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Job Order Slides CMA

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stages of production and flow of cost

stages of production and flow of cost

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  • 1. Manufacturing Companies There are 3 major categories of manufacturing costs: Direct Materials Raw material, parts, and components that can be observed being used to make a specific product . Direct Labor The cost of paying employees who convert direct materials into finished product. Manufacturing Overhead Indirect material Indirect labor Other overhead
  • 2. Manufacturing Companies Prime Costs include: Direct Materials Direct Labor Manufacturing Overhead
  • 3. Manufacturing Companies Conversion Costs include: Direct Materials Direct Labor Manufacturing Overhead Nonmanufacturing Costs are all the costs not used to produce products.
  • 4. Stages of Production and the Flow of Costs
  • 5. Stages of Production and the Flow of Costs - Example What is Ending Inventory in February? Axel Electronics makes toasters. On February 1, Axel has $15,000 of raw material on hand. Axel’s purchase and transfers to the production floor are indicated below.
  • 6. Stages of Production and the Flow of Costs - Example Now let’s look at Work-in-Process. Axel Electronics makes toasters. On February 1, Axel has $15,000 of raw material on hand. Axel’s purchase and transfers to the production floor are indicated below.
  • 7. Stages of Production and the Flow of Costs - Example What is the amount of cost transferred to Finished Goods in February? On February 1, Axel had WIP of $30,000 on the factory floor. During February, Axel paid $92,000 in direct labor wages. Overhead is applied at 150% of direct labor. On 2/28, $22,000 is still in WIP.
  • 8. Stages of Production and the Flow of Costs - Example On February 1, Axel had WIP of $30,000 on the factory floor. During February, Axel paid $92,000 in direct labor wages. Overhead is applied at 150% of direct labor. On 2/28, $22,000 is still in WIP. Now let’s look at Finished Goods. Transferred to Finished Goods
  • 9. Stages of Production and the Flow of Costs - Example On February 1, Axel had Finished Goods of $125,000 on hand. At the end of February, a physical inventory count revealed $96,000 in Finished Goods still on hand. What was Cost of Goods Sold for February?
  • 10. Stages of Production and the Flow of Costs - Example On February 1, Axel had Finished Goods of $125,000 on hand. At the end of February, a physical inventory count revealed $96,000 in Finished Goods still on hand. What was Cost of Goods Sold for February?
  • 11. Basic Cost Accounting Procedures Process Costing Job Order Costing
    • Used for production of large, unique, high-cost items.
    • Built to order rather than mass produced.
    • Many costs can be directly traced to each job.
  • 12. Basic Cost Accounting Procedures Process Costing Job Order Costing
    • Typical job order cost applications:
      • Special-order printing
      • Building construction
    • Also used in service industry
      • Hospitals
      • Law firms
  • 13. Basic Cost Accounting Procedures Process Costing Job Order Costing
    • Used for production of small, identical, low-cost items.
    • Mass produced in automated continuous production process.
    • Costs cannot be directly traced to each unit of product.
  • 14. Basic Cost Accounting Procedures Process Costing Job Order Costing
    • Typical process cost applications:
      • Petrochemical refinery
      • Paint manufacturer
      • Paper mill
  • 15. Job Order Costing THE JOB Direct materials Direct labor Traced directly to each job Traced directly to each job Manufacturing overhead (OH) Applied to each job using a predetermined rate (POHR)
  • 16.
    • The primary document for tracking the costs associated with a given job is the job cost sheet.
    Job Order Costing Let’s investigate
  • 17. The Job Cost Sheet
  • 18. The Job Cost Sheet
  • 19. The Job Cost Sheet Accumulate direct labor costs by means of a work record, such as a time ticket , for each employee.
  • 20. The Job Cost Sheet Apply manufacturing overhead to jobs using a predetermined overhead rate (POHR) based on direct labor hours (DLH).