1. C1 - 1 Learning Objectives Power Notes 1.Differences Between Managerial and Financial Accounting 2.The Management Accountant in the Organization 3.Manufacturing Cost Terms 4.Cost Accounting System Overview 5.Job Order Cost Systems for Manufacturing Businesses 6.Job Order Costing for Decision Making 7.Job Order Cost Systems for Service Businesses Chapter M1 C1 Introduction to Managerial Accounting and Introduction to Managerial Accounting and Job Order Cost Systems Job Order Cost Systems

2. C1 - 2 Chapter M1 Financial and Managerial Accounting Manufacturing Costs Cost Accounting Systems Materials, Labor, Factory Overhead Predetermined Factory Overhead Journal Entries in a Job Order Cost System Slide # Power Note Topics Note: To select a topic, type the slide # and press Enter. Power Notes 3 10 18 29 33 51 Introduction to Managerial Accounting and Introduction to Managerial Accounting and Job Order Cost Systems Job Order Cost Systems

3. C1 - 3 Financial Accounting Managerial Accounting Usefulness to External Users Usefulness to External Users Usefulness to Usefulness toManagement Management Reports Based Primarily On Financial and Managerial Accounting

4. C1 - 4 Financial Accounting Managerial Accounting ShareholdersCreditorsGovernment General Public ManagementShareholdersCreditorsGovernment ManagementManagementManagement Users of Accounting Information Financial and Managerial Accounting

5. C1 - 5 Financial Accounting Managerial Accounting Objective Objective Standard reporting format according to generally accepted accounting principles Standard reporting format according to generally accepted accounting principles Objective and Objective andsubjective subjective Flexible reporting formats according to management needs Flexible reporting formats according to management needs Reporting Characteristics Reports prepared to provide information about the business as a whole Reports prepared to provide information about the business as a whole Reports prepared to provide information about business segments, divisions, products, etc. Reports prepared to provide information about business segments, divisions, products, etc. Financial and Managerial Accounting

6. C1 - 6 President, CEO Board of Directors Vice-President Finance, CFO Vice-President Finance, CFO Vice-President Sales Vice-President Sales Vice-President Personnel Vice-President Personnel Vice-President Production Vice-President Production Organization Chart – Line and Staff Responsibilities

7. C1 - 7 President, CEO Board of Directors Vice-President Finance, CFO Vice-President Finance, CFO Vice-President Sales Vice-President Sales Vice-President Personnel Vice-President Personnel Vice-President Production Vice-President Production Manager Conyers Plant Manager Conyers Plant Manager Union Point Plant Manager Union Point Plant Manager Norcross Plant Manager Norcross Plant Controller Treasurer Organization Chart – Line and Staff Responsibilities

8. C1 - 8 President, CEO Board of Directors Vice-President Finance, CFO Vice-President Vice-President Sales Vice-President SalesVice-PresidentPersonnelVice-PresidentPersonnel Vice-President Production Vice-President Production Manager Conyers Plant Manager Conyers Plant Manager Union Point Plant Manager Union Point Plant Manager Norcross Plant Manager Norcross Plant Controller Controller Treasurer Treasurer Staff responsibilities Staff responsibilities Line responsibilities Organization Chart – Line and Staff Responsibilities

9. C1 - 9 President, CEO Board of Directors Vice-President Finance, CFO Vice-President Finance, CFO Vice-PresidentSalesVice-PresidentSales Vice-President Personnel Vice-President PersonnelVice-PresidentProductionVice-PresidentProduction Manager ManagerConyersPlant ConyersPlant Union Point Plant Manager Manager Union Point Plant Manager ManagerNorcrossPlant NorcrossPlant Controller Treasurer Staff responsibilities Line responsibilities Line responsibilities Organization Chart – Line and Staff Responsibilities

10. C1 - 10 Cost Classifications PeriodCostsPeriodCosts Selling Expenses Selling Expenses Administrative Expenses Administrative Expenses Direct Materials Direct Materials Factory Overhead Factory Overhead Direct Labor Direct Labor ProductCostsProductCosts

