12-1 fundamental managerial accounting concepts thomas p. edmonds bor-yi tsay philip r. olds...
TRANSCRIPT
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12-1
Fundamental Managerial Accounting ConceptsThomas P. Edmonds
Bor-Yi Tsay
Philip R. Olds
Copyright © Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.2009 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinMcGraw-Hill/Irwin
Fifth Edition
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12-2
CHAPTER 12
Job-Order, Process, and Hybrid Cost Systems
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12-3
Learning Objective
LO1LO1
Distinguishbetween job-order
and processcost systems.
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12-4
o Accumulates costs by individual products.
o Companies use job-order cost systems when they need to know the costs of individual products or batches of products.
o Accumulates costs by individual products.
o Companies use job-order cost systems when they need to know the costs of individual products or batches of products.
Cost Systems andType of Product
Job-order cost systems may be used by:1. Walt Disney Production to determine the cost
of a particular film.2. Rust Engineering to determine the cost of an
office building constructed.3. Boeing to determine the cost of an airplane
manufactured.
Job-OrderJob-OrderCost SystemCost SystemJob-OrderJob-Order
Cost SystemCost SystemProcessProcess
Cost SystemCost SystemProcessProcess
Cost SystemCost System
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12-5
Job-OrderJob-OrderCost SystemCost SystemJob-OrderJob-Order
Cost SystemCost SystemProcessProcess
Cost SystemCost SystemProcessProcess
Cost SystemCost System
o Allocates costs evenly to homogeneous products.
o Unit product cost is determined by dividing the total product cost by the number of units produced during the accounting period.
o Allocates costs evenly to homogeneous products.
o Unit product cost is determined by dividing the total product cost by the number of units produced during the accounting period.
Process cost systems may be used by:
1. Texaco in its oil refining operations.
2. Dow Chemical in the manufacture of chemicals.
3. General Mills in the manufacture of cereal.
Process cost systems may be used by:
1. Texaco in its oil refining operations.
2. Dow Chemical in the manufacture of chemicals.
3. General Mills in the manufacture of cereal.
Cost Systems andType of Product
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12-6
Begin Begin productionproduction
Receive orders Receive orders from customersfrom customers
OrderOrdermaterialsmaterials
Cost Flows
ScheduleScheduleworkwork
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12-7
Job-Order Cost FlowIncome
statementIncome
statement
Boat 101Materials
Labor & OH
Boat 101Materials
Labor & OHBoat 104Materials
Labor & OH
Boat 104Materials
Labor & OH
Boat 102Materials
Labor & OH
Boat 102Materials
Labor & OH
Cost ofgoodssold
Cost ofgoodssold
Boat 105Materials
Labor & OH
Boat 105Materials
Labor & OH
Boat 103Materials
Labor & OH
Boat 103Materials
Labor & OH
Productcosts
Productcosts
Work in process inventoryWork in process inventoryFinishedgoods
inventory
Finishedgoods
inventory
Cost ofgoods
availablefor sale
keptseparately
for allboats
Cost ofgoods
availablefor sale
keptseparately
for allboats
MaterialsLabor
Overhead
MaterialsLabor
Overhead
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12-8
WIP WIPmixing packingWIP WIP
mixing packing
Process Cost Flow
Productcosts
Productcosts
MaterialsLabor
Overhead
MaterialsLabor
Overhead
IncomestatementIncome
statement
Cost ofgoodssold
Cost ofgoodssold
Finishedgoods
inventory
Finishedgoods
inventory
MaterialsLabor
Overhead
Transferred-in costs
MaterialsLabor
Overhead
MaterialsLabor
Overhead Cost ofgoods
availablefor sale
Cost ofgoods
availablefor sale
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12-9
Hybrid Accounting Systems
A hybrid accounting system uses some features from both job-order and process cost systems.
