job order costing sakhr bany khaled [email protected] al-albayt university - accounting department
TRANSCRIPT
Cost Accounting Systems
Cost accounting involves the:Measuring,
Recording, and Reporting of product costs.
From accumulated data, companies determine both the total cost and the unit cost of each product.
The accuracy of the product cost information is critical to company success.
Product cost information helps determine which product to produce, the amount to produce, and what price to charge.
Vital for effective evaluation of employee performance.Consists of accounts for the various manufacturing costs.
Such accounts are fully integrated into the general ledger system.
Explain the characteristics and purposes of cost accounting.
Cost Accounting Systems
There are two basic types of cost accounting systems:
Explain the characteristics and purposes of cost accounting.
Job Order Cost System
Costs are assigned to each job or batch of goods.
Job: Making a movie by DisneyBatch: 225 wedding invitations for Mary
A job may be for a specific order or for inventory.
A key feature:Each job or batch has its own distinguishing characteristics .
The objective: to compute the cost per job.
Measures costs for each job completed – not for set time periods.
Process Cost System
Used when a large volume of similar products are manufactured -
Cereal, Automobiles, Compact Discs, Paint.
Production is continuous.
Costs are accumulated for a specific time period –
A week or a month .
Costs are assigned to departments or processes for a set period of time.
Explain the characteristics and purposes of cost accounting.
Process Cost System
Explain the characteristics and purposes of cost accounting.
اإلنتاجية األوامر تكاليف نظام بين مقارنةالمراحل تكاليف ونظام
تكاليف نظامالمراحل
تكاليف نظاماإلنتاجية األوامر
المجال
على تعتمد شركاتمحددة مواصفاتقبل من مسبقا
الشركة
في تعتمد شركاتأو التصنيع عملية
على الخدمة تقديممن محددة مواصفات
الزبائن
المستخدمة المنشاتللنظام
مواصفات على بناءمسبقا محددة
متطلبات على بناءالزبائن
أو المنتج مواصفاتالخدمة
اإلنتاج مراحل الطلبيات أو األوامراحتساب مجال
التكلفة
كبيرة بكميات تنتجوتخزن
طلبيات ضوء فيالزبائن
اإلنتاج كميات
التصنيع لمرحلة إنتاجي ألمر االنحرافات قياس
Job Order Cost Flow
The flow of costs – direct materials, direct labor, manufacturing overhead - parallels the physical flow of the materials as they are converted into finished goodsManufacturing costs are assigned to Work in Process. An Asset Account
Cost of completed jobs is transferred to Finished Goods. An Asset Account
When units are sold, the cost is transferred to Cost of Goods Sold. An Expense Account.
Describe the flow of costs in a job order costing system.
Job Order Cost Flows - Overview
Describe the flow of costs in a job order costing system.
لغايات وذلك التصنيع درجة حيث من اإلنتاجية األوامر تصنفالمحاسبية : المعالجة
بتصنيعها 1. البدء بعد يتم ولم المنشاة على إحالتها تمت أوامر
بعد 2. تنتهي ولم بتصنيعها البدء تم أوامر
للعميل 3. إلى التسليم وتنظر تصنيعها من االنتهاء تم أوامر
Job Order Cost System
Describe the flow of costs in a job order costing system.
Job Order Cost Flow
Accumulate the manufacturing costs incurred:
Raw Materials,Factory Labor, and
Manufacturing Overhead.
Assign the accumulated costs to the work done.
Two Major Steps in Flows of Costs
Describe the flow of costs in a job order costing system.
Accumulating Manufacturing Cost
Raw Materials are debited to Raw Materials Inventory when purchased.
At this point, the cost of materials are not assigned to specific jobs or orders.
Raw Materials Costs
Explain the flow of costs in a job order costing system.
Example:
On January 4, Wallace Manufacturing Company purchases 2,000 handles at $5 per unit ($10,000) and 800 modules at $40 per unit ($32,000) for a total cost of $42,000 on account .
Accumulating Manufacturing Cost
Consists of:Gross earnings of factory workers,Employer payroll taxes on such earnings,
andFringe benefits incurred by the employer.
Companies debit labor costs to Factory Labor as they incur these costs.
Factory Labor Costs
Explain the flow of costs in a job order costing system.
Accumulating Manufacturing Cost
Factory Labor Costs (Continued)
Explain the flow of costs in a job order costing systems.
