This document provides an overview of job order costing, including how direct materials, direct labor, and manufacturing overhead costs are recorded and assigned to jobs. It discusses how costs flow through a company's accounting system, ending up in work in process, finished goods, and ultimately cost of goods sold. The document also provides examples of journal entries to record direct materials purchased and issued to jobs, direct and indirect labor costs, manufacturing overhead costs, and non-manufacturing expenses.
LO16-1 through LO16-5EXERCISE 16.1Accounting TerminologyLi.docxSHIVA101531
LO16-1 through LO16-5
EXERCISE 16.1
Accounting Terminology
Listed below are eight technical accounting terms introduced or emphasized in this chapter: Listed below are eight technical accounting terms introduced or emphasized in this chapter:
1) Work in Process
2) Inventory
3) Cost of finished goods manufactured
4) Conversion costs
5) Cost of Goods Sold
6) Period costs
7) Management accounting
8) Product costs
9) Manufacturing overhead
Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the accounting term described, or answer “None” if the statement does not correctly
describe any of the terms.
a. The preparation and use of accounting information designed to assist managers in planning and controlling the operations of a business.
b. All manufacturing costs other than direct materials used and direct labor.
c. Direct materials and direct labor used in manufacturing a product.
d. A manufacturing cost that can be traced conveniently and directly to manufactured units of product.
e. The account debited at the time that the Manufacturing Overhead account is credited.
f. The amount transferred from the Work in Process Inventory account to the Finished Goods Inventory account.
g. Costs that are debited directly to expense accounts when the costs are incurred.
EXERCISE 16.2 (LO16-2)
Basic Types of
Manufacturing Costs
Into which of the three elements of manufacturing cost would each of the following be classified?
a. Tubing used in manufacturing bicycles.
b. Wages paid by an automobile manufacturer to employees who test-drive completed automobiles.
c. Property taxes on machinery.
d. Gold bullion used by a jewelry manufacturer.
e. Wages of assembly-line workers who package frozen food.
f. Salary of plant superintendent.
g. Electricity used in factory operations.
h. Salary of a nurse in a factory first-aid station.
EXERCISE 16.3 (LO16-3 & LO16-5)
Product Costs
and Period Costs
Indicate whether each of the following should be considered a product cost or a period cost. If you identify the item as a product cost, also indicate whether it is a direct or an indirect cost. For example, the answer to item 0 is “indirect product cost.” Begin with item a.
0. Property taxes on factory building.
a. Cost of disposal of hazardous waste materials to a chemical plant.
b. Amounts paid by a mobile home manufacturer to a subcontractor who installs plumbing in each mobile home.
c. Depreciation on sales showroom fixtures.
d. Salaries of security guards in an administrative office building.
EXERCISE 16.6 (LO16-3 & LO16-5)
Flow of Costs through
Manufacturing Accounts
The Ryde and Rowe Inc. had the following account balances as of January 1:
Direct Materials Inventory . . . .. . . . . . . . . . . . . . . . . . . . . . . . . $ 89,200
Work in Process Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178,400
Fin ...
WHY IS THE ALLOCATION METHOD USED IN ACCOUNTING FOR THE DIFFERENCE BETWEEN AP...Mashfiq Albartross
To determine the cost of goods we have to determine the factory overhead. Cost of goods are included all the costs occurred during the production including direct and indirect material, labor and all the factory overhead costs. We use allocation method to determine the factory overhead costs. If we can’t determine the factory overhead costs we can’t find out the actual cost of the goods those are produced and the sale value we can’t determine correctly. Because cost of a good is consisted with factory overhead costs. Factory overhead expenses should be determined otherwise understated rate of a good can occur. Because if we can’t determine the factory overhead costs we can’t actually determine the cost of a good that is prepared for sale.
Allocation methods are used to determine factory overhead costs. Organizations use Applied or Actual factory overhead allocation methods to determine the Factory overhead costs. Cost of goods are lied with these factory overhead costs. So if we need to determine the amount in which we need to sale a good we need to determine it’s total manufacturing costs. Otherwise loss will occur.
Conversion Cycle for all types of business, principle and goal of lean manufacturing, productions methods used in different organizations and the activities and documents of Traditional manufacturing environment.
Enterprise Excellence is Inclusive Excellence.pdfKaiNexus
Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
What is Enterprise Excellence?
Enterprise Excellence is a holistic approach that's aimed at achieving world-class performance across all aspects of the organization.
What might I learn?
A way to engage all in creating Inclusive Excellence. Lessons from the US military and their parallels to the story of Harry Potter. How belt systems and CI teams can destroy inclusive practices. How leadership language invites people to the party. There are three things leaders can do to engage everyone every day: maximizing psychological safety to create environments where folks learn, contribute, and challenge the status quo.
Who might benefit? Anyone and everyone leading folks from the shop floor to top floor.
