Introduction to Managerial Accounting and Job Order Cost Systems
Transcript of Introduction to Managerial Accounting and Job Order Cost Systems
Chapter Chapter 1818Introduction to Managerial Introduction to Managerial Accounting and Job Order Accounting and Job Order
Cost SystemsCost SystemsAccounting, 21st Edition
Warren Reeve Fess
PowerPoint Presentation by Douglas CloudProfessor Emeritus of AccountingPepperdine University
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1. Describe the differences between managerial and financial accounting.
2. Evaluate the organizational role of management accountants.
3. Define and illustrate materials, factory labor, and factory overhead costs.
4. Describe accounting systems used by manufacturing businesses.
ObjectivesObjectivesObjectivesObjectives
After studying this After studying this chapter, you should chapter, you should
be able to:be able to:
After studying this After studying this chapter, you should chapter, you should
be able to:be able to:
6. Describe and prepare summary journal entries for a job order cost accounting system.
ObjectivesObjectivesObjectivesObjectives
7. Use job order cost information for decision making.
8. Diagram the flow of costs for a service business that uses a job order cost accounting system.
The Differences Between The Differences Between Managerial and Financial Managerial and Financial
AccountingAccounting
Financial Accounting Managerial Accounting
ShareholdersCreditors
GovernmentGeneral PublicManagement
ShareholdersCreditors
GovernmentGeneral PublicManagement
ManagementManagementManagementManagement
Users of Accounting Information
Financial and Managerial Financial and Managerial AccountingAccounting
Financial Statements
Users:
ObjectiveObjective
Prepared according Prepared according to GAAPto GAAP
Prepared according Prepared according to GAAPto GAAP
Prepared periodicallyPrepared periodicallyPrepared periodicallyPrepared periodically
Business entityBusiness entityBusiness entityBusiness entity
External Users and Management
Characteristics:
Financial Financial AccountingAccounting
Management Reports
Users:
Objective and subjectiveObjective and subjective
Prepared according to Prepared according to management needsmanagement needs
Prepared according to Prepared according to management needsmanagement needs
Prepared periodically Prepared periodically or as neededor as needed
Prepared periodically Prepared periodically or as neededor as needed
Business entity or segmentBusiness entity or segmentBusiness entity or segmentBusiness entity or segment
Management
Characteristics:
Managerial Managerial AccountingAccounting
Plant Manager--Carlsbad, CA
Plant
Manager——Pro Tour Relations
ControllerManager—ShaftDevelopment
Partial Organization Chart – Callaway Golf CompanyPartial Organization Chart – Callaway Golf Company
Vice-PresidentNew Product Development
Vice-PresidentNew Product Development
Vice-President—Global Sales
Vice-President—Manufacturing
Chief Financial Officer
Chief ExecutiveOfficer
Chief ExecutiveOfficer
Manufacturing Cost Manufacturing Cost TermsTerms
Manufacturing Cost Manufacturing Cost TermsTerms
EXPENSEEXPENSE
ASSETASSETEXPENSEEXPENSE
COSTCOST
Payroll
Check
FactoryFactoryOverheadOverheadFactoryFactory
OverheadOverhead
DirectMaterials
DirectMaterials
DirectDirectLaborLaborDirectDirectLaborLabor
ProductProductCostsCosts
ProductProductCostsCosts
The cost of materials that are an integral part of the product.
The cost of labor directly involved in converting material into the product.
Manufacturing costs other than direct materials and direct labor.
Cost Accounting SystemsCost Accounting Systems
Job order cost system Provides a separate record for the cost of each quantity of product that passes through the factory.
Process cost system System in which costs are accumulated for each of the departments or processes within the factory.
*Note that the examples in this presentation use the job order cost accounting system.
The costs of converting the materials into finished products consists of
direct labor and factory overhead. These two costs combined are often
referred to as conversion costs.
The costs of converting the materials into finished products consists of
direct labor and factory overhead. These two costs combined are often
referred to as conversion costs.
Flow of Manufacturing CostsFlow of Manufacturing CostsFlow of Manufacturing CostsFlow of Manufacturing Costs
PRINTING PLANTPRINTING PLANT
Job 73
Work in Process Inventory
•Direct Labor•Factory Overhead
MATERIALS STOREROOMMATERIALS STOREROOM
INK INK
Materials Inventory
Flow of Manufacturing CostsFlow of Manufacturing CostsFlow of Manufacturing CostsFlow of Manufacturing Costs
Finished Goods Inventory
WAREHOUSEWAREHOUSE
Job 69
Job 70
CAMPUS BOOKSTORECAMPUS BOOKSTORE
Cost of Goods Sold
Flow of Manufacturing CostsFlow of Manufacturing CostsFlow of Manufacturing CostsFlow of Manufacturing Costs
Materials received are inspected by the
Receiving Department. Once inspected, a receiving report is
prepared showing the quantity received and
its condition.
