1. Cost Management ACCOUNTING AND CONTROL
HANSEN & MOWEN

2. Product and Service Costing: Job-Order System
CHAPTER 5
Product and Service Costing: Job-Order System

3. 1 Manufacturing Firms versus Service Firms
OBJECTIVE 1
Manufacturing Firms versus Service Firms
Manufacturing involves joining together direct materials, direct labor, and overhead to produce a new product. The product is tangible and can be inventoried.
A service is intangible. It cannot be separated from the customer and cannot be inventoried.
Managers must be able to track the costs of services rendered just as precisely as they must track the costs of goods manufactured.

4. 1 Manufacturing Firms versus Service Firms
OBJECTIVE 1
Manufacturing Firms versus Service Firms
Features of Service Firms and Their Interface with the Cost Management System

5. Unique versus Standardized Products and Services
OBJECTIVE 1
Manufacturing Firms versus Service Firms
Unique versus Standardized Products and Services
Firms that produce unique products in small batches that incur different product costs must track the costs of each product or batch separately. This is called a job-order costing system.
Examples: Cabinet makers, home builders, dental and medical services

6. Unique versus Standardized Products and Services
OBJECTIVE 1
Manufacturing Firms versus Service Firms
Unique versus Standardized Products and Services
Some firms produce identical units of the same product. The costs of each unit are also the same. This is called a process-costing costing system.
Examples: Food, cement, petroleum and chemicals

7. Setting Up the Cost Accounting System
OBJECTIVE 2
Setting Up the Cost Accounting System
Relationship of Cost Accumulation, Cost Measure- ment, and Cost Assignment
The cost accounting system must satisfy the needs for cost accumulation, cost measurement and cost assignment.

8. Setting Up the Cost Accounting System
OBJECTIVE 2
Setting Up the Cost Accounting System
Cost accumulation refers to the recognition and recording of costs. Source documents can be designed to supply information that can be used for multiple purposes.
Cost measurement refers to classifying the costs and determining the dollar amounts for direct materials, direct labor and overhead.
Cost measurement methods:
Actual costing
Normal costing

9. Setting Up the Cost Accounting System
OBJECTIVE 2
Setting Up the Cost Accounting System
Cost assignment occurs after costs have been accumulated and measured. Total product costs associated with the units is divided by the number of units produced to determine unit cost.
Unit costs in manufacturing firms are used for:
Valuing inventory
Determining income
Decision making
Unit costs in nonmanufacturing firms are used for:
Determining profitability
Determining feasibility of new services

10. Setting Up the Cost Accounting System
OBJECTIVE 2
Setting Up the Cost Accounting System
Unit cost is made up of
direct materials
direct labor
overhead
traced directly to units
Overhead is applied using a predetermined rate based on budgeted overhead costs and budgeted amount of driver. Commonly used drivers include:
Units produced
Direct labor hours
Direct labor dollars
Machine hours
Direct materials dollars or cost

11. Setting Up the Cost Accounting System
OBJECTIVE 2
Setting Up the Cost Accounting System
Activity level must be predicted for the coming year to calculate the predetermined overhead rate.
Four different measure of activity level:

12. Overview of the Job-Order Costing System
OBJECTIVE 3
The Job-Order Costing System: General Description
Overview of the Job-Order Costing System
Job-order industries produce a wide variety of products or jobs that are distinct.
Costs are accumulated by job in a job-order costing system. Each job is documented on a job-order cost sheet.
Total manufacturing costs for the job are divided by the number of units produced to determine unit cost.
The work-in-process inventory is the collection of all job-order cost sheets.

13. The Job-Order Cost Sheet
OBJECTIVE 3
The Job-Order Costing System: General Description
The Job-Order Cost Sheet

14. Materials Requisition Form
OBJECTIVE 3
The Job-Order Costing System: General Description
Materials Requisition Form

15. 3 The Job-Order Costing System: General Description Time Ticket
OBJECTIVE 3
The Job-Order Costing System: General Description
Time Ticket

16. 3 The Job-Order Costing System: General Description
OBJECTIVE 3
The Job-Order Costing System: General Description
Overhead is assigned to jobs using a predetermined overhead rate. The actual amount of the driver used as a base must be collected and recorded.

17. Summary of Direct Materials Cost Flows
OBJECTIVE 4
Job-Order Costing: Specific Cost Flow Description
Summary of Direct Materials Cost Flows = +

18. Summary of Direct Labor Cost Flows
OBJECTIVE 4
Job-Order Costing: Specific Cost Flow Description
Summary of Direct Labor Cost Flows = +

19. Summary of Overhead Cost Flows
OBJECTIVE 4
Job-Order Costing: Specific Cost Flow Description
Summary of Overhead Cost Flows = +

20. Completed Job-Order Cost Sheet
OBJECTIVE 4
Job-Order Costing: Specific Cost Flow Description
Completed Job-Order Cost Sheet

21. Summary of Finished Goods Cost Flows
OBJECTIVE 4
Job-Order Costing: Specific Cost Flow Description
Summary of Finished Goods Cost Flows

22. Statement of Cost of Goods Manufactured
OBJECTIVE 4
Job-Order Costing: Specific Cost Flow Description
Statement of Cost of Goods Manufactured

23. Statement of Cost of Goods Manufactured
OBJECTIVE 4
Job-Order Costing: Specific Cost Flow Description
Statement of Cost of Goods Manufactured

24. Statement of Cost of Goods Manufactured
OBJECTIVE 4
Job-Order Costing: Specific Cost Flow Description
Statement of Cost of Goods Manufactured

25. Statement of Cost of Goods Manufactured
OBJECTIVE 4
Job-Order Costing: Specific Cost Flow Description
Statement of Cost of Goods Manufactured

26. Statement of Cost of Goods Manufactured
OBJECTIVE 4
Job-Order Costing: Specific Cost Flow Description
Statement of Cost of Goods Manufactured

27. Statement of Cost of Goods Sold
OBJECTIVE 4
Job-Order Costing: Specific Cost Flow Description
Statement of Cost of Goods Sold

28. All Signs Company Summary of Manufacturing Cost Flows
OBJECTIVE 4
Job-Order Costing: Specific Cost Flow Description
All Signs Company Summary of Manufacturing Cost Flows

29. 4 Job-Order Costing: Specific Cost Flow Description Income Statement
OBJECTIVE 4
Job-Order Costing: Specific Cost Flow Description
Income Statement

30. 5 Job-Order Costing: Specific Cost Flow Description
OBJECTIVE 5
Job-Order Costing: Specific Cost Flow Description
Departmental Overhead Costs and Activity =
Plantwide overhead rate
$240,000 20,000
= $12 per direct labor hour
Department A overhead rate =
$60,000 15,000
= $4 per direct labor hour
Department B overhead rate =
$180,000 15,000
= $12 per direct labor hour

31. Production Data for Jobs 23 and 24
OBJECTIVE 5
Job-Order Costing: Specific Cost Flow Description
Production Data for Jobs 23 and 24
Job 23 overhead: $12  500 DLH = $6,000
Job 24 overhead: $12  1 DLH = $12

32. Overhead assigned using multiple overhead rates
OBJECTIVE 5
Job-Order Costing: Specific Cost Flow Description
Overhead assigned using multiple overhead rates

33. Overhead assigned using multiple overhead rates
OBJECTIVE 5
Job-Order Costing: Specific Cost Flow Description
Overhead assigned using multiple overhead rates
Compare to overhead assigned using a single overhead rate:
Job 23 overhead: $12  500 DLH = $6,000
Job 24 overhead: $12  1 DLH = $12

34. End of Chapter 5