Dr. William Harvey is a seasoned Operations Leader with extensive experience in chemical processing, manufacturing, and operations management. At Michelman, he currently oversees multiple sites, leading teams in strategic planning and coaching/practicing continuous improvement. William is set to start his eighth year of teaching at the University of Cincinnati where he teaches marketing, finance, and management. William holds various certifications in change management, quality, leadership, operational excellence, team building, and DiSC, among others.
RMD24 | Retail media: hoe zet je dit in als je geen AH of Unilever bent? Heid...BBPMedia1
Grote partijen zijn al een tijdje onderweg met retail media. Ondertussen worden in dit domein ook de kansen zichtbaar voor andere spelers in de markt. Maar met die kansen ontstaan ook vragen: Zelf retail media worden of erop adverteren? In welke fase van de funnel past het en hoe integreer je het in een mediaplan? Wat is nu precies het verschil met marketplaces en Programmatic ads? In dit half uur beslechten we de dilemma's en krijg je antwoorden op wanneer het voor jou tijd is om de volgende stap te zetten.
LO16-1 through LO16-5EXERCISE 16.1Accounting TerminologyLi.docxSHIVA101531
LO16-1 through LO16-5
EXERCISE 16.1
Accounting Terminology
Listed below are eight technical accounting terms introduced or emphasized in this chapter: Listed below are eight technical accounting terms introduced or emphasized in this chapter:
1) Work in Process
2) Inventory
3) Cost of finished goods manufactured
4) Conversion costs
5) Cost of Goods Sold
6) Period costs
7) Management accounting
8) Product costs
9) Manufacturing overhead
Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the accounting term described, or answer “None” if the statement does not correctly
describe any of the terms.
a. The preparation and use of accounting information designed to assist managers in planning and controlling the operations of a business.
b. All manufacturing costs other than direct materials used and direct labor.
c. Direct materials and direct labor used in manufacturing a product.
d. A manufacturing cost that can be traced conveniently and directly to manufactured units of product.
e. The account debited at the time that the Manufacturing Overhead account is credited.
f. The amount transferred from the Work in Process Inventory account to the Finished Goods Inventory account.
g. Costs that are debited directly to expense accounts when the costs are incurred.
EXERCISE 16.2 (LO16-2)
Basic Types of
Manufacturing Costs
Into which of the three elements of manufacturing cost would each of the following be classified?
a. Tubing used in manufacturing bicycles.
b. Wages paid by an automobile manufacturer to employees who test-drive completed automobiles.
c. Property taxes on machinery.
d. Gold bullion used by a jewelry manufacturer.
e. Wages of assembly-line workers who package frozen food.
f. Salary of plant superintendent.
g. Electricity used in factory operations.
h. Salary of a nurse in a factory first-aid station.
EXERCISE 16.3 (LO16-3 & LO16-5)
Product Costs
and Period Costs
Indicate whether each of the following should be considered a product cost or a period cost. If you identify the item as a product cost, also indicate whether it is a direct or an indirect cost. For example, the answer to item 0 is “indirect product cost.” Begin with item a.
0. Property taxes on factory building.
a. Cost of disposal of hazardous waste materials to a chemical plant.
b. Amounts paid by a mobile home manufacturer to a subcontractor who installs plumbing in each mobile home.
c. Depreciation on sales showroom fixtures.
d. Salaries of security guards in an administrative office building.
EXERCISE 16.6 (LO16-3 & LO16-5)
Flow of Costs through
Manufacturing Accounts
The Ryde and Rowe Inc. had the following account balances as of January 1:
Direct Materials Inventory . . . .. . . . . . . . . . . . . . . . . . . . . . . . . $ 89,200
Work in Process Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178,400
Fin ...
WHY IS THE ALLOCATION METHOD USED IN ACCOUNTING FOR THE DIFFERENCE BETWEEN AP...Mashfiq Albartross
To determine the cost of goods we have to determine the factory overhead. Cost of goods are included all the costs occurred during the production including direct and indirect material, labor and all the factory overhead costs. We use allocation method to determine the factory overhead costs. If we can’t determine the factory overhead costs we can’t find out the actual cost of the goods those are produced and the sale value we can’t determine correctly. Because cost of a good is consisted with factory overhead costs. Factory overhead expenses should be determined otherwise understated rate of a good can occur. Because if we can’t determine the factory overhead costs we can’t actually determine the cost of a good that is prepared for sale.
Allocation methods are used to determine factory overhead costs. Organizations use Applied or Actual factory overhead allocation methods to determine the Factory overhead costs. Cost of goods are lied with these factory overhead costs. So if we need to determine the amount in which we need to sale a good we need to determine it’s total manufacturing costs. Otherwise loss will occur.
Conversion Cycle for all types of business, principle and goal of lean manufacturing, productions methods used in different organizations and the activities and documents of Traditional manufacturing environment.
Enterprise Excellence is Inclusive Excellence.pdfKaiNexus
Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
What is Enterprise Excellence?
Enterprise Excellence is a holistic approach that's aimed at achieving world-class performance across all aspects of the organization.