Receiving Report No. 196
Receiving Report No. 196
Flow of Manufacturing CostsFlow of Manufacturing CostsFlow of Manufacturing CostsFlow of Manufacturing Costs
InvoiceInvoice
The receiving report and the invoice are used to record the receipt of the merchandise and
to control the payment.
Receiving Report No. 196
Receiving Report No. 196
Flow of Manufacturing CostsFlow of Manufacturing CostsFlow of Manufacturing CostsFlow of Manufacturing Costs
InvoiceInvoice
a. Materials 10 500 00
Accounts Payable10 500 00
Materials purchased during
December.
Receiving Report No. 196
Receiving Report No. 196
Flow of Manufacturing CostsFlow of Manufacturing CostsFlow of Manufacturing CostsFlow of Manufacturing Costs
The Materials account is a controlling account. A separate account for each
type of material is maintained in a subsidiary materials ledger.
InvoiceInvoiceReceiving
Report No. 196
Receiving Report No. 196
MATERIALS LEDGER ACCOUNTMATERIAL: No. 23 Paper ORDER POINT: 1,000 lbs.
RECEIVED ISSUED BALANCE
Rec. Mat.Report Req. Unit No. Quantity Amount No. Quantity Amount Date Quantity Amount Price Dec. 1 1,200 $ 6,000 $5.00
672 400 $ 2,000 4 800 4,000 5.00
Receiving Report No. 196
Receiving Report No. 196
196 1,500 $10,500 8 800 4,000 5.001,500 10,500 7.00
First-in, first-outFirst-in, first-out
Direct MaterialsDirect MaterialsDirect MaterialsDirect Materials
MATERIALS LEDGER ACCOUNTMATERIAL: No. 23 Paper ORDER POINT: 1,000 lbs.
RECEIVED ISSUED BALANCE
Rec. Mat.Report Req. Unit No. Quantity Amount No. Quantity Amount Date Quantity Amount Price Dec. 1 1,200 $ 6,000 $5.00
672 400 $ 2,000 4 800 4,000 5.00196 1,500 $10,500 8 800 4,000 5.00
1,500 10,500 7.00
Later, Materials Requisition Number 704 is prepared for Job No. 72 requisitioning 1,800 units of No. 23 paper.
to Materials Requisition
Direct MaterialsDirect MaterialsDirect MaterialsDirect Materials
704 1,800 11,000 12 500 3,500 7.00
MATERIALS REQUISITIONS
REQUISITION NO. 704JOB NO. 72
Quantity Unit Description Issued Price Amount
No. 23 paper 800 $5.00 $ 4,0001,000 7.00 7,000
Total issued $11,000
from Materials Ledger Account
to Job Cost Sheet
Direct MaterialsDirect MaterialsDirect MaterialsDirect Materials
Job 724,000 units of Algebra
Direct materialsDirect LaborFactory Overhead
from Materials Requisition
$11,000
The receiving report and the invoice are used to record the receipt of the
merchandise and to control the payment.
b. Work in Process 11 000 00
Materials11 000 00
Materials requisitioned to
Job 72.
Direct MaterialsDirect MaterialsDirect MaterialsDirect Materials
Direct LaborDirect LaborDirect LaborDirect Labor
TIME TICKET
Job 72 Time Tickets
No. 6311 Employee Name S. AndrewsDate Dec. 26, 2006Work Description PrintingJob No. 72
Start Finish Hours Hourly Time Time Worked Rate Cost 9:00 12:00 3 $15.00 $45.00
1:00 6:00 5 15.00 75.00
Total Cost $120.00
Approved by _____________________________A. M.
December Job 72 (500 hours) for a total cost
of $7,500
December Job 72 (500 hours) for a total cost
of $7,500
to Job Cost Sheet
to Job Cost Sheet
Direct LaborDirect LaborDirect LaborDirect Labor
Job 724,000 units of Algebra
Direct materials $11,000Direct LaborFactory Overhead
from Time Tickets
7,500
The receiving report and the invoice are used to record the receipt of the
merchandise and to control the payment.
c. Work in Process 7 500 00
Wages Payable7 500 00
Factory labor used in
production of Job 72.
