Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.
-
Upload
miranda-hicks -
Category
Documents
-
view
216 -
download
0
Transcript of Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.
![Page 1: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/1.jpg)
Lecture 6
COSTING SYSTEMS 1Job Costing
Reference : Course Text Chapter 2
![Page 2: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/2.jpg)
Study Objectives (re-cap)
1. Explain the characteristics and purposes of cost accounting.
2. Describe the flow of costs in a JOB ORDER cost accounting system
3. Explain the nature and importance of a JOB COST SHEET
![Page 3: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/3.jpg)
CHAPTER 2
JOB ORDER COST ACCOUNTING
Study Objectives : Continued
Indicate how the predetermined overhead rate is determined and used.
Prepare entries for jobs completed and sold.
Distinguish between under- and over-applied manufacturing overhead.
![Page 4: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/4.jpg)
COST
1. ACCUMULATION 2. ASSIGNMENT
COST POOL
Cost object
Cost object
Cost object
![Page 5: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/5.jpg)
COST
1. ACCUMULATION 2. ASSIGNMENT
Production Dept
Job 001
Job 002
Job 00
![Page 6: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/6.jpg)
JOB ORDER COST FLOWSOverview
![Page 7: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/7.jpg)
ASSIGNING MANUFACTURING COSTS TO WORK IN PROCESS
Study Objective 2
Manufacturing costs are assigned to work in process with
Debits to Work in Process Inventory
Credits to
• Raw Materials Inventory
• Factory Labor
• Manufacturing Overhead
Entries assigning costs to work in process are usually made monthly
![Page 8: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/8.jpg)
ASSIGNING MANUFACTURING COSTS TO WORK IN PROCESS
Study Objective 3
Job cost sheet
Used to record the costs of a specific job.
Used to determine the total and unit costs of a completed job.
Is a subsidiary ledger account – to the work-in process inventory account [the control account]
Postings to job cost sheets are made daily.
![Page 9: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/9.jpg)
Job cost sheet
![Page 10: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/10.jpg)
Raw Materials Cost
Assigned to a job when materials are issued. A materials requisition slip - the written authorization for
issuing raw materials. Is the source document for posting to job cost sheets &W.I.P
Inventory
![Page 11: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/11.jpg)
Raw Materials Cost
Posted daily to individual job cost sheets and periodically journalized.
Example:
If $24,000 of direct materials and $6,000 of indirect materials are used in January, the entry is
![Page 12: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/12.jpg)
Factory Labor Cost
Assigned to jobs on the basis of time tickets or time sheets
Is the source document for posting to job cost sheets &W.I.P Inventory
Time tickets indicate Employee Hours worked Account and job charged Total labor cost
![Page 13: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/13.jpg)
![Page 14: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/14.jpg)
Example:
Wallace Manufacturing incurs $32,000 of factory labor costs, of which $27,000 relates to wages payable and $5,000 relates to payroll taxes payable in January.
![Page 15: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/15.jpg)
Example:
If the $32,000 total factory labor cost incurred consists of $28,000 of direct labor and $4,000 of indirect labor, the entry is
Factory Labor is left with a zero balance.
![Page 16: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/16.jpg)
ASSIGNING MANUFACTURING COSTS TO WORK IN PROCESS – Manufacturing Overhead
Study Objective 4
Relates to production operations as a whole
Cannot be assigned to specific jobs based on actual costs incurred
Must be assigned to work in process and to specific jobs on an estimated basis through the use of a
![Page 17: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/17.jpg)
ASSIGNING MANUFACTURING COSTS TO WORK IN PROCESS – Manufacturing Overhead
1. ACCUMULATION 2. ASSIGNMENT
=>predet. o/h rate
Estimated total overhead cost
Job 001
Job 002
Job 00
![Page 18: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/18.jpg)
Manufacturing Overhead
Based on the relationship between estimated annual overhead costs and expected annual operating activity.