What might I learn?
A way to engage all in creating Inclusive Excellence. Lessons from the US military and their parallels to the story of Harry Potter. How belt systems and CI teams can destroy inclusive practices. How leadership language invites people to the party. There are three things leaders can do to engage everyone every day: maximizing psychological safety to create environments where folks learn, contribute, and challenge the status quo.
Who might benefit? Anyone and everyone leading folks from the shop floor to top floor.
Dr. William Harvey is a seasoned Operations Leader with extensive experience in chemical processing, manufacturing, and operations management. At Michelman, he currently oversees multiple sites, leading teams in strategic planning and coaching/practicing continuous improvement. William is set to start his eighth year of teaching at the University of Cincinnati where he teaches marketing, finance, and management. William holds various certifications in change management, quality, leadership, operational excellence, team building, and DiSC, among others.
RMD24 | Retail media: hoe zet je dit in als je geen AH of Unilever bent? Heid...BBPMedia1
Grote partijen zijn al een tijdje onderweg met retail media. Ondertussen worden in dit domein ook de kansen zichtbaar voor andere spelers in de markt. Maar met die kansen ontstaan ook vragen: Zelf retail media worden of erop adverteren? In welke fase van de funnel past het en hoe integreer je het in een mediaplan? Wat is nu precies het verschil met marketplaces en Programmatic ads? In dit half uur beslechten we de dilemma's en krijg je antwoorden op wanneer het voor jou tijd is om de volgende stap te zetten.
Implicitly or explicitly all competing businesses employ a strategy to select a mix
of marketing resources. Formulating such competitive strategies fundamentally
involves recognizing relationships between elements of the marketing mix (e.g.,
price and product quality), as well as assessing competitive and market conditions
(i.e., industry structure in the language of economics).
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Looking for professional printing services in Jaipur? Navpack n Print offers high-quality and affordable stationery printing for all your business needs. Stand out with custom stationery designs and fast turnaround times. Contact us today for a quote!
The world of search engine optimization (SEO) is buzzing with discussions after Google confirmed that around 2,500 leaked internal documents related to its Search feature are indeed authentic. The revelation has sparked significant concerns within the SEO community. The leaked documents were initially reported by SEO experts Rand Fishkin and Mike King, igniting widespread analysis and discourse. For More Info:- https://news.arihantwebtech.com/search-disrupted-googles-leaked-documents-rock-the-seo-world/
Improving profitability for small businessBen Wann
In this comprehensive presentation, we will explore strategies and practical tips for enhancing profitability in small businesses. Tailored to meet the unique challenges faced by small enterprises, this session covers various aspects that directly impact the bottom line. Attendees will learn how to optimize operational efficiency, manage expenses, and increase revenue through innovative marketing and customer engagement techniques.
Tata Group Dials Taiwan for Its Chipmaking Ambition in Gujarat’s DholeraAvirahi City Dholera
The Tata Group, a titan of Indian industry, is making waves with its advanced talks with Taiwanese chipmakers Powerchip Semiconductor Manufacturing Corporation (PSMC) and UMC Group. The goal? Establishing a cutting-edge semiconductor fabrication unit (fab) in Dholera, Gujarat. This isn’t just any project; it’s a potential game changer for India’s chipmaking aspirations and a boon for investors seeking promising residential projects in dholera sir.
Visit : https://www.avirahi.com/blog/tata-group-dials-taiwan-for-its-chipmaking-ambition-in-gujarats-dholera/
What is the TDS Return Filing Due Date for FY 2024-25.pdfseoforlegalpillers
It is crucial for the taxpayers to understand about the TDS Return Filing Due Date, so that they can fulfill your TDS obligations efficiently. Taxpayers can avoid penalties by sticking to the deadlines and by accurate filing of TDS. Timely filing of TDS will make sure about the availability of tax credits. You can also seek the professional guidance of experts like Legal Pillers for timely filing of the TDS Return.
VAT Registration Outlined In UAE: Benefits and Requirementsuae taxgpt
Vat Registration is a legal obligation for businesses meeting the threshold requirement, helping companies avoid fines and ramifications. Contact now!
https://viralsocialtrends.com/vat-registration-outlined-in-uae/
Discover the innovative and creative projects that highlight my journey throu...dylandmeas
Discover the innovative and creative projects that highlight my journey through Full Sail University. Below, you’ll find a collection of my work showcasing my skills and expertise in digital marketing, event planning, and media production.
LA HUG - Video Testimonials with Chynna Morgan - June 2024Lital Barkan
Have you ever heard that user-generated content or video testimonials can take your brand to the next level? We will explore how you can effectively use video testimonials to leverage and boost your sales, content strategy, and increase your CRM data.🤯
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RMD24 | Debunking the non-endemic revenue myth Marvin Vacquier Droop | First ...BBPMedia1
Marvin neemt je in deze presentatie mee in de voordelen van non-endemic advertising op retail media netwerken. Hij brengt ook de uitdagingen in beeld die de markt op dit moment heeft op het gebied van retail media voor niet-leveranciers.