When indirect material is used or depreciation of factory equipment is recorded, a cost account (rather than an expense account) needs to be
charged. All manufacturing costs except direct materials and direct labor fall into this category.
d. Factory Overhead 4 600 00
Factory overhead incurred.
Materials 500 00
Wages Payable2 000 00
Utilities Payable900 00
Accumulated Depreciation1 200 00
Factory OverheadFactory OverheadFactory OverheadFactory Overhead
A firm can’t wait until the end of the fiscal year to price a product, so overhead must be estimated (or
applied) using this formula.
A firm can’t wait until the end of the fiscal year to price a product, so overhead must be estimated (or
applied) using this formula.
Estimated totalfactory overhead costs
Estimated activity base
Predeterminedfactory overhead
rate=
Factory OverheadFactory OverheadFactory OverheadFactory Overhead
An activity base is chosen for the denominator of the formula that is relevant to overhead and can be
realistically measured. There are several possibilities for Goodwell Printers.
An activity base is chosen for the denominator of the formula that is relevant to overhead and can be
realistically measured. There are several possibilities for Goodwell Printers.
Activity base possibilities
Activity base possibilities
1. Direct labor hours 2. Direct labor dollars 3. Machine hours 4. Direct materials
Factory OverheadFactory OverheadFactory OverheadFactory Overhead
Goodwell Printers estimates factory overhead costs to be $50,000 and chooses direct
labor hours as its activity base.
Goodwell Printers estimates factory overhead costs to be $50,000 and chooses direct
labor hours as its activity base.
Factory OverheadFactory OverheadFactory OverheadFactory Overhead
Management estimated that 10,000 direct labor hours would be used during the fiscal period. This allowed for a predetermined
factory overhead rate to be calculated.
Management estimated that 10,000 direct labor hours would be used during the fiscal period. This allowed for a predetermined
factory overhead rate to be calculated.
Estimated total factory overhead costsEstimated direct labor hours
$50,00010,000 direct labor hours= $5 per direct labor hours
Factory OverheadFactory OverheadFactory OverheadFactory Overhead
December Job 72 (500 hours) for a total cost of
$7,500
TIME TICKET
Job 72 Time Tickets
No. 6311 Employee Name B. AndrewsDate Dec. 26, 2006Work Description PrintingJob No. 72
Start Finish Hours Hourly Time Time Worked Rate Cost 9:00 12:00 3 $15.00 $45.00
1:00 6:00 5 15.00 75.00
Total Cost $120.00
Approved by _____________________________A. M.
Job 72 required 500 direct labor hours.
Job 72 required 500 direct labor hours.
Factory OverheadFactory OverheadFactory OverheadFactory Overhead
Job 724,000 units of Algebra
Direct materialsDirect LaborFactory Overhead
500 hours x $5
$11,0007,500
The receiving report and the invoice are used to record the receipt of the
merchandise and to control the payment.
d. Work in Process 2 500 00
Factory Overhead2 500 00
Factory overhead applied to
Job 72.
2,500Total job cost $21,000
Factory OverheadFactory OverheadFactory OverheadFactory Overhead
This illustrations has focused on Job 72. The textbook shows two jobs that were worked on in December. So, when overhead is applied
to both jobs, the entry is for $4,250.
This illustrations has focused on Job 72. The textbook shows two jobs that were worked on in December. So, when overhead is applied
to both jobs, the entry is for $4,250.
ACCOUNT Factory Overhead ACCOUNT NO.
Date Item Ref. Debit Credit Debit Credit
Post. Balance
Dec. 1 Balance 20031 FO cost incurred 4,600 4,40031 FO cost applied 4,250 150
Factory OverheadFactory OverheadFactory OverheadFactory Overhead
Overapplied (overestimated) Underapplied
(underestimated)
Factory Overhead requires closing at the
end of the fiscal period.
Factory Overhead requires closing at the
end of the fiscal period.
Date Item Ref. Debit Credit Debit Credit
Post. Balance
Dec. 1 Balance 20031 FO cost incurred 4,600 4,40031 FO cost applied 4,250 150
ACCOUNT Factory Overhead ACCOUNT NO.
Factory OverheadFactory OverheadFactory OverheadFactory Overhead
Disposal of Factory Overhead BalanceDisposal of Factory Overhead BalanceDisposal of Factory Overhead BalanceDisposal of Factory Overhead Balance
Date Item Ref. Debit Credit Debit Credit
Post. Balance
Dec. 1 Balance 20031 FO cost incurred 4,600 4,40031 FO cost applied 4,250 150
ACCOUNT Factory Overhead ACCOUNT NO.