Expressed in terms of an activity base such as
Direct labor costs
Direct labor hours
Machine hours, or
Any other activity that is an equitable base for applying overhead costs to jobs
![Page 19: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/19.jpg)
Manufacturing Overhead
Predetermined Overhead Rate
Established at the beginning of the year.
May use a single, company-wide predetermined rate.
OR - May use a different rate for each department and each department may have a different activity base.
The formula for a predetermined overhead rate is
![Page 20: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/20.jpg)
ASSIGNING MANUFACTURING COSTS TO WORK IN PROCESS – Manufacturing Overhead
Example:
At Wallace Manufacturing, direct labor cost is the activity base.
Estimated annual costs:Overhead costs $280,000Direct labor costs $350,000
The overhead rate is
$280,000 ÷ $350,000 = 80% of direct labor cost
![Page 21: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/21.jpg)
•Overhead applied for January is :
$28,000 [Actual DL cost] X 80% = $22,400
and is recorded through the following entry :
![Page 22: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/22.jpg)
ASSIGNING MANUFACTURING COSTS TO WORK IN PROCESS - At the End of Each Month
The balance in Work in Process Inventory should equal the sum of the costs shown on
the job cost sheets of unfinished jobs.
![Page 23: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/23.jpg)
ASSIGNING COSTS TO FINISHED GOODSStudy Objective 5
When a job is completed, the costs are summarized and the job cost sheet is completed.
![Page 24: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/24.jpg)
ASSIGNING COSTS TO FINISHED GOODS
The entry for Wallace Manufacturing to transfer its total cost to finished goods:
![Page 25: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/25.jpg)
ASSIGNING COSTS TO FINISHED GOODS
The entry for Wallace Manufacturing to transfer its total cost to finished goods:
![Page 26: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/26.jpg)
ASSIGNING COSTS TO FINISHED GOODS
Inventory remains in Finished Goods Inventory until it is sold.
Cost of goods sold is recognized when a sale occurs.
![Page 27: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/27.jpg)
ASSIGNING COSTS TO FINISHED GOODS
Example:
On January 31 Wallace Manufacturing sells Job No. 101, costing $39,000, for $50,000. The entries are:
![Page 28: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/28.jpg)
ASSIGNING COSTS TO FINISHED GOODS
Example:
On January 31 Wallace Manufacturing sells Job No. 101, costing $39,000, for $50,000. The entries are:
![Page 29: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/29.jpg)
SUMMARY OF JOB ORDER COST FLOWS
![Page 30: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/30.jpg)
REPORTING JOB COST DATA
The cost of goods manufactured schedule now shows manufacturing overhead applied rather than actual overhead costs.
Applied overhead is added to direct materials and direct labor to determine total manufacturing costs
![Page 31: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/31.jpg)
UNDER- OR OVERAPPLIED MANUFACTURING OVERHEAD
Study Objective 6
A debit balance in manufacturing overhead means that overhead is underapplied.
Overhead assigned to work in process is less than overhead incurred.
A credit balance in manufacturing overhead means that overhead is overapplied.
Overhead assigned to work in process is greater than overhead incurred.
![Page 32: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/32.jpg)
UNDER- OR OVERAPPLIED MANUFACTURING OVERHEAD
Any year-end balance in Manufacturing Overhead is eliminated by adjusting cost of goods sold.
Underapplied overhead is debited to COGS Overapplied overhead is credited to COGS• Example:
Wallace Mfg. has a $2,500 credit balance in Manufacturing Overhead at December 31. The adjusting entry for the overapplied overhead is
![Page 33: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/33.jpg)
UNDER- OR OVERAPPLIED MANUFACTURING OVERHEAD
• If over/under applied M.O. is significant
=> should be allocated/pro-rated among– W.I.P Inventory (end)
– Finished Goods Inventory (end)
– and COGS
![Page 34: Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.](https://reader036.fdocuments.in/reader036/viewer/2022062802/56649ea75503460f94ba94ff/html5/thumbnails/34.jpg)
AF102
END OF LECTURE 6