Retail media wordt gezien als het nieuwe advertising-medium en ook mediabureaus richten massaal retail media-afdelingen op. Merken die niet in de betreffende winkel liggen staan ook nog niet in de rij om op de retail media netwerken te adverteren. Marvin belicht de uitdagingen die er zijn om echt aansluiting te vinden op die markt van non-endemic advertising.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Memorandum Of Association Constitution of Company.pptseri bangash
www.seribangash.com
A Memorandum of Association (MOA) is a legal document that outlines the fundamental principles and objectives upon which a company operates. It serves as the company's charter or constitution and defines the scope of its activities. Here's a detailed note on the MOA:
Contents of Memorandum of Association:
Name Clause: This clause states the name of the company, which should end with words like "Limited" or "Ltd." for a public limited company and "Private Limited" or "Pvt. Ltd." for a private limited company.
https://seribangash.com/article-of-association-is-legal-doc-of-company/
Registered Office Clause: It specifies the location where the company's registered office is situated. This office is where all official communications and notices are sent.
Objective Clause: This clause delineates the main objectives for which the company is formed. It's important to define these objectives clearly, as the company cannot undertake activities beyond those mentioned in this clause.
www.seribangash.com
Liability Clause: It outlines the extent of liability of the company's members. In the case of companies limited by shares, the liability of members is limited to the amount unpaid on their shares. For companies limited by guarantee, members' liability is limited to the amount they undertake to contribute if the company is wound up.
https://seribangash.com/promotors-is-person-conceived-formation-company/
Capital Clause: This clause specifies the authorized capital of the company, i.e., the maximum amount of share capital the company is authorized to issue. It also mentions the division of this capital into shares and their respective nominal value.
Association Clause: It simply states that the subscribers wish to form a company and agree to become members of it, in accordance with the terms of the MOA.
Importance of Memorandum of Association:
Legal Requirement: The MOA is a legal requirement for the formation of a company. It must be filed with the Registrar of Companies during the incorporation process.
Constitutional Document: It serves as the company's constitutional document, defining its scope, powers, and limitations.
Protection of Members: It protects the interests of the company's members by clearly defining the objectives and limiting their liability.
External Communication: It provides clarity to external parties, such as investors, creditors, and regulatory authorities, regarding the company's objectives and powers.
https://seribangash.com/difference-public-and-private-company-law/
Binding Authority: The company and its members are bound by the provisions of the MOA. Any action taken beyond its scope may be considered ultra vires (beyond the powers) of the company and therefore void.
Amendment of MOA:
While the MOA lays down the company's fundamental principles, it is not entirely immutable. It can be amended, but only under specific circumstances and in compliance with legal procedures. Amendments typically require shareholder
2. A cost accounting system helps determine
how much the production of a good or
service will cost.
There are two types of systems:
job order costing and process costing.
3. Process costing is a cost accounting system that
accumulates manufacturing costs separately for
each process.
It is appropriate for products whose production is
a process involving different departments and
costs flow from one department to another.
For example, it is the cost accounting system used
by oil refineries, chemical producers, etc.
4. Job order costing is a cost accounting system that
accumulates manufacturing costs separately for
each job.
It is appropriate for firms that are engaged in
production of unique products and special orders.
For example, it is the costing accounting system
most appropriate for an event management
company, a niche furniture producer, a producer of
very high cost air surveillance system, etc.
5. As we study the operation of a job-order
costing system, we will see how each of
these three types of costs is recorded and
accumulated.
(1) direct materials,
(2) direct labor, and
(3) manufacturing overhead.
6.
7. A Bill of materials is a document
that lists the type and quantity of each type
of direct material needed to complete a unit
of product.
When an agreement has been reached with
the customer concerning the quantities,
prices, and shipment date for the order, a
production order is issued.
The Production Department then prepares a
materials requisition form similar to the form
in Exhibit 3–1 .
8. Materials Requisition Form
The production schedule indicates we’ll be starting
Job 2B47 today.
The blueprints submitted by Loops Unlimited
indicate that each experimental coupling will
require three parts that are classified as direct
materials: two G7 Connectors and one M46
Housing.
Each coupling requires two connectors and one
housing, so to make two couplings, four connectors
and two housings are required.
9. The materials requisition form is a document that
specifies the type and quantity of materials to be
drawn from the storeroom and identifies the job
that will be charged for the cost of the materials.
The form is used to control the flow of materials
into production and also for making entries in the
accounting records.
The materials requisition form in Exhibit 3–1 shows
that the company’s Milling Department has
requisitioned two M46 Housings and four G7
Connectors for the Loops Unlimited job, which has
been designated as Job 2B47.
10. After a production order has been issued, the Accounting
Department’s job-order costing software system automatically
generates a job cost sheet like the one presented in Exhibit 3–2 .