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.
Accumulating Manufacturing Cost
Many types of overhead costsFor example, machinery repairs, property
taxes, depreciation , insurance indirect materials, and indirect labor
Debit to Manufacturing Overhead Daily as incurred orPeriodically through adjusting entries.
Manufacturing Overhead Costs
Explain the flow of costs in a job order costing system.
Accumulating Manufacturing Cost
Manufacturing Overhead Costs - Continued
Explain the flow of costs in a job order costing system.
Example:Using assumed data, The following is a summary entry to record the totals
from multiple transactions that occurred during January for the Wallace Manufacturing Company.
Assigning Manufacturing Costs to Work In Process
Manufacturing costs are assigned to Work in Process with:
Debits to Work in Process Inventory
Credits to Raw Materials InventoryFactory LaborManufacturing Overhead
An essential accounting record in assigning costs to jobs is a job cost sheet.
Explain the nature and importance of a job cost sheet.
Assigning Manufacturing Costs to Work In Process
Job cost sheet
Used to record costs of a specific job.
Used to determine the total and unit costsof a completed job.
Postings to job cost sheets are made daily.
The job cost sheet is the subsidiary ledger for the control account Work in Process.
Each entry to a Work in Process Inventory must be accompanied by a corresponding posting to one or more job cost sheets.
Explain the nature and importance of a job cost sheet.
Assigning Manufacturing Costs to Job Cost Sheet
Explain the nature and importance of a job cost sheet.
Assigning Manufacturing Costs to Work In Process
Assigning Raw Materials Cost
Assigned to a job when materials are issued.
A materials requisition slip.Written authorization for issuing raw materials.
May be directly issued to use on a job - direct materials.
May be considered indirect materials– part of manufacturing
overhead.
Explain the nature and importance of a job cost sheet.
Assigning Manufacturing Costs to Work In Process
Materials Requisition Slip
Explain the nature and importance of a job cost sheet.
Assigning Manufacturing Costs to Work In Process
Assigning Raw Materials Cost
May use any of the inventory costing methods (FIFO, LIFO, Average Cost) in costing the requisitions to the job cost sheets.
Posted daily to individual job cost sheets and periodically journalized.
Explain the nature and importance of a job cost sheet.
Example:Assume that $24,000 of direct materials and $6,000 of indirect materials are used by Wallace Manufacturing in January.
Assigning Manufacturing Costs to Work In Process
Explain the nature and importance of a job cost sheet.
Assigning Raw Materials
Cost
The sum of the direct materials
columns of the job cost sheets should
equal the direct materials debited to Work in Process
Inventory.
Assigning Manufacturing Costs to Work In Process
Assigning Factory Labor Cost
Assigned to jobs on the basis of time tickets.
Time tickets are prepared when the work is performed.
Time tickets indicate:Employee,Hours worked,Account and job charged, andTotal labor cost.
Explain the nature and importance of a job cost sheet.
Assigning Manufacturing Costs to Work In Process
Assigning Factory Labor
Time tickets are sent to payroll to be sorted, totaled, and journalized.
Work in Process is debited for direct labor costs.
Manufacturing Overhead is debited for indirect labor costs.
Explain the nature and importance of a job cost sheet.
Example:Assume that total factory labor cost is $32,000 of total factory labor cost which consists of $28,000 of direct labor cost and $4,000 of indirect labor cost.
Assigning Manufacturing Costs to Work In Process
Time Ticket
Explain the nature and importance of a job cost sheet.
Assigning Manufacturing Costs to Work In Process
Explain the nature and importance of a job cost sheet.
Job Cost Sheets After Posting
The sum of the direct labor
columns of the job cost sheets
should equal the direct labor
debited to Work in Process Inventory.
Assigning Manufacturing Costs to Work In Process
Assigning Manufacturing Overhead
Unlike direct materials and direct labor, manufacturing overhead relates to production operations as a whole.
Cannot be assigned to specific jobs based on actual costs incurred but must be assigned to work in process and to specific jobs on an estimated basis through the use of a …
Indicate how the predetermined overhead rate is determined and used.
Predetermined Overhead Rate
Assigning Manufacturing Costs to Work In Process
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, and
Any other activity that is an equitable base for applying overhead costs to jobs.
Indicate how the predetermined overhead rate is determined and used.