Hybrid systems are commonly used in the manufacture of personal computers. Many
models are mass produced and sold as a package. Other
systems are custom built to the specifications of the customer. Custom built systems normally sell at a premium compared to
standard systems.
Hybrid systems are commonly used in the manufacture of personal computers. Many
models are mass produced and sold as a package. Other
systems are custom built to the specifications of the customer. Custom built systems normally sell at a premium compared to
standard systems.
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12-10
Learning Objective
LO2LO2
Identifydocumentation
used in a job-order cost system.
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12-11
Documentation in aJob-Order Cost System
The primary document for tracking the
costs associated with a given job
is thejob cost sheetjob cost sheet.
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12-12
Documentation in aJob-Order Cost System
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12-13
John SmythJohn Smyth
Documentation in aJob-Order Cost System
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12-14
Documentation in aJob-Order Cost System
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12-15
1,400 1,400 × $3.90 = $5,460× $3.90 = $5,4601,400 1,400 × $3.90 = $5,460× $3.90 = $5,460
Documentation in aJob-Order Cost System
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12-16
Learning Objective
LO3LO3
Explain howevents in a
job-order costsystem affect
financial statements.
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12-17
Benchmore started the month of January, 2009,with the following account balances.
Debit CreditCash 73,000$ Raw materials inventory 7,000 Work in process inventory 34,000 Finished goods inventory 85,000 Production supplies 300 Manufacturing equipment 90,000 Accumulated depreciation 32,000$ Common stock 200,000 Retained earnings 57,300 Total 289,300$ 289,300$
Benchmore Boat CompanyTrial Balance
As of January 1, 2009Boat 103 14,000$ Boat 104 8,000 Boat 105 12,000
34,000$
Work in Process
Boat 101 50,000$ Boat 102 35,000
85,000$
Finished Goods
Job-Order CostSystem Illustrated
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12-18
Event 1Benchmore Boat Company paid $14,000
cash to purchase raw materials.
Job-Order CostSystem Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Cash +
Raw Materials Inventory
(14,000) + 14,000 = N/A + N/A N/A – N/A = N/A
Assets
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12-19
Event 2Benchmore used $17,000 of raw materials
in the process of making boats.
Job-Order CostSystem Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Raw Materials Inventory
+
Work in Process Inventory
(17,000) + 17,000 = N/A + N/A N/A – N/A = N/A
Assets
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12-20
Event 3Benchmore paid $1,200 cash topurchase production supplies.
Job-Order CostSystem Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Cash +
Production Supplies
(1,200) + 1,200 = N/A + N/A N/A – N/A = N/A
Assets
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12-21
Event 4Benchmore paid $8,000 cash to production
employees who worked on Boat 103.
Job-Order CostSystem Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Cash +
Work in Process Inventory
(8,000) + 8,000 = N/A + N/A N/A – N/A = N/A
Assets
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12-22
Event 5Benchmore applied estimated manufacturingoverhead costs of $6,240 to the Boat 103 job.
Predeterminedoverhead rate
Total estimatedoverhead costs
Total estimateddirect labor hours
= ÷
$15,990 ÷ 4,100 = $3.90 per direct labor hour
Job-Order CostSystem Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Manufacturing Overhead
+
Work in Process Inventory
(6,240) + 6,240 = N/A + N/A N/A – N/A = N/A
Assets
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12-23
Event 6Benchmore transferred $36,240 of product costs for completed Boat 103 from work in process inventory
to finished goods inventory.
Job-Order CostSystem Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Work in Process Inventory
+
Finished Goods Inventory
(36,240) + 36,240 = N/A + N/A N/A – N/A = N/A
Assets
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12-24
Event 7Benchmore paid $24,500 cash for selling and
administrative expenses.
Job-Order CostSystem Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.(24,500) = N/A + (24,500) N/A – 24,500 = (24,500) Assets
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12-25
Event 8Benchmore paid $12,000 cash to production employees for work on Boats 104 and 105.