A job cost sheet records the materials, labor, and manufacturing
overhead costs charged to that job. After direct materials are issued,
the cost of these materials are automatically recorded on the job cost
sheet.
Note from Exhibit 3–2 , for example, that the $660 cost for direct
materials shown earlier on the materials requisition form has been
charged to Job 2B47 on its job cost sheet.
The requisition number 14873 from the materials requisition form
appears on the job cost sheet to make it easier to identify the source
document for the direct materials charge.
11.
12. Direct labor consists of labor charges that are easily traced
to a particular job.
Labor charges that cannot be easily traced directly to any
job are treated as part of manufacturing overhead.
As discussed in the previous chapter, this latter category
of labor costs is called indirect labor and includes tasks
such as maintenance, supervision, and cleanup.
13. Today many companies rely on computerized systems (rather than
paper and pencil) to maintain employee time tickets.
A completed time ticket is an hour-by-hour summary of the
employee’s activities throughout the day.
One computerized approach to creating time tickets uses bar codes to
capture data. Each employee and each job has a unique bar code.
When beginning work on a job, the employee scans three bar codes
using a handheld device much like the bar code readers at grocery
store checkout stands.
The first bar code indicates that a job is being started; the second is
the unique bar code on the employee’s identity badge; and the third
is the unique bar code of the job itself.
14.
15. For example, Exhibit 3–3 shows $45 of direct labor
cost related to Job 2B47.
This amount is automatically posted to the job cost
sheet shown in Exhibit 3–2 .
The time ticket in Exhibit 3–3 also shows $9 of indirect
labor costs related to performing maintenance.
This cost is treated as part of manufacturing overhead
and does not get posted on a job cost sheet.
16. 1. Manufacturing overhead is an indirect cost. This means
that it is either impossible or difficult to trace these costs
to a particular product or job.
2. Manufacturing overhead consists of many different
items ranging from the grease used in machines to the
annual salary of the production manager.
3. Because of the fixed costs in manufacturing overhead,
total manufacturing overhead costs tend to remain
relatively constant from one period to the next even
though the number of units produced can fluctuate widely.
Consequently, the average cost per unit will vary from one
period to the next.
17. An allocation base is a measure such as direct labor-hours
(DLH) or machine-hours (MH) that is used to assign overhead
costs to products and services. The most widely used allocation
bases in manufacturing are direct labor-hours, direct labor cost,
machine-hours and (where a company has only a single
product) units of product. Manufacturing overhead is
commonly assigned to products using a predetermined
overhead rate. The predetermined overhead rate is computed
by dividing the total estimated manufacturing overhead cost
for the period by the estimated total amount of the allocation
base as follows:
𝑝𝑟𝑒𝑑𝑒𝑡𝑒𝑟𝑚𝑖𝑛𝑒𝑑 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑟𝑎𝑡𝑒 =
Estimated total manufacturing overhead cost
Estimated total amount of the allocation base
18. Applying Manufacturing
Overhead
To repeat, the predetermined overhead rate is computed
before the period begins. The predetermined overhead
rate is then used to apply overhead cost to jobs
throughout the period.
The process of assigning overhead cost to jobs is called
overhead application . The formula for determining the
amount of overhead cost to apply to a particular job is:
Overhead applied to a particular job =
Predetermined overhead rate × Amount of the allocation
base incurred by the job
19.
20. The job cost sheet is complete except for two final steps.
First, the totals for direct materials, direct labor, and
manufacturing overhead are transferred to the Cost Summary
section of the job cost sheet and added together to obtain the
total cost for the job. Then the total product cost ( $1,800 ) is
divided by the number of units.
(2) to obtain the unit product cost ( $900 ). This unit product
cost information is used for valuing unsold units in ending
inventory and for determining cost of goods sold.
As indicated earlier, this unit product cost is an average cost
and should not be interpreted as the cost that would actually
be incurred if another unit were produced.
21. Exhibit 3–5 provides a conceptual overview of these cost flows.
It highlights the fact that product costs flow through inventories
on the balance sheet and then on to cost of goods sold in the
income statement. More specifically, raw materials purchases
are recorded in the Raw Materials inventory account.
Raw materials include any materials that go into the final
product.
Work in process consists of units of product that are only
partially complete and will require further work before they are
ready for sale to the customer. Notice that direct labor costs are
added directly to Work in Process—they do not flow through
Raw Materials inventory.
Finished goods consist of completed units of product that have
not yet been sold to customers.
22. The cost of goods manufactured includes the
manufacturing costs associated with the goods that
were finished during the period.
As goods are sold, their costs are transferred from
Finished Goods to Cost of Goods Sold.
Period costs (or selling and administrative expenses)
do not flow through inventories on the balance sheet.
They are recorded as expenses on the income
statement in the period incurred.
23.
