are required NOTE: benefits > costs of generating information Cost accumulation systems Regardless of the type of business, product costing is concerned with things:  Cost identification  Cost measurement  Product cost assignment Job order costing system Costs are accumulated by a job, which is a single item or several identical or different pieces that has been or has been created to separate client specifications, accumulates costs There are many outputs – per-unit costs can only be calculated if the units are comparable or if expenses are gathered for each individual unit (such as through an identification number) Each work is considered as a separate cost item or cost object, with expenses kept in separate subsidiary ledger accounts rather than being summed together in the ledger Job order costing systems give vital data for controlling profitability and establishing output pricing Job order cost sheet  The source documents that provides virtually all financial information about a particular job  The set of job order cost sheets for all incomplete jobs composes the WIP Inventory subsidiary ledger  Total costs contained on the job order cost sheets for all incomplete jobs should reconcile to the WIP Inventory Control Account balance in the general ledger  It includes a job number, a description of the job, customer identification, various  scheduling information, delivery instructions, and contract price as well as detailed  regarding actual cost for DM , DL, and applied OH  Might include budgeted cost information, especially if such information is used to  estimate job’s selling price or to support a bid price  In bid pricing, budgeted and actual cost should be compare at the end of a job to determine an any deviations from estimates III Practice Hoang Viet Trading Construction Co., Ltd We are currently having a project in managerial accounting Can I ask a few questions about the company?  What field does your company work in? Answer: the company specializes in the construction of apartments, houses, and roads for small and medium projects If you wants to learn about the company's order costing field, a little attention will give you some essential information that you can roughly calculate through those numbers Those are the data that the company is using now Company working in this field is related to ordering costs, there are disadvantages related to the company such as having to prepare periodic expenses for employees and also having to prepare contingency expenses, must reevaluate the materials, labor, and costs involved for upcoming jobs  Does the company list the number of materials to complete the road? Answer: yes, the company has listed the data Besides, the company will calculate through the cost of materials for the upcoming work to be able to make a reasonable decision  Does the company give this estimate to the investor? Answer: Yes, the company gives investors to prepare the materials for the project  Can your company give me some information about your business when you receive a project? Answer: Normally, the company accepts to pour concrete 100 roads, 100 meters long, meters wide, and about 0.01 meters thick On average, company employees work four days to complete a road direct material the cost of Length(m) Width(m) Height(m) volume of rate of total total concrete roads roads(m^3) per m^3 concrete of total 1,180,000 400 100 roads 100 0.01 100 VND 472,000,000 VND volume of cost of steel total cost of rate of steel (kg/m^3) roads(m^3) steel/kg total 120 400 12000 576,000,000 VND total direct material 1,048,000,000 VND direct labor unit of staff salary per day total of days for 100 roads total direct labor 20 450,000 VND 400 3,600,000,000 VND manufacturing overhead total of days for 100 roads labor rate per day total 400 350,000 VND 140,000,000 VND indirect labor unit of labor rate per unit 20 200,000 VND indirect materials maintenance and repairs 10,000,000 4,000,000 VND 10,000,000 VND rate for each total roads road profit per road 100 5% 1,500,000 VND taxes total direct labor direct material 7,500,000 VND 161,500,000 VND Manufacturing overhead total cost 4,809,500,000 3,600,000,000 VND 1,048,000,000 VND 161,500,000 VND VND Wedding store Michael Eydman: “The key variable component that impacts the cost of doing business, such as labor time for creative services or the fabric used to manufacture a bridal gown, is referred to as a cost driver