The receiving report and the invoice are used to record the receipt of the
merchandise and to control the payment.
f. Cost of Goods Sold 150 00
Factory Overhead150 00
Closed underapplied factory
overhead to cost of goods sold.
ACCOUNT Factory Overhead ACCOUNT NO.
Date Item Ref. Debit Credit Debit Credit
Post. Balance
Dec. 1 Balance 20031 FO cost incurred 4,600 4,40031 FO cost applied 4,250 15031 Closing 150 —
Disposal of Factory Overhead BalanceDisposal of Factory Overhead BalanceDisposal of Factory Overhead BalanceDisposal of Factory Overhead Balance
Completion of JobsCompletion of JobsCompletion of JobsCompletion of Jobs
The receiving report and the invoice are used to record the receipt of the
merchandise and to control the payment.
g. Finished Goods 10 250 00
Work in Process10 250 00
Job 71 completed in
December.
Job 711,000 units of American History
Direct materialsDirect LaborFactory Overhead
2,0003,500
1,750Total job cost $10,250
Balance $ 3,000
Job 71 was started in
November and competed in December.
FINISHED GOODS LEDGERITEM: American History
Manufactured Shipped Balance
Job ShipOrder Order Unit No. Quantity Amount No. Quantity Amount Date Quantity Amount Price
Sale of ProductSale of ProductSale of ProductSale of Product
Sold 2,000 Sold 2,000 American HistoryAmerican History textbooks on account, $28,000.textbooks on account, $28,000.Sold 2,000 Sold 2,000 American HistoryAmerican History
textbooks on account, $28,000.textbooks on account, $28,000.
Dec. 1 2,000 $ 20,000 $10.00
FINISHED GOODS LEDGERITEM: American History
Manufactured Shipped Balance
Job ShipOrder Order Unit No. Quantity Amount No. Quantity Amount Date Quantity Amount Price Dec. 1 2,000 $ 20,000 $10.00
643 2,000 $20,000 9 --- --- ---
Sold 2,000 Sold 2,000 American HistoryAmerican History textbooks on account, $28,000.textbooks on account, $28,000.Sold 2,000 Sold 2,000 American HistoryAmerican History
textbooks on account, $28,000.textbooks on account, $28,000.
Sale of ProductSale of ProductSale of ProductSale of Product
The receiving report and the invoice are used to record the receipt of the
merchandise and to control the payment.
h. Cost of Goods Sold 20 000 00
Finished Goods20 000 00
Cost of 2,000 American
History textbooks sold.
Entry to remove books from inventory.
The receiving report and the invoice are used to record the receipt of the
merchandise and to control the payment.
i. Accounts Receivable 28 000 00
Sales 28 000 00
Revenue received from
textbooks sold.
Entry to record sale on account.
Sale of ProductSale of ProductSale of ProductSale of Product
FINISHED GOODS LEDGERITEM: American History
Manufactured Shipped Balance
Job ShipOrder Order Unit No. Quantity Amount No. Quantity Amount Date Quantity Amount Price Dec. 1 2,000 $ 20,000 $10.00
643 2,000 $20,000 9 --- --- --- 71 1,000 $10,250 31 1,000 10,250 10.25
Transfer to Finished GoodsTransfer to Finished GoodsTransfer to Finished GoodsTransfer to Finished Goods
Job 71 is transferred to finished goods.Job 71 is transferred to finished goods.
Examples of Period CostsExamples of Period CostsExamples of Period CostsExamples of Period Costs
SELLING EXPENSES
Advertising expenses
Sales salaries expenses
Commission expenses
Examples of Period CostsExamples of Period CostsExamples of Period CostsExamples of Period Costs
ADMINISTRATIVE EXPENSES
Office salaries expenses
Office supplies expenses
Depreciation expense— office buildings and office equipment
Goodwell PrintersIncome Statement
For the Month Ended December 31, 2006
Sales $28,000Cost of goods sold 20,150Gross profit $ 7,850Selling and admin. expenses:
Sales salaries expense $2,000Office salaries expense 1,500Total selling and admin.