24. Forge Machine Works collects its cost data by the job order cost
accumulation procedure. For Job 642, the following data are
available:
9/14 Rs. 1200 week of sep. 180 hrs @ $6.20/hr
Issued 20
9/20 Rs. 622 week of sep 140 hrs @ $7.30/hr
Issued 26
9/22 Rs. 480
Issued
Factory overhead applied at the rate of $3.50 per direct labor
hour. Required:
The appropriate information on a job cost sheet.
The sales price of the job, assuming that it was contracted
with a markup of 40% of cost.
26. The Purchase and Issue of Materials
On April 1, Ruger Corporation had $7,000 in raw materials
on hand. During the month, the company purchased on
account an additional $60,000 in raw materials. The
purchase is recorded in journal entry (1) below:
Raw Materials. . . . . . . . . . . . . . . . . . . . . .60,000
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . 60,000
As explained in the previous chapter, Raw Materials is an
asset account. Thus, when raw materials are purchased,
they are initially recorded as an asset—not as an expense.
27. Issue of Direct and Indirect Materials During
April, $52,000 in raw materials were requisitioned from the
storeroom for use in production. These raw materials
included $50,000 of direct and $2,000 of indirect materials.
The Job contains a beginning balance of $30,000.
Entry (2) records issuing the materials to the production
departments.
Work in Process . . . . . . . . . . . . . . . . . . . . . 50,000
Manufacturing Overhead . . . . . . . . . . . . . . 2,000
Raw Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52,000
The materials charged to Work in Process represent direct
materials for specific jobs.
These costs are also recorded on the appropriate job cost
sheets.
28. Labor Cost
In April, the employee time tickets included $60,000
recorded for direct labor and $15,000 for indirect labor. The
following entry summarizes these costs: (3)
Work in Process . . . . . . . . . . . . . . . . . . . . . . .60,000
Manufacturing Overhead . . . . . . . . . . . . . . . 15,000
Salaries and Wages Payable . . . . . . . . . . . . . . . . . . 75,000
Only the direct labor cost of $60,000 is added to the Work
in Process account.
At the same time that direct labor costs are added to Work
in Process, they are also added to the individual job cost
sheets.
29. Manufacturing Overhead Costs
Recall that all manufacturing costs other than direct materials
and direct labor are classified as manufacturing overhead costs.
These costs are entered directly into the Manufacturing
Overhead account as they are incurred.
To illustrate, assume that Ruger Corporation incurred the
following general factory costs during April:
Utilities (heat, water, and power) . . . . . . . . . .21,000
Rent on factory equipment . . . . . . . . . . . . . . . 16,000
Miscellaneous factory overhead costs . . . . . . . 3,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$40,000
The following entry records the incurrence of these costs:(4)
Manufacturing Overhead . . . . . . . . . . . . . . . . .40,000
Accounts Payable* . . . . . . . . . . . . . . . . . . . . . . . . . . . .40,000
* Accounts such as Cash may also be credited
30. In addition, assume that during April, Ruger Corporation
recognized $13,000 in accrued property taxes and that $7,000
in prepaid insurance expired on factory buildings and
equipment.
The following entry records these items (5):
Manufacturing Overhead. . . . . . . . . . . . . . . . . . 20,000
Property Taxes Payable . . . . . . . . . . . . . . . . . . . . . . 13,000
Prepaid Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . .7,000
Finally, assume that the company recognized $18,000 in
depreciation on factory equipment during April.
The following entry records the accrual of this depreciation (6):
Manufacturing Overhead . . . . . . . . . . . . . . . . . . .18,000
Accumulated Depreciation . . . . . . . . . . . . . . . 18,000
In short, manufacturing overhead costs are recorded directly
into the Manufacturing Overhead account as they are incurred.
31. Applying Manufacturing Overhead
Actual manufacturing costs are charged to the Manufacturing
Overhead control account rather than to Work in Process, how
are manufacturing overhead costs assigned to Work in Process?
The answer is, by means of the predetermined overhead rate.
To illustrate, assume that Ruger Corporation’s predetermined
overhead rate is $6 per machine-hour. Also assume that during
April, 15,000 machine-hours were worked on Job.
Thus, $90,000 in overhead cost ($6 per machine-
hour × 15,000 machine-hours = $90,000) would be applied
to Work in Process.
The following entry records the application of Manufacturing
Overhead to Work in Process: (7)
Work in Process . . . . . . . . . . . . . . . . . . . . . . . . . . .90,000
Manufacturing Overhead . . . . . . . . . . . . . . . . . . . . 90,000
32. Nonmanufacturing Costs
In addition to manufacturing costs, companies also incur
selling and administrative costs. These costs should be
treated as period expenses and charged directly to the
income statement.
Nonmanufacturing costs should not go into the
Manufacturing Overhead account.
To illustrate the correct treatment of nonmanufacturing
costs, assume that Ruger Corporation incurred $30,000 in
selling and administrative salary costs during April.