Job-Order CostSystem Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Cash +
Work in Process Inventory
(12,000) + 12,000 = N/A + N/A N/A – N/A = N/A
Assets
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12-26
Event 9Benchmore applied estimated manufacturing
overhead costs to boats 104 and 105.Job Rate Hours Applied
Boat 104 3.90$ × 1,000 = 3,900$ Boat 105 3.90 × 1,400 = 5,460
9,360$
Job-Order CostSystem Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Manufacturing Overhead
+
Work in Process Inventory
(9,360) + 9,360 = N/A + N/A N/A – N/A = N/A
Assets
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12-27
Event 10Benchmore paid $10,100 cash for utilities
and other indirect production costs.
Job-Order CostSystem Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Cash +
Manufacturing Overhead
(10,100) + 10,100 = N/A + N/A N/A – N/A = N/A
Assets
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12-28
Event 11Benchmore recognized $4,000 of actual manufacturing equipment depreciation.
Job-Order CostSystem Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Book Value of Equipment
+
Manufacturing Overhead
(4,000) + 4,000 = N/A + N/A N/A – N/A = N/A
Assets
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12-29
Event 12Benchmore counted the supplies on hand at year-end and recognized actual overhead cost for the
supplies used.
Job-Order CostSystem Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Supplies +
Manufacturing Overhead
(1,100) + 1,100 = N/A + N/A N/A – N/A = N/A
Assets
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12-30
Event 13Benchmore sold Boat 101 for $91,000 cash.
Job-Order CostSystem Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.91,000 = N/A + 91,000 91,000 – N/A = 91,000 Assets
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12-31
Event 14Benchmore recognized cost of goods sold for Boat 101.
Job-Order CostSystem Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.(50,000) = N/A + (50,000) N/A – 50,000 = (50,000) Assets
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12-32
Event 15Benchmore closed the Manufacturing Overhead account, reducing cost of goods sold by $400.
Job-Order CostSystem Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.400 = N/A + 400 N/A – (400) = 400
Assets
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12-33
Debit CreditCash 94,200$ Raw materials inventory 4,000 Work in process inventory 50,360 Finished goods inventory 71,240 Production supplies 400 Manufacturing equipment 90,000 Accumulated depreciation 36,000$ Common stock 200,000 Retained earnings 57,300 Revenue 91,000 Cost of goods sold 49,600 Selling and administrative expense 24,500 Total 384,300$ 384,300$
Benchmore Boat CompanyTrial Balance
As of December 31, 2009
Job-Order CostSystem Illustrated
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12-34
Learning Objective
LO4LO4
Explain howevents in a processcost system affect
financial statements.
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12-35
Process Cost System Illustrated
Janis Juice Company uses three distinct processes to produce cans of apple juice. Raw materials (whole
apples) enter the Extraction Department where juice concentrate is extracted from whole fruit. The juice
extract passes to the Mixing Department where Janis adds water, sugar, food coloring, and preservatives. The juice mixture then moves to the Packaging Department
where it is canned and boxed for shipment.
Janis Juice Company uses three distinct processes to produce cans of apple juice. Raw materials (whole
apples) enter the Extraction Department where juice concentrate is extracted from whole fruit. The juice
extract passes to the Mixing Department where Janis adds water, sugar, food coloring, and preservatives. The juice mixture then moves to the Packaging Department
where it is canned and boxed for shipment.
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12-36
The company’s trial balance as of January 1, 2009, is shown below:
Debit CreditCash 320,000$ Raw materials - fruit 7,800 Raw materials - additives 3,100 Raw materials - containers 9,500 Work in process - extraction 22,360 Work in process - mixing 7,960 Work in process - packaging 21,130 Finished goods inventory 20,700 Common stock 180,000$ Retained earnings 232,550 Total 412,550$ 412,550$
Janis Juice CompanyTrial Balance
As of January 1, 2009
Process Cost System Illustrated
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12-37
Event 1Janis paid $84,000 cash to purchase raw materials.
