Financial&managerial accounting_15e williamshakabettner chap 17
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Transcript of Financial&managerial accounting_15e williamshakabettner chap 17
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McGraw-Hill/Irwin
Job Order Cost Systems Job Order Cost Systems and Overhead Allocationsand Overhead Allocations
Chapter 17
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Planning andcontrol
functions
Providingproducts or services tocustomers
Assessing theefficiency andeffectivenessof operations
Determining unitmanufacturing
costs
Cost accounting systems provide information supporting decisions making the business successful
Cost Accounting SystemsCost Accounting Systems
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Discloseinventoriesand cost ofgoods sold
Track resourcesconsumed byproducts and
services
Manage activitiesthat consume
resources
Evaluate andreward
employeeperformance
Cost Accounting SystemsCost Accounting Systems
Cost accounting systems are the proceduresand techniques used by management
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Used for production of large, unique, high-cost items. Built to order rather than mass produced. Many costs can be directly traced to each job.
Job Order CostingJob Order Costing
Typical job order cost applications:
Special-order printing Building construction
Also used in service industry Hospitals Law firms
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THE JOB
Directmaterials
Direct labor
Traced directly to each job
Traced directly
to each job
Job Order Cost Systems Job Order Cost Systems and the Creation of Goods and the Creation of Goods and Servicesand Services Manufacturing
overhead (OH)
Applied to eachjob using a
predeterminedrate (POHR)
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Manufacturing Overhead
Manufacturing Overhead
Job No. 1Job No. 1
Job No. 2Job No. 2
Job No. 3Job No. 3
Charge direct material and direct labor costs to each job as work is performed.
Direct MaterialsDirect Materials
Direct LaborDirect Labor
Apply overhead to each job using a predetermined rate.
Job Order Cost Systems Job Order Cost Systems and the Creation of Goods and the Creation of Goods and Servicesand Services
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Estimated total manufacturingoverhead cost for the coming period
Estimated total units in theactivity base for the coming period
POHR =
The predetermined overhead rate (POHR) used to apply overhead to
jobs is determined before the period begins.
Ideally, the activity base is a cost driver that causes overhead.
Overhead Application Overhead Application RatesRates
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Overhead applied = POHR × Actual activity
Actual amount of the cost driver such as units produced, direct labor hours, or machine hours
incurred during the period.
Based on estimates, and determined before
the period begins.
Overhead Application Overhead Application RatesRates
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A materials requisition
indicates the cost of direct
materialto charge to
jobsand the cost of
indirect material to charge to
overhead.
Flow of Costs in Job Flow of Costs in Job CostingCosting
Job Cost Sheets
Manufacturing Overhead Account
Job Cost Sheets
Job Cost Sheets
Job Cost Sheets
Direct Material
Indirect Material
MaterialsRequisitioinMaterial
RequisitioinMaterialsRequisitioniMaterials
Requisition
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Employee time tickets indicate
the cost of direct laborto charge to
jobsand the cost of indirect
labor to charge to overhead.
Job Cost Sheets
Manufacturing Overhead Account
Job Cost Sheets
Job Cost Sheets
Job Cost Sheets
Direct Labor
Indirect Labor
Employee Time TicketEmployee Time
TicketEmployee Time TicketEmployee Time
Ticket
Flow of Costs in Job Flow of Costs in Job CostingCosting
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EmployeeTime
Ticket
MaterialsRequisition
OtherActual OHCharges
IndirectMaterial
IndirectLabor
OverheadApplied
withPOHR
Manufacturing Overhead Account
Job Cost Sheets
Flow of Costs in Job Flow of Costs in Job CostingCosting
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If Manufacturing Effect of Closing toOverhead is . . . Cost of Goods Sold
UNDERAPPLIED INCREASE(Applied OH is less Cost of Goods Sold
than actual OH)
OVERAPPLIED DECREASE(Applied OH is greater Cost of Goods Sold
than actual OH)
Over- or Under applied Over- or Under applied OverheadOverhead
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Level of C
omplexity
Overhead Allocation
Plantwide Overhead Rate
DepartmentalOverhead Rates
Activity-Based Costing
Activity-Based Costing Activity-Based Costing (ABC)(ABC)
ACB
In the ABC method, we recognize that many activities within a
department drive overhead costs.
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The Benefits of ABCThe Benefits of ABCMore detailed measures of costs.Better understanding of activities.More accurate product costs for . . .
Pricing decisions.Product elimination decisions.Managing activities that cause costs.
Benefits should always be comparedto costs of implementation.
ACB
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Identifying Cost Drivers Identifying Cost Drivers Most cost drivers are related to either
volume or complexity of production.Examples: machine time, machine setups,
purchase orders, production orders.
Three factors are considered in choosing a cost driver: Causal relationship. Benefits received.Reasonableness.
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Overhead Actual Rate Activity
×
Activity-Based Costing Activity-Based Costing ProceduresProcedures
Identify activities that consume resources. Assign costs to a cost pool for each
activity. Identify cost drivers associated with each
activity. Compute overhead rate for each cost pool:
Assign costs to products:
Rate = Estimated overhead costs in activity cost pool
Estimated number of activity units
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End of Chapter 17End of Chapter 17