The following entry summarizes the accrual of those
salaries (8):
Salaries Expense . . . . . . . . . . . . . . . . . . . . 30,000
Salaries and Wages Payable . . . . . . . . . . . . 30,000
33. Assume that depreciation on office equipment during April was
$7,000. The entry is as follows (9):
Depreciation Expense . . . . . . . . . . . . . . . . . . . .7,000
Accumulated Depreciation . . . . . . . . . . . . . . . 7,000
Pay particular attention to the difference between this entry
and entry (6) where we recorded depreciation on factory
equipment.
In journal entry (6), depreciation on factory equipment was
debited to Manufacturing Overhead and is therefore a product
cost.
In journal entry (9) above, depreciation on office equipment is
debited to Depreciation Expense.
Depreciation on office equipment is a period expense rather
than a product cost.
34. Finally, assume that advertising was $42,000 and that other
selling and administrative expenses in April totaled $8,000. The
following entry records these items (10):
Advertising Expense . . . . . . . . . . . . . . . . . . . . .42,000
Other Selling and Administrative Expense . . . .8,000
Accounts Payable*. . . . . . . . . . . . . . . . . . . . . . .50,000
*Other accounts, such as Cash may be credited.
The amounts in entries (8) through (10) are recorded directly
into expense accounts— they have no effect on product costs.
The same will be true of any other selling and administrative
expenses incurred during April, including sales commissions,
depreciation on sales equipment, rent on office facilities,
insurance on office facilities, and related costs.
35. Cost of Goods Manufactured
When a job has been completed, the finished output is
transferred from the production departments to the finished
goods warehouse. The costs of the completed job are
transferred out of the Work in Process account and into the
Finished Goods account. The sum of all amounts transferred
between these two accounts represents the cost of goods
manufactured for the period.
In the case of Ruger Corporation, assume that Job was
completed during April. The following entry transfers the cost
of Job from Work in Process to Finished Goods: (11)
Finished Goods . . . . . . . . . . . . . . . . . . . . . . . . .158,000
Work in Process . . . . . . . . . . . . . . . . . . . . . . . . 158,000
36. Cost of Goods Sold
As finished goods are shipped to customers, their accumulated costs
are transferred from the Finished Goods account to the Cost of
Goods Sold account. The beginning finished goods inventory
($10,000) plus the cost of goods manufactured.
For Ruger Corporation, we will assume 750 of the 1,000 gold
medallions Job was shipped to customers by the end of the month
for total sales revenue of $225,000. Because 1,000 units were
produced and the total cost of the job from the job cost sheet was
$158,000, the unit product cost was $158. The following journal
entries would record the sale (all sales were on account):
Accounts Receivable . . . . . . . . . . . . . . . . . .225,000
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225,000
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . .118,500
Finished Goods . . . . . . . . . . . . . . . . . . . . . . . . . 118,500
(750 units × $158 per unit = $118,500)
37.
38.
39. Cost of Goods Manufactured and Cost of
Goods Sold
The schedule of cost of goods manufactured contains three
elements of product costs—direct materials, direct labor, and
manufacturing overhead—and it summarizes the portions of
those costs that remain in ending Work in Process inventory and
that are transferred out of Work in Process into Finished Goods.
The schedule of cost of goods sold also contains three
elements of product costs—direct materials, direct labor, and
manufacturing overhead—and it summarizes the portions of
those costs that remain in ending Finished Goods inventory
and that are transferred out of Finished Goods into Cost of
Goods Sold.
40.
41. Exhibit 3–11 presents Ruger Corporation’s schedules of cost of goods
manufactured and cost of goods sold.
We want to draw your attention to three key aspects of the schedule
of cost of goods manufactured.
First, three amounts are always added together— direct materials
used in production ($50,000), direct labor ($60,000), and
manufacturing overhead applied to work in process ($90,000)—to
yield the total manufacturing costs ($200,000).
Notice, the direct materials used in production ($50,000) is included
in total manufacturing costs instead of raw material purchases
($60,000). The direct materials used in production will usually differ
from the amount of raw material purchases when the raw materials
inventory balance changes or indirect materials are withdrawn from
raw materials inventory.
Second, the amount of manufacturing overhead applied to Work in
Process ($90,000) is computed by multiplying the predetermined
overhead rate by the actual amount of the allocation base recorded
on all jobs. The actual manufacturing overhead costs incurred during
the period are not added to the Work in Process account.
42. Third, total manufacturing costs ($200,000) plus beginning Work
in Process inventory ($30,000) minus ending Work in Process
inventory ($72,000) equals the cost of goods manufactured
($158,000).
The cost of goods manufactured represents the cost of the
goods completed during the period and transferred from Work
in Process to Finished Goods.
The schedule of cost of goods sold shown in Exhibit 3–11 relies
on the following equation to compute the unadjusted cost of
goods sold:
Unadjusted cost = Beginning finished + Cost of goods – Ending
of goods sold goods inventory manufactured finished
goods
inventory
43.
44. Underapplied and Overapplied
Overhead
Underapplied overhead A debit balance in the Manufacturing
Overhead account that occurs when the amount of overhead
cost actually incurred exceeds the amount of overhead cost
applied to Work in Process during a period.