Process Cost System Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Cash +
Raw Materials Inventory
(84,000) + 84,000 = N/A + N/A N/A – N/A = N/A
Assets
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12-38
Event 2Janis processed $26,720 of whole fruit to
produce juice extract.
Process Cost System Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Raw Materials Inventory
+
WIP Extraction
(26,720) + 26,720 = N/A + N/A N/A – N/A = N/A
Assets
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12-39
Event 3Janis paid $38,000 cash to production employees
who worked in the Extraction Department.
Process Cost System Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Cash +
WIP Extraction
(38,000) + 38,000 = N/A + N/A N/A – N/A = N/A
Assets
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12-40
Event 4Janis applied estimated manufacturing overhead
costs to the Extraction Department work in process inventory.
PredeterminedPredeterminedoverhead rateoverhead rate
Total estimatedTotal estimatedoverhead costsoverhead costs
Total estimatedTotal estimateddirect labor dollarsdirect labor dollars== ÷÷
$96,000 $96,000 ÷ $120,000 = $0.80 per direct labor dollar÷ $120,000 = $0.80 per direct labor dollar
Process Cost System Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Manufacturing Overhead
+
WIP Extraction
(30,400) + 30,400 = N/A + N/A N/A – N/A = N/A
Assets
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12-41
Learning Objective
LO5LO5
Calculateequivalent units and
prepare a cost ofproduction report.
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Equivalent Units
Equivalent units are partially complete and are part of work in process inventory. Partially
completed products are expressed in terms of a smaller number of fully completed units.
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Equivalent Units
Two half completed products are equivalent to one completed product.
Two half completed products are equivalent to one completed product.
So, 10,000 units 60% completeare equivalent to 6,000 complete units.
So, 10,000 units 60% completeare equivalent to 6,000 complete units.
+ = 1
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Percent Actual Complete Equivalent
Units completed and transferred 500,000 100% 500,000 Ending inventory 85,000 40% 34,000
Total 585,000 534,000
A Janis engineer estimated the 85,000 units in ending work in process inventory were 40 percent complete. Janis computes the total equivalent units processed
in the extraction department as follows:
Equivalent Units
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12-45
Event 5Janis finished processing some of the whole fruit and
transferred the related cost from the Extraction Department work in process inventory account to the
Mixing Department work in process inventory account.
Cost perequivalent unit
=Total processing cost
Number of equivalent whole units
= $0.22 per equivalent unit$117,480534,000
Process Cost System Illustrated
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12-46
Event 5Janis used the cost per equivalent unit to allocate the total cost
incurred in the extraction department between the amount transferred to the mixing department and the amount in the extraction
department’s ending work in process inventory as follows:
Equivalent Units
Cost per Unit
Cost to be Allocated
Transferred-out costs 500,000 × 0.22$ = 110,000$ Ending inventory 34,000 × 0.22 = 7,480 Total 117,480$
Process Cost System Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
WIP Extraction
+
WIP Mixing
(110,000) + 110,000 = N/A + N/A N/A – N/A = N/A
Assets
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12-47
The allocation of costs between unitstransferred and ending inventory can be
summarized in a cost of production report.
The allocation of costs between unitstransferred and ending inventory can be
summarized in a cost of production report.
See next slidefor Janis’ cost of
production report for theExtraction Department
Process Cost System Illustrated
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12-48
Extraction Department
Cost ofProduction
Report
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Event 6Janis mixed (used) $24,400 of additives with the
extract transferred from the Extraction Department.
Process Cost System Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Raw Materials Additives
+
WIP Mixing
(24,400) + 24,400 = N/A + N/A N/A – N/A = N/A
Assets
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Event 7Janis paid $48,000 cash to production employees
who worked in the Mixing Department.
Process Cost System Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Cash +
WIP Mixing
(48,000) + 48,000 = N/A + N/A N/A – N/A = N/A
Assets
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Event 8Janis applied estimated manufacturing overhead costs
to the Mixing Department work in process inventory.