Let's use the example of a fake custom bridal gown company to show how expenses would be calculated using this method In Kleinfeld Bridal's Appendix, Table job cost, you can find an example of a Job Cost Sheet If you looked at how we computed overhead costs, you might have realized that it wasn't the most precise method Would it be accurate, for example, to divide the cost of factory rent by the number of hours it takes to sew a dress together? What about idle time or administrative time? One of the greatest disadvantages of the Job Order pricing method is that overhead cost is merely an estimate Other drawbacks include challenges coming from having several locations and assessing overhead costs in those instances, as well as measuring direct components, such as metals or food ingredients, when they become more complex to count (MSG Experts).” Process of making the dress a The designer and the bride discuss the idea of the dress Any girl has a picture of her dream wedding dress It is a dress that can hide the flaws and highlight the advantages of the bride's body Discussing and exchanging enthusiastically with the designer is the way that we prioritize serving for brides Besides, we also help advise and suggest basic fashion information so that the dress really suits the body and style of each bride b.Draw a sketch of the wedding dress From the wishes, the dresses will be sketched and conceptualized according to the bride's mentality The designer will create an overall drawing on paper about the wedding dress Accompanying the sketch is a preliminary description of the shape (the letter A, fishtail, 13 overhead cost workshop workshop staff costs Accident insurance 24/24 rate/unit/people Total of units total 500 000 500 000 quantity rate per unit/ person Total cost employees 200 000 000 000 Factory rental cost 190 000 total overhead cost Direct Materials 690 000 Direct Labor 15 000 000 000 000 Total Job Cost of product HBM58 Manufacturing Overheads 690 000 26 690 000 Order cost calculation sheet : HBM148 (quantity of finished products: 50) ( unit based : VNĐ-đồng ) January February Total cost Total cost per unit 12 000 000 000 000 20 000 000 400 000 500 000 500 000 000 000 160 000 Cost of raw materials direct labor cost 14 Manufacturing 750 000 160 000 11 910 000 238 200 overhead direct labor workshop direct labor hours direct labor rate total direct labor 400 20 000 000 000 overhead cost workshop workshop staff costs Accident insurance 24/24 rate/unit/people Total of units Total cost 100 000 50 000 000 quantity rate per unit/ person employees 300 000 Factory rental cost 500 000 410 000 Total overhead cost 11 910 000 15 Direct Materials Direct Labor Manufacturing Overheads 20 000 000 000 000 11 910 000 Total Job Cost product HBM148 39 910 000 Total Job Cost of product HBM58 26 690 000 Total Job Cost product HBM148 39 910 000 Total Job Cost 66 000 000 Tax 10% of total job cost 600 000 Total cost in sum = 66 000 000 + 600 000 72 600 000 Advantages - Flexible, regardless of the workshop, only interested in the value of creating orders - Can calculate the production cost for each order, from which to determine the selling price and calculate the profit on each order Defect - If the order fulfillment is distributed in different workshops, the cost aggregation will be discrete, difficult, time consuming and costly - Too many orders that enterprises not clearly divide the production process will cause difficulties in allocating - Having a disadvantage with a long-term order that the customer requires a quote in advance Subjects of application 16 - The company constructs and installs separate infrastructure works - The company produces large and special handicrafts and fine arts for each project - The company exports according to foreign standard orders: shoes, fashion clothes, agricultural products, aquatic products 17 IV Analysis Similarities between companies: All companies produce products according to customer requirements and these companies we have mentioned have expense of three main factors:  Direct materials cost  Labour cost  Overhead costs Wedding dress and construction firms spend the most on labour cost (101 910 $ and 3,600,000,000 VND) All have to pay tax by product or gross annual costs in overhead costs ( 5%/each roads to constructing company, 10%/ total cost to Hoa Bon Mua and wedding dress company) and pay for supervisor or manager (indirect labor) in