Cost Accumulation for Job and Batch Production Chap003-3

8/8/2019 Cost Accumulation for Job and Batch Production Chap003-3

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Hilton Maher Selto


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3C ost Accumulation for Job-Shop& Batch Production Operations

McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc., All Rights Reserved .


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vs.JobCosting

ProcessCosting

Each jobtreated as a

separate unitof output.Costs are

allocated toeach job.

All unitsprocessed aretreated as theunit of output.

Costs areallocated toeach unit.

Operation Costing isa hybrid.

Ev aluating Major Types of

C osting Systems


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J s + Res ce - Res ce = J s Beginning

Balance

Transfers

In

Transfers

Out

Ending

Balance(BB) (TI) (TO) (EB)

The use of the model serves as acontrol that helps to ensure goals

and objectives are met.

The Basic C ost Flow Model


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Job Costecord

A record of allproductionrelated

resources usedtoday.

The sum of allthe costs in

active jobs

Work in ProcessInventory

Managing and Using C ost

Flow Information


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Work in ProcessInventory

epresentsthe cost of allthe unfinished

(in process) jobs.

As jobs arecompleted, the

costs are

moved to . . .

FinishedGoods

Inventory


Flow Information


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Boss, Co. began May with $1,000 of costs inWork in Process (WIP) Inventory and $2,000 of

completed units in Finished Goods Inventory.During May, Boss incurred $68,000 of productioncosts. Goods costing $62,000 were sent to

Finished Goods during the month. Also, during

May, goods costing $60,000 were sold.Using the Cost Flow Model, compute the ending

inventory amounts for WIP Inventory andFinished Goods Inventory.


Flow Information - Ex ample


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Wo r r ocess

FinishedGoods

eginning alance $ 1,000 $ 2,000+ Tr ansfe r s In 68,000 62,000

Tr ansfe r s O (62,000) (60,000)= Ending alance $ 7,000 $ 4,000

Fr om J ob Cost

Reco r ds

Cost of Goods Sold


Flow Information - Ex ample


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Job cost accounting systemsrecord cost flows

systematically.

Transactionsare

journalized.

Info is postedto ledger accounts.

er ead

aw aterials

en'l & dmin

Labor

Basic Job- C ost Flows


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Accounts related to Jobs areposted to various Job WIP

accounts.

ver ead

a aterials

abor

Job WIP

Job WIP

Job 3 WIP

Basic Job- C ost Flows


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Job I

e can determine DirectMaterials C o st and Direct

abo

r Co

st f o

r aJob

as wed o the w o rk.

But we wont know actual OverheadCost until the end of the accountingperiod, so we apply overhead to the

job using a Predetermined Cost- Driver Rate .

Assigning O v erhead to Jobs


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Job I

Each time we assign o verhead t o a

job , we De b it the Job and Credit theOverhead C o ntr o l acc o unt.

Overhead C o ntr o l

D ebit

.

.

C redit



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Gen'l & mi

n

Wh en ov e rh e a d costs ar e actually

in curr ed , De bit th e Ov e rh e a d Co n trol accou n t a nd Cr ed it th e

ccou n ts Payabl e (or Cash)accou n t.

Ov e rh e a d Co n trol

C redit

.

D ebit

.



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Ov erhea tro l

The iff ere c e b e twee a c tu a l

o v erhea f or the p er io , a e s tim a te

o v erhea f or the p er io is c a lle the

OV ERHEADVARIAN E.

Wr ite o ff the imm a ter ia liff ere c e to

O GS.



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Simple ProcessId entify the items to be inclu d e d as

ind

irect overhead

costs.Estimate the costs for each of theind irect overhea d items.Select the cost- d river.

Estimate the amount of the cost-d river rate.Compute the pre d etermine d overhea d rate.

Use of Predetermined

O v erhead Rates


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Identify eachindirect

overheaditem for the

job.

Identify thecost driver

rate for eachbase.

Identify the costfor each

overhead item.

Sum the costdriver

amounts todeterminetotal cost

allocated tothe job.


O v erhead Rates


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O v erhead Rates - Ex ample Boss, Co. pro d uces several jobs a year,

an d uses A BC to allocate costs to each job. The information relate d to Boss,

Co.s General an d Ad ministrativespen d ing is inclu d e d in the table on thenext sli d e.

Compute the Pre d etermine d Cost

Overhea d Rate for each in d irect activityid entifie d in the table.