Overapplied overhead A credit balance in the Manufacturing
Overhead account that occurs when the amount of overhead
cost applied to Work in Process exceeds the amount of overhead
cost actually incurred during a period
Because the predetermined overhead rate is established before
the period begins and is based entirely on estimated data, the
overhead cost applied to Work in Process will generally differ
from the amount of overhead cost actually incurred.
45. The difference between the overhead cost applied to Work in
Process and the actual overhead costs of a period is called
either underapplied or overapplied overhead . For Ruger
Corporation, overhead was underapplied by $5,000 because
the applied cost ($90,000) was $5,000 less than the actual
cost ($95,000).
If the situation had been reversed and the company had
applied $95,000 in overhead cost to Work in Process while
incurring actual overhead costs of only $90,000, then the
overhead would have been overapplied.
The underapplied or overapplied balance remaining in the
Manufacturing Overhead account at the end of a period is
treated in one of two ways: 1. Closed out to Cost of Goods
Sold. 2. Allocated among the Work in Process, Finished
Goods, and Cost of Goods Sold accounts in proportion to the
overhead applied during the current period in ending
balances.
46. Closed Out to Cost of Goods Sold
Closing out the balance in Manufacturing Overhead to Cost of Goods
Sold is simpler than the allocation method. In the Ruger Corporation
example, the entry to close the $5,000 of underapplied overhead to
Cost of Goods Sold is: (14)
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . .5,000
Manufacturing Overhead . . . . . . . . . . . . . . . . . . . 5,000
Note that because the Manufacturing Overhead account has a debit
balance, Manufacturing Overhead must be credited to close out the
account.
This has the effect of increasing Cost of Goods Sold for April to
$123,500:
Unadjusted cost of goods sold [from entry (13)] . . . . . . . . $118,500
Add underapplied overhead [entry (14)] . . . . . . . . . . . . . . . . 5,000
Adjusted cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . $123,500
47. Allocated between Accounts
Allocation of underapplied or overapplied overhead
between Work in Process, Finished Goods, and Cost of
Goods Sold is more accurate than closing the entire balance
into Cost of Goods Sold. This allocation assigns overhead
costs to where they would have gone had the estimates
included in the predetermined overhead rate matched the
actual amounts.
The allocation method is generally considered more
accurate than simply closing out the underapplied or
overapplied overhead to Cost of Goods Sold. However, the
allocation method is more complex. We will always specify
which method you are to use in problem assignments.
48. A General Model of Product Cost Flows Exhibit 3–14 presents a T-
account model of the flow of costs in a product costing system.
This model can be very helpful in understanding how production
costs flow through a costing system and finally end up as Cost of
Goods Sold on the income statement.
49. Hogle Corporation is a manufacturer that uses job-order costing.
On January 1, the beginning of its fiscal year, the company’s
inventory balances were as follows:
Raw materials . . . . . . . . . . . . . . . . . . . . $20,000
Work in process . . . . . . . . . . . . . . . . . . . $15,000
Finished goods. . . . . . . . . . . . . . . . . . . . $30,000
The company applies overhead cost to jobs on the basis of
machine-hours worked. For the current year, the company’s
predetermined overhead rate was based on a cost formula that
estimated $450,000 of total manufacturing overhead for an
estimated activity level of 75,000 machinehours. The following
transactions were recorded for the year:
50. a. Raw materials were purchased on account, $410,000.
b. Raw materials were requisitioned for use in production, $380,000
($360,000 direct materials and $20,000 indirect materials).
c. The following costs were accrued for employee services: direct labor,
$75,000; indirect labor, $110,000; sales commissions, $90,000; and
administrative salaries, $200,000.
d. Sales travel costs were $17,000.
e. Utility costs in the factory were $43,000.
f. Advertising costs were $180,000.
g. Depreciation was recorded for the year, $350,000 (80% relates to factory
operations, and 20% relates to selling and administrative activities).
h. Insurance expired during the year, $10,000 (70% relates to factory
operations, and the remaining 30% relates to selling and administrative
activities).
i. Manufacturing overhead was applied to production. Due to greater than
expected demand for its products, the company worked 80,000 machine-
hours on all jobs during the year.
j. Goods costing $900,000 to manufacture according to their job cost sheets
were completed during the year.
k. Goods were sold on account to customers during the year for a total of
$1,500,000.
The goods cost $870,000 to manufacture according to their job cost sheets.
51. Required:
1. Prepare journal entries to record the preceding transactions.
2. Post the entries in (1) above to T-accounts (don’t forget to
enter the beginning balances in the inventory accounts).
3. Is Manufacturing Overhead underapplied or overapplied for
the year? Prepare a journal entry to close any balance in the
Manufacturing Overhead account to Cost of Goods Sold. Do not
allocate the balance between ending inventories and Cost of
Goods Sold.
4. Prepare an income statement for the year.