McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Eighteen Job-Order, Process, and Hybrid Cost Systems

18-2 Learning Objective 1 Distinguish between job-order and process cost systems.

18-3 Job-Order Cost Systems Job-Order Cost System Process Cost System oAccumulates costs by individual products. oCompanies use job-order cost systems when the need to know the costs of individual products or batches of products. oAccumulates costs by individual products. oCompanies use job-order cost systems when the need to know the costs of individual products or batches of products. Job-order cost systems may be used by: 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.

18-4 Job-Order Cost Systems Job-Order Cost System Process Cost System oAllocates costs evenly to homogeneous products. oUnit product cost is determined by dividing the total product cost by the number of units produced during the accounting period. oAllocates costs evenly to homogeneous products. oUnit 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: 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: 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.

18-5 Begin production Receive orders from customers Order materials Cost Flows Schedule jobs

18-6 Learning Objective 2 Identify how product costs flow through a job-order cost system.

18-7 Job-Order Cost Flow Product costs Work-in-process inventory Finished goods inventory Income statement Materials Labor Overhead Cost of goods available for sale kept separately for Boat 101 Boat 102 Boat 103 Boat 101 Materials Labor Overhead Boat 103 Materials Labor Overhead Boat 102 Materials Labor Overhead Cost of goods sold

18-8 Learning Objective 3 Identify how product costs flow through a process cost system.

18-9 Learning Objective 4 Distinguish between raw materials cost and transferred-in cost.

18-10 Process Cost Flows WIP WIP mixing packing Product costs Materials Labor Overhead Income statement Cost of goods sold Finished goods inventory Materials Labor Overhead Transferred- in costs Materials Labor Overhead Cost of goods available for sale

18-11 Learning Objective 5 Explain how hybrid accounting systems combine components of job-order and process cost systems.

18-12 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.

18-13 Learning Objective 6 Identify the various forms of documentation used in a job-order cost system.

18-14 Documentation in a Job-Order Cost System job cost sheet The primary document for tracking the costs associated with a given job is the job cost sheet.

18-15 Documentation in a Job-Order Cost System

18-16 Documentation in a Job-Order Cost System John Smyth

18-17 Documentation in a Job-Order Cost System

18-18 Documentation in a Job-Order Cost System 1,400 × $3.90 = $5,460

18-19 Documentation in a Job-Order Cost System Benchmore started the month of January, 2003, with the following account balances.

18-20 Learning Objective 7 Explain how accounting events in a job- order cost system affect financial statements.

18-21 Documentation in a Job-Order Cost System Event 1 Benchmore Boat Company paid $14,000 cash to purchase raw materials.

18-22 Documentation in a Job-Order Cost System Event 2 Benchmore used $17,000 of raw materials in the process of making boats.

18-23 Documentation in a Job-Order Cost System Event 3 Benchmore paid $1,200 cash to purchase production supplies.

18-24 Documentation in a Job-Order Cost System Event 4 Benchmore paid $8,000 cash to production employees who worked on Boat 103.

18-25 Documentation in a Job-Order Cost System Event 5 Benchmore applied estimated manufacturing overhead costs of $6,240 to the Boat 103 job. Predetermined overhead rate Total estimated overhead costs Total estimated direct labor hours =÷ $15,990 ÷ 4,100 = $3.90 per direct labor hour

18-26 Documentation in a Job-Order Cost System Event 6 Benchmore transferred $36,240 of product costs for completed Boat 103 from work-in-process inventory to finished goods inventory.

18-27 Documentation in a Job-Order Cost System Event 7 Benchmore paid $24,500 cash for selling and administrative expenses.

18-28 Documentation in a Job-Order Cost System Event 8 Benchmore paid $12,000 cash to production employees for work on Boats 104 and 105.

18-29 Documentation in a Job-Order Cost System Event 9 Benchmore applied estimated manufacturing overhead costs to Boat 104 and 105.

18-30 Documentation in a Job-Order Cost System Event 10 Benchmore paid $10,100 cash for utilities and other indirect production costs.

18-31 Documentation in a Job-Order Cost System Event 11 Benchmore recognized $4,000 of actual manufacturing equipment depreciation.

18-32 Documentation in a Job-Order Cost System Event 12 Benchmore counted the supplies on hand at year-end and recognized actual overhead cost for the supplies used.

18-33 Documentation in a Job-Order Cost System Event 13 Benchmore sold Boat 101 for $91,000 cash.

18-34 Documentation in a Job-Order Cost System Event 14 Benchmore recognized cost of goods sold for Boat 101.

18-35 Documentation in a Job-Order Cost System Event 15 Benchmore closed the Manufacturing Overhead account, reducing cost of goods sold by $400.

18-36 Documentation in a Job-Order Cost System

18-37 Learning Objective 8 Explain how accounting events in a process cost system affect financial statements.

18-38 Process Cost System 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.

18-39 Process Cost System The company’s trial balance as of January 1, 2003, is shown below:

18-40 Process Cost System Event 1 Janis paid $84,000 cash to purchase raw materials.

18-41 Process Cost System Event 2 Janis processed $26,720 of whole fruit to produce juice extract.

18-42 Process Cost System Event 3 Janis paid $38,000 cash to production employees who worked in the Extraction Department.

18-43 Process Cost System Event 4 Janis applied estimated manufacturing overhead costs to the Extraction Department work-in-process inventory. Predetermined overhead rate Total estimated overhead costs Total estimated direct labor dollars =÷ $96,000 ÷ $120,000 = $0.80 per direct labor dollar

18-44 Learning Objective 9 Convert partially completed units into equivalent whole units.

18-45 Process Cost System Event 5 Janis 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 account. Cost per equivalent unit = Total cost Number of equivalent whole units = $0.22 per equivalent unit $117, ,000

18-46 Process Cost System Event 5 Janis 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 account.

18-47 Process Cost System Event 6 Janis mixed (used) $24,400 of additives with the extract transferred from the Extraction Department.

18-48 Process Cost System Event 7 Janis paid $48,000 cash to production employees who worked in the Mixing Department.

18-49 Process Cost System Event 8 Janis applied estimated manufacturing overhead costs to the Mixing Department work-in-process inventory. $48,000 × $0.80 = $38,400

18-50 Process Cost System Event 9 Janis 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.

18-51 Process Cost System Event 10 Janis added containers and other packaging materials costing $32,000 to work-in-process in the Packaging Department.

18-52 Process Cost System Event 11 Janis paid $43,000 cash to production employees who worked in the Packaging Department.

18-53 Process Cost System Event 12 Janis applied estimated manufacturing overhead costs to the Packaging Department work-in-process inventory. $43,000 × $0.80 = $34,400

18-54 Process Cost System Event 13 Janis 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.

18-55 Process Cost System Event 14 Janis paid $106,330 cash for actual overhead costs.

18-56 Process Cost System Event 15 Janis sold 490,000 cans of juice for $1 per can.

18-57 Process Cost System Event 16 Janis recognized cost of goods sold for the 490,000 cans of juice sold. 490,000 × $0.69 = $338,100

18-58 Process Cost System Event 17 Janis paid $78,200 cash for selling and administrative expenses.

18-59 Process Cost System Event 18 Janis closed the Manufacturing Overhead account and increased the Cost of Goods Sold account by $3,130.

18-60 Process Cost System The ending trial balance for Janis Juice Company is shown below:

18-61 End of Chapter Eighteen