11. C1 - 11 Manufacturing Costs 1. Enters directly into the product. 2.Is significant amount of total product cost. 1.Enters directly into manufacturing the product. 2.Is significant amount of total product cost. Cost other than direct materials cost and direct labor cost incurred in the manufacturing of product. Direct Materials: Direct Materials: Direct Labor: Direct Labor: Factory Overhead: Factory Overhead:

12. C1 - 12 Manufacturing Cost Flows and Classifications Manufacturing Cost Flows and Classifications Product Costs Materials Purchases Materials Purchases Period Costs Direct Labor Direct Labor Factory Overhead Selling and Administrative Selling and Administrative Costs Balance Sheet Income Statement

13. C1 - 13 Balance Sheet Materials Inventory Materials Inventory Manufacturing Cost Flows and Classifications Manufacturing Cost Flows and Classifications Product Costs Materials Purchases Materials Purchases Period Costs Income Statement Direct Labor Direct Labor Factory Overhead Selling and Administrative Selling and Administrative Costs

14. C1 - 14 Work in Process Inventory Work in Process Inventory Balance Sheet Materials Inventory Materials Inventory Manufacturing Cost Flows and Classifications Manufacturing Cost Flows and Classifications Product Costs Materials Purchases Materials Purchases Period Costs Income Statement Direct Labor Direct Labor Factory Overhead Selling and Administrative Selling and Administrative Costs

15. C1 - 15 Finished Goods Inventory Finished Goods Inventory Work in Process Inventory Work in Process Inventory Balance Sheet Materials Inventory Materials Inventory Manufacturing Cost Flows and Classifications Manufacturing Cost Flows and Classifications Product Costs Materials Purchases Materials Purchases Period Costs Income Statement Direct Labor Direct Labor Factory Overhead Selling and Administrative Selling and Administrative Costs Cost of Goods Manufactured

16. C1 - 16 Cost of Goods Sold Cost of Goods Sold Finished Goods Inventory Finished Goods Inventory Work in Process Inventory Work in Process Inventory Balance Sheet Materials Inventory Materials Inventory Manufacturing Cost Flows and Classifications Manufacturing Cost Flows and Classifications Product Costs Materials Purchases Materials Purchases Period Costs Income Statement Direct Labor Direct Labor Factory Overhead Selling and Administrative Selling and Administrative Costs Product costs flow through the balance sheet to the income statement

17. C1 - 17 Selling and Administrative Selling and Administrative Cost of Goods Sold Cost of Goods Sold Finished Goods Inventory Finished Goods Inventory Work in Process Inventory Work in Process Inventory Balance Sheet Materials Inventory Materials Inventory Manufacturing Cost Flows and Classifications Manufacturing Cost Flows and Classifications Product Costs Materials Purchases Materials Purchases Period Costs Income Statement Direct Labor Direct Labor Factory Overhead Selling and Administrative Selling and Administrative Costs Period costs flow directly to the income statement

18. C1 - 18 Cost Accounting Systems Information to manage manufacturing operations. 1.Product costs to be used for pricing and other management decisions. 2.Costs incurred by each department or process to be used for cost control. 3.Inventory and Cost of Goods Sold balances to be reported on financial statements. Focus Focus Information Provided Information Provided

19. C1 - 19 Cost Accounting Systems 1. Many different jobs are worked on during each period and unit costs are computed by job. 2.Costs are accumulated using a job cost sheet. 1.A single product is produced on a continuous basis and unit costs are computed by department. 2.Costs are accumulated and reported using a departmental production report. Job Order Cost System Job Order Cost System Process Cost System Process Cost System

20. C1 - 20 Flow of Costs in Perpetual Inventory Accounts DM Materials Work in Process Finished Goods Wages Payable Factory Overhead Cost of Goods Sold DM Materials Purchased Total Wages Direct materials used in productionDM

21. C1 - 21 Flow of Costs in Perpetual Inventory Accounts DM Materials Work in Process Finished Goods Wages Payable Factory Overhead Cost of Goods Sold IM DM IM Materials Purchased Total Wages Indirect materials used in production IM

22. C1 - 22 Flow of Costs in Perpetual Inventory Accounts DM Materials Work in Process Finished Goods Wages Payable DL Factory Overhead Cost of Goods Sold IM DM IM DL Materials Purchased Total Wages Direct labor used in productionDL

