Managerial Accounting    Chapter Two      Job Costs                        JMS
Cost accounting involves the:    Measuring,         Recording, and               Reporting of product costs.Determines bot...
Needed: Accounts for various manufacturing  costs.  Such accounts are fully integrated into the  general ledger system.Req...
Two basic types of cost accounting systems:                                              Chapt 3
   Costs are assigned to each job or batch   A job may be for a specific order   A key feature:          Each job or ba...
   Cost flow parallels physical flow of the    materials as they are manufactured.                         How?     Manu...
Manufacturing Costs    Selling Costs        Administrative Costs
Direct Costs               The Material and Labor needed to               actually make the product(s)Indirect Costs - (Mf...
Manufacturing Costs    Direct Costs    Indirect Costs    Selling Costs         Administrative Costs
   Costs must be expensed in the same period that the    related revenues are recorded.
   Costs must be expensed in the same period that the    related revenues are recorded.      As in a Merchandising Busine...
Manufacturing Costs    Direct Costs    Indirect Costs    Selling Costs                he re stss t a re              T    ...
Direct Material   + Direct Labor                                         What did the                                     ...
Manufacturing Costs           Direct Costs           Indirect CostsNotice this:Direct Costs in a product are usually strai...
Manufacturing Costs             Indirect CostsHow do you allocate manufacturing overheads to products or jobs?
   The first step is to ESTIMATE the total Manufacturing    Overheads for the period. Mai                        Ut     n...
   The second step is to ESTIMATE the total units to be    produced in the period.
Estimated Overhead CostsEstimated Units to be Produced              =Predetermined Overhead Rate
If every item produced wereidentical we could allocate afixed amount to each item.But . . .That is rarely the case.
   Therefore, we allocate (apply) overheads based on    some measure of relative effort put into each item    (activity b...
Vektek, Inc. thinks machine hours is the bestactivity base for its manufacturing overhead. Theestimate of annual overhead ...
Vektek, Inc. thinks machine hours is the bestactivity base for its manufacturing overhead. Theestimate of annual overhead ...
Vektek, Inc. used 1,000 hours of machine time toprocess Job No. B12 during the. How muchmanufacturing overhead should be a...
Vektek, Inc. used 1,000 hours of machine time toprocess Job No. B12 during the. How muchmanufacturing overhead should be a...
Predetermined Overhead Rate   Established at the beginning of the year.   May use a single, company-wide predetermined  ...
The concept of applying overheads to production based on some activity base is used for both   Job Cost and   Process Co...
Let’s review job cost Journal Entries The entries are similar for    ◦ Material    ◦ Labor    ◦ Manufacturing Overhead But...
Flow of Material CostsStep 1 (Journal Entry   1   )       WIPPurchase Material     Raw Material Direct                    ...
1Raw Materials               85,000 Accounts Payable                    85,000   Purchase Raw Materials
Flow of Material CostsStep 2 (Journal Entry   2   )                     WIPRaw material is issued to a job            Dire...
1Raw Materials                85,000 Accounts Payable                     85,000   Purchase raw materials                 ...
Flow of Material CostsStep 2 (Journal Entry   2   )                         WIPA related entry is to issue raw            ...
1Raw Materials 85,000 Accounts Payable      85,000   Purchase raw materials                        2WIP 80,000 Raw Materia...
Factory Labor         1Raw Materials 90,000  Wages Accounts Payable     90,000     June mfg payroll                       ...
1Manufacturing O/H        133,000 Accounts Payable                  133,000                     2WIP                      ...
Flow of Manufacturing Costs Work-In Process              Finished Goods Direct        Finished     FinishedMaterials      ...
Flow of Manufacturing Costs Work-In Process                 Finished Goods Direct        Finished        Finished     Good...
Flow of Manufacturing Costs Work-In Process              Finished Goods Direct        Finished     Finished       GoodsMat...
Manufacturing Cost Flows and Classifications     Costs  Product Costs    Balance Sheet                                   I...
Manufacturing Cost Flows and Classifications     Costs  Product Costs    Balance Sheet    Materials     Materials   Purcha...
Manufacturing Cost Flows and Classifications     Costs  Product Costs    Balance Sheet    Materials     Materials   Purcha...
Manufacturing Cost Flows and Classifications     Costs  Product Costs    Balance Sheet    Materials     Materials         ...
Manufacturing Cost Flows and Classifications     Costs  Product Costs    Balance Sheet    Materials     Materials         ...
Manufacturing Cost Flows and Classifications     Costs  Product Costs    Balance Sheet    Materials     Materials         ...
Manufacturing Cost Flows and Classifications     Costs  Product Costs    Balance Sheet                    Materials       ...