overhead costs Differences between companies: Hoa Bon Mua company spends most money on direct material cost while remaining companies spend mostly on labour cost (15,000,000 VND and 20000000 VND for direct material cost in Hoa Bon Mua company, 3,600,000,000 VND and 101 910 $ for labour cost in construction and wedding dress companies) Construction company is the company which doesn’t need to pay for renting cost because of industry characteristics Meanwhile the amount of money wedding dress and Hoa Bon Mua company spend on renting are 600 000$ and 2,190,000 VND/ year respectively Construction company owns the most workers Therefore the cost for labour is largest, with 3,600,000,000 VND 18 In addition, construction company also need to pay for maintenance and repair machines cost with 10,000,000 VND Wedding dress pay for hiring designer serving for their products with 100 000$ while cost for indirect labor of construction company is hiring manager cost with 140,000,000 VND, that of Hoa Bon Mua company is workshop staff cost with 2,500,000 and 5,000,000 VND Hoa Bon Mua company has budget of insurance with 100% and advertising with 100 000$ Hoa Bon Mua and Wedding dress companies serve to individuals while construction company’custormers is large-scale business or government, that's why the amount in the construction company's statistics is bigger than other companies 19 V Conclusion - The method is applied to each order, so the organization of cost accounting must depend on each order - The object of cost collection, as well as the object of cost calculation, is each order in this procedure - From the time of execution until completion or delivery to the customer, the cost of each order is the total cost of direct materials, direct labor, construction machines, and general production row -The collection of uncompleted orders is the value of the ending work-in-progress carried forward to the next period • Advantages If work is expected to take a long time, the cost accountant can compare the cumulative cost in the team for that job to its estimate on a regular basis and provide management with advance notice if costs are increasing faster than expected This allows the Board of Directors to keep costs under control as the project progresses, or they can approach the client to negotiate a pay increase to cover some or all of the extra cost - Adaptable to any workshop, solely concerned with the value of making orders - May calculate the production cost for each order, from which the selling price and profit on each order can be calculated • Disadvantages 20 Task costing generates "hundreds" of disparate data about each job, which the Cost Accounting Department must examine to determine whether it is required to allocate expenses to that job - If a lot of work is being done at the moment, it's likely that costs will be distributed inappropriately - If order fulfillment is split between several workshops, cost aggregation will be complex, time-consuming, and expensive - When a company receives a large number of orders and does not properly split the production process, it will be difficult to allocate resources - With a long-term order, there is a disadvantage in that the consumer demands a quote in advance Job costing is calculated by adding together the cost of labor, materials, and overhead for a particular job The accounting activities related to Job costing are: • Calculating labor costs In the job costing method, labor can be charged directly for individual jobs if the business can determine the specific labor cost for that job (direct labor cost) All indirect labor related to the project or production process is recorded as overhead and then reallocated to different jobs (indirect labor costs) • Calculate cost of materials In job costing, materials used for a product or project are taken from the warehouse and allocated to a specific project If materials fail or the manufacturing process creates scraps, these costs are recognized as general expenses for later allocation, while extraordinary expenses are charged directly to the cost of goods sell 21 • Estimated overall costs The overhead is the most difficult cost to calculate The company will need to estimate the total costs charged to each specific job, including office rent, administrative costs, and depreciation on machinery and equipment used Usually, businesses will pre-determine the rate of general cost allocation