expenses 3,500Income from operations $ 4,350
Overview of Job Order CostingOverview of Job Order Costing
Product Costs
Costs & ExpensesCosts & Expenses
Balance Sheet
DirectLabor
DirectLaborDirectLabor
DirectLabor
Factory Overhead
Factory Overhead
Factory Overhead
Factory Overhead
FinishedGoods
Inventory
FinishedGoods
Inventory
Cost of goods manufactured
Work inProcess
Inventory
Work inProcess
Inventory
MaterialsInventory
MaterialsInventory
MaterialsPurchases
MaterialsPurchases
Cost of
Goods Sold
Cost ofGoods Sold
Product Costs
Period Costs
Costs & ExpensesCosts & Expenses
Balance Sheet
DirectLabor
DirectLaborDirectLabor
DirectLabor
Factory Overhead
Factory Overhead
Factory Overhead
Factory Overhead
FinishedGoods
Inventory
FinishedGoods
Inventory
Work inProcess
Inventory
Work inProcess
Inventory
Income Statement
Selling andAdministrative
Selling andAdministrative
Selling andAdministrative
Selling andAdministrative
Period costs flow directly to the
income statement
Period costs flow directly to the
income statement
Overview of Job Order CostingOverview of Job Order Costing
MaterialsInventory
MaterialsInventory
MaterialsPurchases
MaterialsPurchases
Flow of Manufacturing CostsFlow of Manufacturing Costs
DMDM
Materials Work in Process Finished Goods
Wages Payable Factory Overhead
Cost of Goods Sold
DMDMMaterialsPurchased
TotalWages
Direct materials used in productionDMDM
DMDM
Materials Work in Process Finished Goods
Wages Payable Factory Overhead
Cost of Goods Sold
IMIM
DMDMMaterialsPurchased
TotalWages
Indirect materials used in productionIMIM
Flow of Manufacturing CostsFlow of Manufacturing Costs
IMIM
DMDM
Materials Work in Process Finished Goods
Wages Payable
DLDL
Factory Overhead
Cost of Goods Sold
IMIM
DMDMMaterialsPurchased
TotalWages
Direct labor used in productionDLDL
Flow of Manufacturing CostsFlow of Manufacturing Costs
IMIM
DLDL
DMDM
Materials Work in Process Finished Goods
Wages Payable
DLDL
Factory Overhead
Cost of Goods Sold
IMIM
ILIL
DMDM
IMIM
DLDL
ILIL
MaterialsPurchased
TotalWages
Indirect labor used in productionILIL
Flow of Manufacturing CostsFlow of Manufacturing Costs
DMDM
Materials Work in Process Finished Goods
Wages Payable
DLDL
Factory Overhead
Cost of Goods Sold
IMIM
ILIL
DMDM
IMIM
DLDL
ILIL
MaterialsPurchased
TotalWages
Other factory overhead costs incurred during production
OFOHOFOH
Flow of Manufacturing CostsFlow of Manufacturing Costs
OFOHOFOH
DMDM
Materials Work in Process Finished Goods
Wages Payable
DLDL
Factory Overhead
Cost of Goods Sold
IMIM
ILIL
DMDM
IMIM
DLDL
ILIL
OFOHOFOH
MaterialsPurchased
TotalWages
Based on predetermined overhead rate
FOHAFOHA
Factory overhead applied to work in processFOHAFOHA
Flow of Manufacturing CostsFlow of Manufacturing Costs
FOHAFOHA
DMDM
Materials Work in Process Finished Goods
Wages Payable
DLDL
Factory Overhead
Cost of Goods Sold
IMIM
ILIL
DMDM
IMIM
DLDL
FOHAFOHA
ILIL
OFOHOFOH
COGMCOGMCOGMCOGMMaterialsPurchased
TotalWages
FOHAFOHA
Cost of goods manufactured and transferred to finished goods
COGMCOGM
Flow of Manufacturing CostsFlow of Manufacturing Costs
DMDM
Materials Work in Process Finished Goods
Wages Payable
DLDL
Factory Overhead
Cost of Goods Sold
IMIM
ILIL
DMDM
IMIM
DLDL
FOHAFOHA
ILIL
OFOHOFOH
SOLDSOLDMaterialsPurchased
TotalWages
FOHAFOHA
Finished goods soldSOLDSOLD
COGMCOGMCOGMCOGM
Flow of Manufacturing CostsFlow of Manufacturing Costs
SOLDSOLD
Job Order Systems for Job Order Systems for Professional Service BusinessesProfessional Service Businesses
Job Order Systems for Job Order Systems for Professional Service BusinessesProfessional Service Businesses
Work in ProcessWages Payable Cost of Services
OverheadSupplies
Direct labor xxx
Indirect labor
xxxPurchased xxx Used xxxxxx
Other costs xxx
Applied xxx
xxx
Completed jobs xxx
The EndThe End
Chapter 18Chapter 18