Manufacturing Cost Flows and Classifications     Costs  Product Costs    Balance Sheet    Materials     Materials         ...
Goodwell Printers               Income Statement     For the Month Ended January 31, 2010Sales                            ...
Beginning raw materials inventory was $32,000.During the month, $276,000 of raw materialwas purchased. A count at the end ...
Beginning raw materials inventory was $32,000.During the month, $276,000 of raw materialwas purchased. A count at the end ...
Direct materials used in production totaled$280,000. Direct Labor was $375,000 andfactory overhead was $180,000. What were...
Direct materials used in production totaled$280,000. Direct Labor was $375,000 andfactory overhead was $180,000. What were...
Beginning work in process was $125,000.Manufacturing costs incurred for the monthwere $835,000. There were $200,000 ofpart...
Beginning work in process was $125,000.Manufacturing costs incurred for the monthwere $835,000. There were $200,000 ofpart...
 Raw Materials Inventory –   a general ledger account   a control account that summarizes the        detailed data rega...
   The subsidiary ledger consist of individual    records for each item of raw materials.     May be accounts or manuall...
   May be recognized daily     For example, machinery repairs, indirect materials, and      indirect labor .   May also...
 RM is assigned to a job when materials are issued. A materials requisition slip - the written  authorization for issuin...
   Job cost sheet     Used to record the costs of a specific job.     Used to determine the total and unit costs      o...
The sum of the direct materials columns of the job cost sheets should equal the direct materials debited to Work in Proces...
The sum of the manufacturing overhead columns of the    job cost sheets should equal the manufacturing  overhead debited (...
The balance in Work in Process Inventoryshould equal the sum of the costs shown on   the job cost sheets of unfinished jobs.
When a job is completed, the costs are summarized and the Journal Entry to transfer the product from WIP to FG is:
   Inventory remains in Finished Goods    Inventory until it is sold.   Cost of goods sold is recognized when a    sale ...
   The cost of goods manufactured schedule now shows    manufacturing overhead applied rather than actual    overhead cos...
   A debit balance in manufacturing    overhead means that overhead is    underapplied .      Overhead assigned to work ...
   Any year-end balance in Manufacturing    Overhead is eliminated by adjusting cost of    goods sold.       Underapplie...
ACCOUNTING
ACCOUNTING
ACCOUNTING
ACCOUNTING
ACCOUNTING
ACCOUNTING
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ACCOUNTING

  1. 1. Managerial Accounting Chapter Two Job Costs JMS
  2. 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. 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. 4. Two basic types of cost accounting systems: Chapt 3
  5. 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. 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. 7. Manufacturing Costs Selling Costs Administrative Costs
  8. 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. 9. Manufacturing Costs Direct Costs Indirect Costs Selling Costs Administrative Costs
  10. 10.  Costs must be expensed in the same period that the related revenues are recorded.
  11. 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. 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. 13. Direct Material + Direct Labor What did the Finished Goods cost to make??? + Manufacturing Overheads =
  14. 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. 15. Manufacturing Costs Indirect CostsHow do you allocate manufacturing overheads to products or jobs?
  16. 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. 17.  The second step is to ESTIMATE the total units to be produced in the period.
  18. 18. Estimated Overhead CostsEstimated Units to be Produced =Predetermined Overhead Rate
  19. 19. If every item produced wereidentical we could allocate afixed amount to each item.But . . .That is rarely the case.
  20. 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. 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. 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. 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. 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. 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. 26. The concept of applying overheads to production based on some activity base is used for both Job Cost and Process Cost systems.
  27. 27. Let’s review job cost Journal Entries The entries are similar for ◦ Material ◦ Labor ◦ Manufacturing Overhead But they are NOT identical
  28. 28. Flow of Material CostsStep 1 (Journal Entry 1 ) WIPPurchase Material Raw Material Direct Finished GoodsMaterials$85,000
  29. 29. 1Raw Materials 85,000 Accounts Payable 85,000 Purchase Raw Materials
  30. 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. 31. 1Raw Materials 85,000 Accounts Payable 85,000 Purchase raw materials 2WIP 80,000 Raw Materials 80,000 Issued material to WIP
  32. 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. 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. 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. 35. 1Manufacturing O/H 133,000 Accounts Payable 133,000 2WIP 140,000 Manufacturing O/H 140,000
  36. 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. 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. 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. 39. Manufacturing Cost Flows and Classifications Costs Product Costs Balance Sheet Income Statement Period Costs
  40. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 61. The balance in Work in Process Inventoryshould equal the sum of the costs shown on the job cost sheets of unfinished jobs.
  62. 62. When a job is completed, the costs are summarized and the Journal Entry to transfer the product from WIP to FG is:
  63. 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. 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. 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. 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

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