23. C1 - 23 Flow of Costs in Perpetual Inventory Accounts DM Materials Work in Process Finished Goods Wages Payable DL Factory Overhead Cost of Goods Sold IM IL DM IM DL IL Materials Purchased Total Wages Indirect labor used in production IL

24. C1 - 24 Flow of Costs in Perpetual Inventory Accounts DM Materials Work in Process Finished Goods Wages Payable DL Factory Overhead Cost of Goods Sold IM IL DM IM DL IL Materials Purchased Total Wages Other factory overhead costs incurred during production OFOH OFOH

25. C1 - 25 Flow of Costs in Perpetual Inventory Accounts DM Materials Work in Process Finished Goods Wages Payable DL Factory Overhead Cost of Goods Sold IM IL DM IM DL FOHA IL OFOH Materials Purchased Total Wages Based on predetermined overhead rate FOHA Factory overhead applied to work in processFOHA

26. C1 - 26 Flow of Costs in Perpetual Inventory Accounts DM Materials Work in Process Finished Goods Wages Payable DL Factory Overhead Cost of Goods Sold IM IL DM IM DL FOHA IL OFOH COGMCOGM Materials Purchased Total Wages FOHA Cost of goods manufactured and transferred to finished goodsCOGM

27. C1 - 27 Flow of Costs in Perpetual Inventory Accounts DM Materials Work in Process Finished Goods Wages Payable DL Factory Overhead Cost of Goods Sold IM SOLD IL DM IM DL FOHA IL OFOH COGMCOGM SOLD Materials Purchased Total Wages FOHA Finished goods soldSOLD

28. C1 - 28 Flow of Costs in Perpetual Inventory Accounts DM Materials Work in Process Finished Goods Wages Payable DL Factory Overhead Cost of Goods Sold IM SOLD IL DM IM DL FOHA IL OFOH COGMCOGM SOLD Materials Purchased Total Wages Based on predetermined overhead rate FOHA Summary of cost flows

29. C1 - 29 Materials Information and Cost Flows Job 71 1,000 units of American History Balance$ 3,000 Direct Materials Direct Labor Factory Overhead Job 72 4,000 units of Algebra Direct Materials Direct Labor Factory Overhead Materials Requisitions

30. C1 - 30 Materials Information and Cost Flows Job 71 1,000 units of American History Balance$ 3,000 Direct Materials2,000 Direct Labor Factory Overhead Job 72 4,000 units of Algebra Direct Materials$11,000 Direct Labor Factory Overhead Materials Requisitions

31. C1 - 31 Labor Information and Cost Flows Job 71 1,000 units of American History Balance$ 3,000 Direct Materials2,000 Direct Labor Factory Overhead Job 72 4,000 units of Algebra Direct Materials$11,000 Direct Labor Factory Overhead Time Tickets

32. C1 - 32 Labor Information and Cost Flows Job 71 1,000 units of American History Balance$ 3,000 Direct Materials2,000 Direct Labor3,500 Factory Overhead Job 72 4,000 units of Algebra Direct Materials$11,000 Direct Labor7,500 Factory Overhead Time Tickets

33. C1 - 33 Predetermined Factory Overhead Rates Activity base examples Estimated total factory overhead costs Estimated activity base Predetermined factory overhead rate = 1. Direct labor hours 2. Direct labor dollars 3. Machine hours 4. Direct materials 5. Other

34. C1 - 34 Predetermined Factory Overhead Rates Estimated total factory overhead costs Estimated activity base Predetermined factory overhead rate = Why is the predetermined overhead rate calculated from estimated numbers at the beginning of the period? It is a tradeoff between accuracy and timeliness. If a company waited until the end of an accounting period, when all overhead costs are known, the allocated factory overhead would be accurate but not timely.

