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The use of job costing as a tool for the pricing and cost control decisions in the printing industry: the case of Société de Presse et d'Editions (SOPECAM)

par Christian Kuiate Sobngwi
University of Buea - Bachelor of Science 2003

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3. Labour costs

Once the payroll accounting has been done, that is the determination of the gross pay for each employee and the calculation of payments to be made to employees, government, pension funds and others. We can now allocate labour costs to the various jobs, overhead accounts and capital accounts.

The wages due to employees are computed from the records of each employee time tickets. These tickets show the time periods spent on each job and the various indirect labour hours. It is recorded as follows:

Dr works in progress account...................................*****

Dr factory overhead account...................................******

Cr salaries and wages payable account..............******

4. Manufacturing overheads

This concerns all the factory costs other than direct materials, labour and expenses. They are entered into the factory overhead account as they are incurred. This is done as follows:

Dr factory overhead account ...............******

Cr account payable............. ......****

Cr property tax payable account. ...****

Cr prepaid insurance account...........****

Cr accumulated depreciation account...***

Now we must charge these costs to the various jobs, this needs to be done following an objective measure. This measure is known as the predetermined overhead absorption rate. The overhead absorption rate is a kind of coefficient, which is used to allocate manufacturing overhead costs to jobs. It is computed using an allocation base; this allocation base refers to the most influential cost driver for that particular cost. This means that there may be several overhead absorption rates for various costs depending on the allocation base used. The overhead absorption rate is determined at the beginning of the accounting period using the formula:

Predetermined overhead absorption rate=estimated total manufacturing overhead cost/ estimated total units in the allocation base

Once we have obtained the overhead absorption rate (OAR), assigning overheads to a job is done as such:

Overhead applied to a job= OAR*amount of the allocation base incurred by the job

Given the OAR, we can then apply manufacturing overheads to the jobs and this is reflected in the accounts as follows:

Dr Work in progress account.........................*****

Cr factory overhead account.................*****

Once all the entries have been posted into the factory overhead control account, we can then reconcile the two sides of that account. Normally if the two sides are equal, this will mean that the company charged the same costs that it incurred. A larger debit side means that the company charged less than what it actually incurred and the balance between the two sides is referred to as the under absorbed overhead costs and they must be posted to the debit side of the profit and loss account as a period cost.

A larger credit side of the factory overhead account will mean that the company charged more costs than what it actually incurred and the balance between the two sides is called the over absorbed overhead cost, and it must be posted to the credit side of the profit and loss account in order to reconcile between the various accounts of the company.

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