$48,000 × $0.80 = $38,400
Process Cost System Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Manufacturing Overhead
+
WIP Mixing
(38,400) + 38,400 = N/A + N/A N/A – N/A = N/A
Assets
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Event 9Janis finished mixing some of the juice extract with additives and transferred the related cost from the
Mixing Department Work in Process Inventory account to the Packaging Department Work in
Process Inventory account.
Equivalent Units
Cost per Unit
Cost to be Allocated
Transferred-ou t costs 510,000 × 0.43$ = 219,300$ Ending inventory 22,000 × 0.43 = 9,460
228,760$
Process Cost System Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
WIP Mixing
+
WIP Packaging
(219,300) + 219,300 = N/A + N/A N/A – N/A = N/A
Assets
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Event 10Janis added containers and other packaging
materials costing $32,000 to work in process in the Packaging Department.
Process Cost System Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Raw Materials Containers
+
WIP Packaging
(32,000) + 32,000 = N/A + N/A N/A – N/A = N/A
Assets
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Event 11Janis paid $43,000 cash to production employees
who worked in the Packaging Department.
Process Cost System Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Cash +
WIP Packaging
(43,000) + 43,000 = N/A + N/A N/A – N/A = N/A
Assets
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Event 12Janis applied estimated manufacturing overhead
costs to the Packaging Department work in process inventory.
$43,000 $43,000 × $0.80 = $34,400× $0.80 = $34,400
Process Cost System Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
WIP Packaging
+
Manufacturing Overhead
34,400 + (34,400) = N/A + N/A N/A – N/A = N/A
Assets
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Event 13Janis finished packaging some of the juice and transferred the related cost from the Packaging
Department work in process inventory account to the finished goods inventory account.
Equivalent
Units Cost
per Unit Cost to be Allocated
Transferred-out costs 480,000 × 0.69$ = 331,200$ Ending inventory 27,000 × 0.69 = 18,630
349,830$
Process Cost System Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
WIP Packaging
+
Finished Goods
(331,200) + 331,200 = N/A + N/A N/A – N/A = N/A
Assets
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Event 14Janis paid $106,330 cash for actual overhead costs.
Process Cost System Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.
Cash +
Manufacturing Overhead
(106,330) + 106,330 = N/A + N/A N/A – N/A = N/A
Assets
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Event 15Janis sold 490,000 cans of juice for $1 per can.
Process Cost System Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.490,000 = N/A + 490,000 490,000 – N/A = 490,000 Assets
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Event 16Janis recognized cost of goods sold for the 490,000
cans of juice sold.
490,000 × $0.69 = $338,100
Process Cost System Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.(338,100) = N/A + (338,100) N/A – 338,100 = (338,100) Assets
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Event 17Janis paid $78,200 cash for selling and
administrative expenses.
Process Cost System Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.(78,200) = N/A + (78,200) N/A – 78,200 = (78,200) Assets
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Event 18Janis closed the Manufacturing Overhead account and increased the Cost of Goods Sold account by $3,130.
Process Cost System Illustrated
= Liab. + Equity Rev. – Exp. = Net Inc.(3,130) = N/A + (3,130) N/A – 3,130 = (3,130) Assets
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The ending trial balance for JanisJuice Company is shown below:
Debit CreditCash 412,470$ Raw materials - fruit 6,080 Raw materials - additives 8,700 Raw materials - containers 6,500 Work in process - extraction 7,480 Work in process - mixing 9,460 Work in process - packaging 18,630 Finished goods inventory 13,800 Common stock 180,000$ Retained earnings 232,550 Sales revenue 490,000 Cost of goods sold 341,230 Selling and administrative expense 78,200 Total 902,550$ 902,550$
Janis Juice CompanyTrial Balance
As of December 31, 2009
Process Cost System Illustrated
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End of Chapter 12