35. C1 - 35 Predetermined Factory Overhead Rates Estimated total factory overhead costs Estimated activity base Predetermined factory overhead rate = $50,000 estimated factory overhead costs 10,000 estimated direct labor hours =

36. C1 - 36 Predetermined Factory Overhead Rates Estimated total factory overhead costs Estimated activity base Predetermined factory overhead rate = $50,000 estimated factory overhead costs 10,000 estimated direct labor hours = $5 per direct labor hour

37. C1 - 37 Predetermined Factory Overhead Rates Estimated total factory overhead costs Estimated activity base Predetermined factory overhead rate = $50,000 estimated factory overhead costs 10,000 estimated direct labor hours = $5 per direct labor hour For each direct labor hour worked, factory overhead applied is $5. Job 71350 x $5 = $1,750 Job 72500 x $5 = $2,500 DirectFactory LaborOverhead HoursApplied

38. C1 - 38 Assigning Factory Overhead to Jobs Job 71 1,000 units of American History Balance$ 3,000 Direct Materials2,000 Direct Labor3,500 Factory Overhead Job 72 4,000 units of Algebra Direct Materials$11,000 Direct Labor7,500 Factory Overhead Time Tickets Predetermined Overhead Rates

39. C1 - 39 Assigning Factory Overhead to Jobs Job 71 1,000 units of American History Balance$ 3,000 Direct Materials2,000 Direct Labor3,500 Factory Overhead1,750 Job 72 4,000 units of Algebra Direct Materials$11,000 Direct Labor7,500 Factory Overhead2,500 Time Tickets Predetermined Overhead Rates

40. C1 - 40 Summary of Job Cost Sheets Job 71 1,000 units of American History Balance$ 3,000 Direct Materials2,000 Direct Labor3,500 Factory Overhead1,750 Total Job Cost$10,250 Job 72 4,000 units of Algebra Direct Materials$11,000 Direct Labor7,500 Factory Overhead2,500 $21,000 Total of debits to Work in Process

41. C1 - 41 Recording Factory Overhead Factory Overhead ACTUAL Based on actual costs incurred ACTUAL Based on actual costs incurred $4,400

42. C1 - 42 Recording Factory Overhead Factory Overhead ACTUAL Based on actual costs incurred ACTUAL Based on actual costs incurred $4,400 APPLIED Based on estimated rate ($5 x 850 hrs) APPLIED Based on estimated rate ($5 x 850 hrs) $4,250 What account is charged (debited)? Is factory overhead overapplied or underapplied?

43. C1 - 43 Recording Factory Overhead Factory Overhead ACTUAL Based on actual costs incurred ACTUAL Based on actual costs incurred $4,400 APPLIED Based on estimated rate ($5 x 850 hrs) APPLIED Based on estimated rate ($5 x 850 hrs) $4,250 BALANCE Underapplied BALANCE Underapplied $150 Work in Process is charged (debited). How would this balance be closed at year end?

44. C1 - 44 Recording Factory Overhead Factory Overhead ACTUAL Based on actual costs incurred ACTUAL Based on actual costs incurred $4,400 APPLIED Based on estimated rate ($5 x 850 hrs) APPLIED Based on estimated rate ($5 x 850 hrs) $4,250 BALANCE Underapplied BALANCE Underapplied $150 An immaterial balance is closed to Cost of Goods Sold at year end. Work in Process is charged (debited).

45. C1 - 45 Job Cost Sheets and Work in Process WORK IN PROCESS Balance DateItemDebitCreditDebitCredit Job 71 1,000 units Balance$ 3,000 Direct Materials2,000 Direct Labor3,500 Factory Overhead1,750 Total Job Cost$10,250 Job 72 4,000 units Balance$ 0 Direct Materials11,000 Direct Labor7,500 Factory Overhead2,500 $21,000 Dec.1Balance3,000 31Direct materials13,00016,000 31Direct labor11,00027,000 31Factory overhead4,25031,250 31Jobs completed10,25021,000

46. C1 - 46 Job Cost Sheets and Work in Process WORK IN PROCESS Balance DateItemDebitCreditDebitCredit Job 71 1,000 units Balance$ 3,000 Direct Materials2,000 Direct Labor3,500 Factory Overhead1,750 Total Job Cost$10,250 Job 72 4,000 units Balance$ 0 Direct Materials11,000 Direct Labor7,500 Factory Overhead2,500 $21,000 Dec.1Balance3,000 31Direct materials13,00016,000 31Direct labor11,00027,000 31Factory overhead4,25031,250 31Jobs completed10,25021,000