Constant order costs can be optimized by optimizing overhead costs: How to Reduce Overhead Costs:  Look for Alternatives Look for ways to streamline and improve corporate operations The major goal is to assist keep operations under tight control and boost their economic efficiency  Analyze Purchasing or Renting Service Companies, stores that require people in specialized departments, should carefully consider the differences between organizing into a separate department and outsourcing services  Suppliers are compared The comparison will assess the quality and cost of a variety of vendors Restaurants and hotels will then select the best supplier in terms of quality and price 22 VI References Anon., 2021 afamily.vn [Online] Available at: https://afamily.vn/ve-noi-san-xuat-hoa-lua-phuc-vu-tet-lon-nhatmien-bac-20140114093138599.chn Anon., n.d [Online] Kleinfeld, 2021 kleinfeldbridal.com [Online] Available at: https://www.kleinfeldbridal.com/help-faqs/#1504713442566ea71e638-732f own, m p., 2021 hoabonmua.vn [Online] Available at: http://www.hoabonmua.vn/binh-hoa-de-ban-dep-hbm148 Schell, D., 2021 study.com [Online] Available at: https://study.com/academy/lesson/job-order-costing-systemprocesses.html 23 VII Appendix: Profile Interview transcript Mr Đỗ Văn Lợi Position: CEO Firm: Hoàng Việt Business of: Building house • Cơng ty cho biết chi phí ngun vật liệu không ạ? Trả lời: Đối với bê tông, công ty thuê xe bơm bê tông 1.180.000 đồng / m ^ 3, Giá nguyên vật liệu sắt thép sắt ϕ8 = 12000 đồng / kg, bình qn cơng ty sử dụng khoảng 120 kg sắt / m3 bê tơng • Chú cho hỏi mức lương thợ tháng khơng ? Trả lời: Mức lương bình qn nhân viên 450.000 đồng / / người, cơng ty có 20 nhân viên • Chi phí sản xuất kinh doanh cơng ty ? Trả lời: Cơng ty có khoản chi phí nguyên vật liệu gián tiếp xấp xỉ 200.000 đồng / cơng nhân, chi phí cho vay quản lý, sửa chữa, bảo dưỡng xấp xỉ 10.000.000 đồng, thuế phí khoảng 5% 24 Profile Interview transcript Mr Michael Myad Position: Seller  What are the price ranges for dresses at Kleinfeld? Kleinfeld’s special-order designer dresses start at $2000, with a very limited designer selection from $1500 to $1700 Off-the-rack samples can be much less, although prices vary  What is a special-order dress? The cost of the dresses sold by Kleinfeld is special-order A special-order dress is made specifically for you by a designer, based on the measurements we take from you, the designer then uses the pattern that is closest to your measurements to create your dress Then during the alterations process, we will fit it into your body perfectly  What are the price ranges for dresses at Kleinfeld? Kleinfeld’s special-order designer dresses start at $2000, with a very limited designer selection from $1500 to $1700 Off-the-rack samples can be much less, although prices vary  What is a special-order dress? The cost of the dresses sold by Kleinfeld is special-order A special-order dress is made specifically for you by a designer, based on the measurements we take from you, the designer then uses the pattern that is closest to your measurements to create your dress Then during the alterations process, we will fit it into your body perfectly 25 Profile Interview transcript Mr Hoàng Văn Thiệu Position: Seller  Cho em hỏi làm hoa lụa có khó khơng anh Thiệu? “Người làm hoa lụa phải cẩn thận, tỉ mỉ chi tiết, đường khâu dù nhỏ nhất, sai lệch chút hàng chục cơng đoạn coi hoa vứt bỏ”  Giá nhân công theo ngày lễ anh? “Để phục vụ nhu cầu Tết, hộ thường phải thuê thêm nhân công, công nhân chủ yếu học sinh, sinh viên trường Nam Định tranh thủ làm theo ca, thu nhập bình quân quân từ 15 000- 20 000 đồng ”  Tỉnh bán Hoa lụa chạy phổ biến anh Thiệu? “Hoa lụa chủ yếu nhập cho hai thị trường lớn Hà Nội TP.HCM, tỉnh lân cận Quảng Ninh, Thanh Hóa, Thái Bình… thị trường tiềm năng” 26 lân cận Quảng Ninh, Thanh Hóa, Thái Bình… thị trường tiềm 27 ... calculate job order costing Objective we choose job order costing Better understand job order costing and be able to solve problems related to this topic:  Determine the cost of each work, as well... Why did we choose this topic? Objective we choose job order costing .1 II Theory Product Costing Systems 2 Cost accumulation systems Job order costing. .. particular job  The set of job order cost sheets for all incomplete jobs composes the WIP Inventory subsidiary ledger  Total costs contained on the job order cost sheets for all incomplete jobs should