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ACCOUNTING

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  • 1. Managerial Accounting Chapter Two Job Costs JMS
  • 2. Cost accounting involves the: Measuring, Recording, and Reporting of product costs.Determines both the total cost and unit cost of eachproduct.Accuracy is critical to company success.Helps determine 1) which product(s) to produce, 2) theamount to produce, and 3) price to charge.Improves effectiveness of employee performance evaluations.
  • 3. Needed: Accounts for various manufacturing costs. Such accounts are fully integrated into the general ledger system.Requires: perpetual inventory systemto provide immediate, up-to-date information on the cost of a product.
  • 4. Two basic types of cost accounting systems: Chapt 3
  • 5.  Costs are assigned to each job or batch A job may be for a specific order A key feature: Each job or batch has its own distinguishing characteristics (each is identifiable) The objective: to compute the cost per job Measures costs for each job completed -
  • 6.  Cost flow parallels physical flow of the materials as they are manufactured. How?  Manufacturing costs are assigned (debited) to Work in Process Inventory.  Cost of completed jobs are transferred to Finished Goods Inventory.  When units are sold, the cost is transferred to Cost of Goods Sold (expensed).
  • 7. Manufacturing Costs Selling Costs Administrative Costs
  • 8. Direct Costs The Material and Labor needed to actually make the product(s)Indirect Costs - (Mfg Overhead) Other costs needed to support manufacturing Such as: Building Maintenance Equipment
  • 9. Manufacturing Costs Direct Costs Indirect Costs Selling Costs Administrative Costs
  • 10.  Costs must be expensed in the same period that the related revenues are recorded.
  • 11.  Costs must be expensed in the same period that the related revenues are recorded. As in a Merchandising Business . . . The cost of products sold must be recorded in the same period as the sale. Product Costs = the costs to manufacture products. These costs become part of the product and are expensed when it is sold.
  • 12. Manufacturing Costs Direct Costs Indirect Costs Selling Costs he re stss t a re T d co p e ri o Administrative Costs
  • 13. Direct Material + Direct Labor What did the Finished Goods cost to make??? + Manufacturing Overheads =
  • 14. Manufacturing Costs Direct Costs Indirect CostsNotice this:Direct Costs in a product are usually straightforward. They are measurable!Indirect costs to products is usually more difficult.They must be Allocated.
  • 15. Manufacturing Costs Indirect CostsHow do you allocate manufacturing overheads to products or jobs?
  • 16.  The first step is to ESTIMATE the total Manufacturing Overheads for the period. Mai Ut nand tenanc r’s ilit Lab eM iso i ater rv es or e ia l up ry S la Equip. Sa y Deprec Fa ctor iation t Ren
  • 17.  The second step is to ESTIMATE the total units to be produced in the period.
  • 18. Estimated Overhead CostsEstimated Units to be Produced =Predetermined Overhead Rate
  • 19. If every item produced wereidentical we could allocate afixed amount to each item.But . . .That is rarely the case.
  • 20.  Therefore, we allocate (apply) overheads based on some measure of relative effort put into each item (activity base). Common activity bases include:• Direct Labor Hours ed in . . e rm a y . et s• Direct Labor Dollars red . . . a p or• Machine Hours . eed ate f So ’ll n r e ead ours W rh e ine H o v ch Ma
  • 21. Vektek, Inc. thinks machine hours is the bestactivity base for its manufacturing overhead. Theestimate of annual overhead costs for its jobs was$615,000. The company incurred actual overheadcosts totaling $630,000. The budgeted machinehours for the year totaled 20,000. How much is thepredetermined overhead rate?a. $30.75 per machine hourb. $31.50 per machine hourc. $31.50 per jobd. $0.75 per job
  • 22. Vektek, Inc. thinks machine hours is the bestactivity base for its manufacturing overhead. Theestimate of annual overhead costs for its jobs was$615,000. The company incurred actual overheadcosts totaling $630,000. The budgeted machinehours for the year totaled 20,000. How much is thepredetermined overhead rate?a. $30.75 per machine hourb. $31.50 per machine hourc. $31.50 per jobd. $0.75 per job
  • 23. Vektek, Inc. used 1,000 hours of machine time toprocess Job No. B12 during the. How muchmanufacturing overhead should be applied to JobNo. B12?a. $630b. $30,750c. $31,500d. $615
  • 24. Vektek, Inc. used 1,000 hours of machine time toprocess Job No. B12 during the. How muchmanufacturing overhead should be applied to JobNo. B12?a. $630b. $30,750c. $31,500d. $615
  • 25. Predetermined Overhead Rate Established at the beginning of the year. May use a single, company-wide predetermined rate. May use a different rate for each department and each department may have a different activity base. The formula for a predetermined overhead rate is
  • 26. The concept of applying overheads to production based on some activity base is used for both Job Cost and Process Cost systems.