47. C1 - 47 Job Cost Sheets and Work in Process WORK IN PROCESS Balance DateItemDebitCreditDebitCredit Job 71 1,000 units Balance$ 3,000 Direct Materials2,000 Direct Labor3,500 Factory Overhead1,750 Total Job Cost$10,250 Job 72 4,000 units Balance$ 0 Direct Materials11,000 Direct Labor7,500 Factory Overhead2,500 $21,000 Dec.1Balance3,000 31Direct materials13,00016,000 31Direct labor11,00027,000 31Factory overhead4,25031,250 31Jobs completed10,25021,000

48. C1 - 48 Job Cost Sheets and Work in Process WORK IN PROCESS Balance DateItemDebitCreditDebitCredit Job 71 1,000 units Balance$ 3,000 Direct Materials2,000 Direct Labor3,500 Factory Overhead1,750 Total Job Cost$10,250 Job 72 4,000 units Balance$ 0 Direct Materials11,000 Direct Labor7,500 Factory Overhead2,500 $21,000 Dec.1Balance3,000 31Direct materials13,00016,000 31Direct labor11,00027,000 31Factory overhead4,25031,250 31Jobs completed10,25021,000

49. C1 - 49 Job Cost Sheets and Work in Process WORK IN PROCESS Balance DateItemDebitCreditDebitCredit Job 71 1,000 units Balance$ 3,000 Direct Materials2,000 Direct Labor3,500 Factory Overhead1,750 Total Job Cost$10,250 Job 72 4,000 units Balance$ 0 Direct Materials11,000 Direct Labor7,500 Factory Overhead2,500 $21,000 Dec.1Balance3,000 31Direct materials13,00016,000 31Direct labor11,00027,000 31Factory overhead4,25031,250 31Jobs completed10,25021,000

50. C1 - 50 Job Cost Sheets and Work in Process WORK IN PROCESS Balance DateItemDebitCreditDebitCredit Job 71 1,000 units Balance$ 3,000 Direct Materials2,000 Direct Labor3,500 Factory Overhead1,750 Total Job Cost$10,250 Job 72 4,000 units Balance$ 0 Direct Materials11,000 Direct Labor7,500 Factory Overhead2,500 $21,000 Dec.1Balance3,000 31Direct materials13,00016,000 31Direct labor11,00027,000 31Factory overhead4,25031,250 31Jobs completed10,25021,000

51. C1 - 51 Journal Entries in Job Order Cost System Materials10,500 Accounts Payable10,500 Work in Process13,000 Materials13,000 Work in Process11,000 Wages Payable11,000 a. Materials purchased during December. b. Materials requisitioned to jobs. c. Factory labor used in production of jobs ActivityJournal EntryDebitCredit

52. C1 - 52 Journal Entries in Job Order Cost System Factory Overhead4,600 Materials500 Wages Payable2,000 Utilities Payable900 Accumulated Depreciation1,200 Work in Process4,250 Factory Overhead4,250 d. Factory overhead incurred in production. e. Factory overhead applied to jobs using a predetermined overhead rate. ActivityJournal EntryDebitCredit

53. C1 - 53 Journal Entries in Job Order Cost System Cost of Goods Sold150 Factory Overhead150 Finished Goods10,250 Work in Process10,250 Cost of Goods Sold20,000 Finished Goods20,000 Accounts Receivable28,000 Sales28,000 f.Closing underapplied factory overhead. g.Job 71 completed in December. h.Cost of textbooks sold. i.Revenue received from textbooks sold. ActivityJournal EntryDebitCredit

54. C1 - 54 Goodwell Printers Income Statement For the Month Ended December 31, 2003 Sales$28,000 Cost of goods sold20,150 Gross profit$ 7,850 Selling and admin. expenses: Sales salaries expense$2,000 Office salaries expense1,500 Total selling and admin. expenses3,500 Income from operations$ 4,350

55. C1 - 55 Note: To see the topic slide, type 2 and press Enter. Power Notes Chapter M1 Introduction to Managerial Accounting and Introduction to Managerial Accounting and Job Order Cost Systems Job Order Cost Systems This is the last slide in Chapter M1.