1. CHAPTER 12 PowerPoint Author: LuAnn Bean, Ph.D., CPA, CIA, CFE Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

2. 12-2 oAccumulates costs by individual products. oCompanies use job-order cost systems when they need to know the costs of individual products or batches of products. oAccumulates costs by individual products. oCompanies use job-order cost systems when they need to know the costs of individual products or batches of products. Cost Systems and Type 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-Order Cost System Process Cost System

3. 12-3 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:  Texaco in its oil refining operations.  Dow Chemical in the manufacture of chemicals.  General Mills in the manufacture of cereal. Process cost systems may be used by:  Texaco in its oil refining operations.  Dow Chemical in the manufacture of chemicals.  General Mills in the manufacture of cereal. Cost Systems and Type of Product

4. 12-4 Begin production Receive orders from customers Order materials Cost Flows Schedule work

5. 12-5 Job-Order Cost Flow Income statement Boat 101 Materials Labor & OH Boat 104 Materials Labor & OH Boat 102 Materials Labor & OH Cost of goods sold Boat 105 Materials Labor & OH Boat 103 Materials Labor & OH Product costs Work in process inventory Finished goods inventory Cost of goods available for sale kept separately for all boats Materials Labor Overhead

6. 12-6 WIP WIP mixing packaging Process Cost Flow 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

7. 12-7 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.

8. 12-8 Documentation in a Job-Order Cost System The primary document for tracking the costs associated with a given job is the job cost sheet. The primary document for tracking the costs associated with a given job is the job cost sheet.

9. 12-9 Documentation in a Job-Order Cost System

10. 12-10 John Smyth Documentation in a Job-Order Cost System

11. 12-11 Documentation in a Job-Order Cost System

12. 12-12 1,400 × $3.90 = $5,460 Documentation in a Job-Order Cost System

13. 12-13 Benchmore started the month of January, 2015, with the following account balances. Job-Order Cost System Illustrated

14. 12-14 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.

15. 12-15 Equivalent Units Two half completed products are equivalent to one completed product. So, 10,000 units 60% complete are equivalent to 6,000 complete units. + = 1

16. 12-16 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

17. 12-17 End of Chapter 12