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IndirectActivities

Total ActivityCost Estimate

Cost-Driver Base

Estimates Base Units

PredeterminedCost Overhead

RateSupervision $30,000 2,000 Hours

PayrollProcessing

3,500 20 Employees

Interest 15,000 250 ProjectDays

Insurance 4,000 $520,000 Labor $General

Accounting28,000 50 Jobs

WorkedOffice

Occupancy60,000 15,000 Square

Footage

Miscellaneous 36,000 15,000SquareFootage

Boss, Co. Indirect Overhead Spending

?


O v erhead Rates - Ex ample


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IndirectActivities

Total ActivityCost Estimate

Cost-Driver Base

Estimates Base Units

PredeterminedCost Overhead

RateSupervision $30,000 2,000 Hours $15.000

PayrollProcessing

3,500 20 Employees 175.000

Interest 15,000 250 ProjectDays

60.000

Insurance 4,000 $520,000 Labor $ 0.008General

Accounting28,000 50 Jobs

Worked560.000

OfficeOccupancy

60,000 15,000 SquareFootage

4.000

Miscellaneous 36,000 15,000SquareFootage 2.400

Boss, Co. Indirect Overhead Spending




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Indir ec c iviti es

J 6166s t-Driv e r Unit s

r e d e te rmin e dCo s t Ove rh ea d

Ra te

Indir ec t Co s tAss ign e d to

J ob 6166S upe vision 45 $15 000

a oll ocessing 0 36 175 000In e es 15 60 000

Insu ance 9 360 0 008Gene al ccoun ing 1 560 000O ice Occupanc 132 4 000

Miscellaneous 132 2 400o al In d i ec Ove hea d C os s A ssigne d t o J ob 6166 $0 00

?

Job 6166 required 15 days and the services of 6employees in 2,200 sq. ft. How much indirect

overhead should be assigned to Job 6166?




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Indir ec t Ac tiviti es

J ob 6166 Co s t-Driv e r

Unit s

r e d e te rmin e dCo s t Ove rh ea d

Ra te

Indir ec t Co s tAss ign e d to

J ob 6166S upe vision 45 $15 000 $675 00

a oll Pr ocessing 0 36 175 000 63 00Inte r es t 15 60 000 900 00

Insu r ance 9 360 0 008 74 88Gene r al A ccoun t ing 1 560 000 560 00O ice Occupanc 132 4 000 528 00

Miscellaneous 132 2 400 316 80otal Ind ir ec t Ove r hea d C os ts A ssigne d t o J ob 6166 $3 117 68

J ob 6166 r equ ir ed 15 d ays and th e se rvi ces o f 6 em plo yees in 2,200 sq. f t. Ho w m uc h indir ec t

ov e rh ea d s ho uld b e ass ign ed to J ob 6166?


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Three events can trigger theposting of info from the job

cost record to WIP Summary:

1. Completion of a Job2. Sale of a Job

. End of an accountingperiod.

Job 1 WIP

Job 2 WIP

Job WIP

WIP S ummary

Recording Job-Order C osts


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C ompletion of Jobs

As stated earlier, costs then move from WIP toFinished Goods and then to COG S.

J o WIP

J o WIP

J o 3 WIP

WIP Su mmar

Finished Goods

COG S


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Remember, theoverhead

assigned to the job was anESTIMATE.

Ac tual overhead may differ from

the estimate .

The amountstransferred fromWIP to FinishedGoods include:

Direct material

Direct abor

AssignedOverhead

If actual overhead differs from the estimated overhead thatwas used to compute the predetermined cost driver rate, the

difference is usually posted to COG S

WIP S ummary

Finished Goods

COG S

O v erhead Adjustments


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The OV ERHEADVARIANCE is

separated intotwo

components.

Overhead SpendingVariance (or B udget

Varian c e )

Overhead ActivityVariance (or Volume

Varian c e )

O v erhead Variance


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We compare theActualOverhead to

Estimated

Overhead (alsocalled Applied

Overhead)

Actual > Estimated

Overhead isUNDERAPP IED

Actual < EstimatedOverhead is

OV ERAPP IED

O v erhead Variance


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?? ??

Actual C osting v s. StandardC

osting ActualActual

C osting ?C osting ? StandardStandard

C osting ?C osting ?

Direct costs areassigned to jobsas they are used.

Indirect Costsare assignedwhen the actual

amounts areknown.

Direct costs areassigned to jobsas they are used.

Indirect Costsare assignedusing

predeterminedoverhead rates.


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The following con d itions canlea d to improper job costing:

M isstating the stage of completion.Charging costs to the wrong J ob.M isrepresenting the cost of jobs.

Intentional misrepresentation incontracts.

Job C ost and Project

Improprieties


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W ork-in-Process canbe a special

thing.

E nd of C hapter 3

Cost Accumulation for Job and Batch Production Chap003-3

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