Managerial Accounting Second Edition Weygandt / Kieso / Kimmel Prepared by: Ellen L. Sweatt Georgia Perimeter College ELS

Job Order Cost Accounting

Cost Accounting An area of accounting that involves: Measuring Recording Reporting PRODUCT COSTS

Why Do We Need Product Costs? To determine: Which products to produce? What price to charge? What amounts to produce? What evaluation to give employees?

Cost Accounting System Manufacturing cost accounts that are fully integrated into the general ledger of the company. Perpetual inventory system used to provide, immediate up-to-date information on cost of product.

Two Cost Accounting Systems Job Order Cost System Process Cost System

Job Order System A cost accounting system where costs are assigned to each job or batch of goods. Custom built factory Production of movie Batch of menus Audit engagement

Job Order Cost System Two Jobs: Wedding Invitations and Menus $ $ $ Illustration 2-1 Job Order Cost System Two Jobs: Wedding Invitations and Menus Job #9501 Black ink $ Typesetting $ 225 Invitations $ 225 Envelopes $ Vellum stock $ $ Colored Ink $ Job #9502 Typesetting Yellow Stock Yellow stock Lamination$ 50 Copies $ $ Each job has distinguishing characteristics and related costs.

Process Cost System A system of accounting used by companies that manufacture Relatively homogeneous (same or similar) products Through a series of continuous processes or operations.

Compact Disc Production Illustration 2-2 Process Cost System Compact Disc Production 1. Oil is pumped. 2. Benzene is removed. 3. The benzene is made into pellets... 4. ...from which compact discs are made. Relatively similar products are produced over a specified time period.

Illustration 2-3 Job Order Cost Flow

Job Order Cost Accounting Illustration 2-4 Job Order Cost Accounting

Two Major Steps in Flows of Costs Accumulating the manufacturing costs incurred Raw materials inventory Factory Labor Manufacturing Overhead Assigning the accumulated costs to the work done

Material Inventory Record Illustration 2-5 Each individual item of raw materials has a card or record. The sum of the balances of all these records should equal raw materials in the general ledger.

Summary Entry A journal entry that summarizes the total from multiple transactions.

Accumulating Manufacturing Costs Date Account Titles and Explanation Debit Credit (3) Jan. 31 Manufacturing Overhead Utilities Payable Prepaid Insurance Accounts Payable - for repairs Accumulated Depreciation Property Taxes Payable (To record overhead costs) 13,800 4,800 2,000 2,600 3,000 1,400 (2) Factory Labor Factory Wages Payable Employer Payroll Taxes Payable (To record factory labor costs) 32,000 27,000 5,000 (1) Jan. 4 Raw Materials Inventory Accounts Payable (Purchase of raw materials on account) 42,000

Illustration 2-6 Job Cost Sheet A form used to record the costs chargeable to a job to determine: the total and unit cost of the completed job.

Materials Requisition Slip Illustration 2-7 Materials Requisition Slip A document authorizing the issuance of raw materials from the store to production. Wallace Manufacturing Company Materials Requisition Slip Deliver to: Assembly Department Req. No. R247 Charge to: Work in Process – Job No. 101 Date 1/6/96 Quantity Description Stock No. Cost Per Unit Total 200 Handles AA2746 $5.00 $1,000 Requested by: Received by: Approved by: Costed by:

Job Cost Sheets – Direct Materials Illustration 2-8 Job Cost Sheets – Direct Materials

Illustration 2-10 Time Ticket A document that indicates the employee, the hours worked, the account and the job to be charged, and the total labor cost. Bob Kadler M.Cher

Job Cost Sheets – Direct Labor Illustration 2-11 Job Cost Sheets – Direct Labor

Predetermined Overhead Rate Illustration 2-12 Predetermined Overhead Rate A rate based on the relationship between estimated annual overhead costs and expected annual operating activity, expressed in terms of a common activity base. Estimated Annual Overhead Costs Expected Annual Operating Activity ÷ = Predetermined Overhead Rate

Using Predetermined Overhead Rate Illustration 2-13 Using Predetermined Overhead Rate X Activity Base Predetermined Overhead Rate is assigned to Work in Process Job 1 Job 2 Job 3

Job Cost Sheets – Manufacturing Overhead Applied Illustration 2-14 Job Cost Sheets – Manufacturing Overhead Applied

Assigning Manufacturing Costs Date Account Titles and Explanation Debit Credit (4) Jan. 31 Work in Process Inventory Manufacturing Overhead Raw Materials Inventory (To assign materials to jobs and overhead) 24,000 6,000 30,000 (5) Factory Labor (To assign labor to jobs and overhead) 28,000 4,000 32,000 (6) (To assign overhead to jobs) 22,400

Jobs Completed and Sold Date Account Titles and Explanation Debit Credit (1) Jan. 31 Accounts Receivable Sales Cost of Goods Sold To record cost of Job 101A 24,000 18,000 Finished Goods Inventory To record sale of Job 101A

Job Order Cost Accounting Illustration 2-18 Job Order Cost Accounting Flow of Costs Key to Entries: 7 5 8 4 6

Underapplied Overhead A situation in which overhead assigned to work in process is less than the overhead incurred.

Overapplied Overhead A situation in which overhead assigned to work in process is greater than the overhead incurred.

Under- or Overapplied Manufacturing Overhead Year-End Balance- adjust to Cost of Goods Sold Date Account Titles and Explanation Debit Credit (5) Dec. 31 Manufacturing Overhead 2,500 2,500 Cost of Goods Sold (To transfer overapplied overhead to cost of goods sold)

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