Predetermined Overhead Rate
Assigning Manufacturing Costs to Work In Process
Indicate how the predetermined overhead rate is determined and used.
Assigning Manufacturing Costs to Work In Process
Assigning Manufacturing Overhead
Assigned to Work in Process during the period to get timely information about the cost of a completed job.
Current trend is to use machine hours as the activity base due to increased automation in manufacturing operations.
Indicate how the predetermined overhead rate is determined and used.
Assigning Manufacturing Costs to Work In Process
Example:Wallace Manufacturing uses direct labor cost as the activity
base.
Estimated annual costs:Overhead costs $280,000Direct labor costs $350,000
The predetermined overhead rate is $280,000 ÷ $350,000 = 80%.
Overhead applied is $22,400 ($28,000 January direct labor costs × 80%)
and recorded as follows:
Indicate how the predetermined overhead rate is determined and used.
Assigning Manufacturing Costs to Work In Process
Indicate how the predetermined overhead rate is determined and used.
Assigning Manufacturing
Overhead
The sum of the manufacturing
overhead columns of the job cost sheets should
equal the manufacturing
overhead debited (i.e., applied) to Work in Process
Inventory.
Assigning Manufacturing Costs to Work In Process
Indicate how the predetermined overhead rate is determined and used.
At the End of Each Month:
The balance in the Work in Process Inventory should equal the sum of the costs shown on the job cost sheets of unfinished jobs.
Assigning Costs to Finished Goods
Prepare entries for jobs completed and sold.
When a job is
completed, the costs
are summarized and the job cost sheet is
completed.
Assigning Costs to Finished Goods
The entry for Wallace Manufacturing to transfer its total cost to Finished Goods Inventory is:
Finished Goods Inventory is a control account.
Prepare entries for jobs completed and sold.
Assigning Costs to Cost of Goods Sold
Cost of goods sold is recognized when a sale occurs.
Example:On January 31 Wallace Manufacturing sells Job No. 101, costing $39,000, for $50,000.
Prepare entries for jobs completed and sold.
Summary of Job Order Cost Flows
Prepare entries for jobs completed and sold.
Summary of Document Flows in a Job Order Cost System
Prepare entries for jobs completed and sold.
Job Order Costing:
Is more precise in assignment of costs to products.
Provides more information for determining profitability of a particular product.
Provides more useful information for estimating costs on future jobs.
Advantages of Job Order Costing
Prepare entries for jobs completed and sold.
Job Order Costing:
Requires a significant amount of data entry which requires time and money.
Produces inaccurate costs of products if data is entered incorrectly.
Disadvantages of Job Order Costing
Prepare entries for jobs completed and sold.
Reporting Job Cost Data
The cost of goods manufactured schedule shows manufacturing overhead applied rather than actual overhead costs.Applied overhead is added to direct materials and direct labor to determine total manufacturing costs.
Prepare entries for jobs completed and sold.
Under- or Overapplied Manufacturing Overhead
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.
Distinguish between under- and overapplied manufacturing overhead.
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 CGS.
Overapplied overhead is credited to CGS.
Distinguish between under- and overapplied manufacturing overhead.
Example:
Wallace Manufacturing Company has a $2,500 credit balance in Manufacturing Overhead at December 31. The adjusting entry for the overapplied overhead is:
Base Calculation
DL Cost $900,000 ÷ $500,000 = 180 %
DL Hours $900,000 ÷ 50,000 = $18/DL hour
Machine Hrs $900,000 ÷ 100,000 = $9/Mach hour
Marquis Company estimates that annual manufacturing overhead costs will be $900,000. Estimated annual operating activity bases are: Direct labor cost $500,000; Direct labor hours 50,000; and Machine hours 100,000. Compute the predetermined overhead rate for each activity base.
Work in Process Inventory 16,200
Raw Materials Inventory 16,200
Work in Process Inventory 12,000
Factory Labor 12,000
Work in Process Inventory 14,200
Manufacturing Overhead 14,200
Milner Company is working on two job orders. The job cost sheets shows the following:
JOB 201 JOB 202Direct Materials $ 7,200 $9,000Direct Labor $ 4,000 $8,000Manufacturing Overhead $5,200 $9,000Prepare the three summary entries to record the assignment of the costs to Work in Process from the data on the job cost sheets.
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