  • 27. Let’s review job cost Journal Entries The entries are similar for ◦ Material ◦ Labor ◦ Manufacturing Overhead But they are NOT identical
  • 28. Flow of Material CostsStep 1 (Journal Entry 1 ) WIPPurchase Material Raw Material Direct Finished GoodsMaterials$85,000
  • 29. 1Raw Materials 85,000 Accounts Payable 85,000 Purchase Raw Materials
  • 30. Flow of Material CostsStep 2 (Journal Entry 2 ) WIPRaw material is issued to a job Directbased on the job’s specific Dr Materials $80,000requirements. Raw Material Direct Direct Finished Goods Cr Materials Materials $85,000 $80,000
  • 31. 1Raw Materials 85,000 Accounts Payable 85,000 Purchase raw materials 2WIP 80,000 Raw Materials 80,000 Issued material to WIP
  • 32. Flow of Material CostsStep 2 (Journal Entry 2 ) WIPA related entry is to issue raw Directmaterial for indirect production Dr Materials $80,000needs (grease, cleaning supplies). Raw Material Direct Direct Manufacturing O/H Cr Materials Materials $85,000 $80,000 Dr Indirect Materials Indirect $2,000 Cr Materials $2,000
  • 33. 1Raw Materials 85,000 Accounts Payable 85,000 Purchase raw materials 2WIP 80,000 Raw Materials 80,000 Issued material to WIP 3Manufacturing Overheads 2,000 Raw Materials 2,000 Issued indirect material Labor is similar.
  • 34. Factory Labor 1Raw Materials 90,000 Wages Accounts Payable 90,000 June mfg payroll 2WIP 85,000 Factory Labor Raw Materials 85,000 Dir. labor to WIP 3 Factory LaborManufacturing Overheads 5,000 Raw Materials 5,000 Indir. labor to O/H
  • 35. 1Manufacturing O/H 133,000 Accounts Payable 133,000 2WIP 140,000 Manufacturing O/H 140,000
  • 36. Flow of Manufacturing Costs Work-In Process Finished Goods Direct Finished FinishedMaterials Goods Goods$80,000 $250,000 $250,000 Direct Labor$85,000 FactoryOverhead Cost of Goods Sold$140,000Balance$45,000
  • 37. Flow of Manufacturing Costs Work-In Process Finished Goods Direct Finished Finished GoodsMaterials Goods Goods Sold$80,000 $250,000 $250,000 $210,000 Direct Labor$85,000 Prepare FactoryOverhead these 2 entries Cost of Goods Sold$140,000 GoodsBalance Sold$45,000 $210,000
  • 38. Flow of Manufacturing Costs Work-In Process Finished Goods Direct Finished Finished GoodsMaterials Goods Goods Sold$85,000 $250,000 $250,000 $210,000 Direct Labor Balance$100,000 $40,000 FactoryOverhead Cost of Goods Sold$140,000 GoodsBalance Sold$75,000 $210,000
  • 39. Manufacturing Cost Flows and Classifications Costs Product Costs Balance Sheet Income Statement Period Costs
  • 40. Manufacturing Cost Flows and Classifications Costs Product Costs Balance Sheet Materials Materials Purchases Purchases Direct Direct Labor Labor Factory Factory Overhead Overhead Income Statement Period Costs
  • 41. Manufacturing Cost Flows and Classifications Costs Product Costs Balance Sheet Materials Materials Purchases Purchases Direct Direct Labor Labor Factory Factory Overhead Overhead Income Statement Period Costs Selling and Selling and Administrative Administrative
  • 42. Manufacturing Cost Flows and Classifications Costs Product Costs Balance Sheet Materials Materials Raw Raw Purchases Purchases Materials Materials Inventory Inventory Direct Direct Labor Labor Factory Factory Overhead Overhead Income Statement Period Costs Selling and Selling and Administrative Administrative
  • 43. Manufacturing Cost Flows and Classifications Costs Product Costs Balance Sheet Materials Materials Raw Raw Purchases Purchases Materials Materials Inventory Inventory Direct Direct Labor Labor Work in Work in Process Process Factory Factory Inventory Inventory Overhead Overhead Income Statement Period Costs Selling and Selling and Administrative Administrative
  • 44. Manufacturing Cost Flows and Classifications Costs Product Costs Balance Sheet Materials Materials Raw Raw Purchases Purchases Materials Materials Inventory Inventory Direct Cost of Goods Direct Manufactured Labor Labor Work in Work in Process Process Factory Factory Inventory Inventory Overhead Overhead Income Statement Finished Finished Goods Goods Period Costs Inventory Inventory Selling and Selling and Administrative Administrative
  • 45. Manufacturing Cost Flows and Classifications Costs Product Costs Balance Sheet Materials Product costs Product costs Materials Materials Materials Purchases Inventory flow through the flow through the Purchases Inventory balance sheet to balance sheet to Direct Direct the income the income Work in Work in Labor Labor statement statement Process Process Inventory Inventory Factory Factory Overhead Overhead Income Statement Finished Finished Goods Cost of Cost of Goods Period Costs Inventory Goods Sold Goods Sold Inventory Selling and Selling and Administrative Administrative
  • 46. Manufacturing Cost Flows and Classifications Costs Product Costs Balance Sheet Materials Materials Raw Raw Purchases Purchases Materials Materials Inventory Period costs flow Period costs flow Inventory Direct directly to the directly to the Direct income statement Labor Work in Work in income statement Labor Process Process Factory Inventory Inventory Factory Overhead Overhead Income Statement Finished Finished Goods Cost of Cost of Goods Period Costs Inventory Goods Sold Goods Sold Inventory Selling and Selling and Selling and Selling and Administrative Administrative Administrative Administrative
  • 47. Goodwell Printers Income Statement For the Month Ended January 31, 2010Sales $400,000Cost of goods sold 210,000Gross profit $190,000Operating expenses: Selling expenses $80,000 Administrative expenses 50,000Total operating expenses 130,000Net income $ 60,000
  • 48. Beginning raw materials inventory was $32,000.During the month, $276,000 of raw materialwas purchased. A count at the end of themonth revealed that $28,000 of raw materialwas still present. What is the cost of directmaterial used?  a. $276,000  b. $272,000  c. $280,000  d. $ 2,000
  • 49. Beginning raw materials inventory was $32,000.During the month, $276,000 of raw materialwas purchased. A count at the end of themonth revealed that $28,000 of raw materialwas still present. What is the cost of directmaterial used?  a. $276,000  b. $272,000  c. $280,000  d. $ 2,000
  • 50. Direct materials used in production totaled$280,000. Direct Labor was $375,000 andfactory overhead was $180,000. What weretotal manufacturing costs incurred for themonth?  a. $555,000  b. $835,000  c. $655,000  d. Cannot be determined.
  • 51. Direct materials used in production totaled$280,000. Direct Labor was $375,000 andfactory overhead was $180,000. What weretotal manufacturing costs incurred for themonth?  a. $555,000  b. $835,000  c. $655,000  d. Cannot be determined.
  • 52. Beginning work in process was $125,000.Manufacturing costs incurred for the monthwere $835,000. There were $200,000 ofpartially finished goods remaining in work inprocess inventory at the end of the month.What was the cost of goods manufacturedduring the month?  a. $1,160,000  b. $ 910,000  c. $ 760,000  d. Cannot be determined.
  • 53. Beginning work in process was $125,000.Manufacturing costs incurred for the monthwere $835,000. There were $200,000 ofpartially finished goods remaining in work inprocess inventory at the end of the month.What was the cost of goods manufacturedduring the month?  a. $1,160,000  b. $ 910,000  c. $ 760,000  d. Cannot be determined.
  • 54.  Raw Materials Inventory –  a general ledger account  a control account that summarizes the detailed data regarding specific inventory accounts in the subsidiary ledger.
  • 55.  The subsidiary ledger consist of individual records for each item of raw materials.  May be accounts or manually/mechanically prepared cards  May be kept as computer data files
  • 56.  May be recognized daily  For example, machinery repairs, indirect materials, and indirect labor . May also be recorded periodically through adjusting entries  For example, property taxes, depreciation, and insurance.  The summary entry for Wallace Manufacturing Company is:
  • 57.  RM is assigned to a job when materials are issued. A materials requisition slip - the written authorization for issuing raw materials. May be either directly used on a job or may be indirect materials.
  • 58.  Job cost sheet  Used to record the costs of a specific job.  Used to determine the total and unit costs of a completed job.
  • 59. The sum of the direct materials columns of the job cost sheets should equal the direct materials debited to Work in Process Inventory.
  • 60. The sum of the manufacturing overhead columns of the job cost sheets should equal the manufacturing overhead debited (i.e., applied) to Work in Process
  • 61. The balance in Work in Process Inventoryshould equal the sum of the costs shown on the job cost sheets of unfinished jobs.
  • 62. When a job is completed, the costs are summarized and the Journal Entry to transfer the product from WIP to FG is:
  • 63.  Inventory remains in Finished Goods Inventory until it is sold. Cost of goods sold is recognized when a sale occurs. Example: On January 31 Wallace Manufacturing sells Job No. 101, costing $39,000, for $50,000. The entries are:
  • 64.  The cost of goods manufactured schedule now shows manufacturing overhead applied rather than actual overhead costs. Applied overhead is added to direct materials and direct labor to determine total manufacturing costs
  • 65.  A debit balance in manufacturing overhead means that overhead is underapplied .  Overhead assigned to work in process is less than overhead incurred. A credit balance in manufacturing overhead means that overhead is overapplied.  Overhead assigned to work in process is greater than overhead incurred.
  • 66.  Any year-end balance in Manufacturing Overhead is eliminated by adjusting cost of goods sold.  Underapplied overhead is debited to CGS  Overapplied overhead is credited to CGS Example: Wallace Mfg. has a $2,500 credit balance in Manufacturing Overhead at December 31. The adjusting entry for the overapplied overhead is