Job order costing and process costing are two cost accounting systems that accumulate costs to measure the cost of producing each unit of product. Job order costing is used for companies that produce batches of unique products in small quantities, while process costing is used for companies that produce large quantities of identical or similar products continuously. Both systems accumulate direct costs and indirect costs and assign them to products or jobs. Job order costing accumulates costs per batch or job, while process costing accumulates costs for each production process.
The document discusses concepts and methods in job order costing. It describes building block concepts like cost objects, direct/indirect costs, cost assignment, tracing, allocation and cost pools. It also distinguishes between job costing and process costing, outlines a seven step approach to job costing, and discusses actual versus normal costing. The document provides examples to illustrate tracking costs through a job costing system and accounting for under or overallocated indirect costs at period end.
Job order costing is used to track costs for unique products or services. It involves tracking direct materials, direct labor, manufacturing overhead (MOH), and non-manufacturing expenses. MOH can be under- or over-applied. Recording transactions involves journal entries to record costs in inventory, MOH, work in process, finished goods, and cost of goods sold accounts. When a job is complete, finished goods are recorded and the job is sold, with sales revenue and cost of goods sold recorded. Any over- or under-applied MOH is also adjusted.
1) The document discusses job-order costing and process costing systems. It explains that job-order costing is used when individual products are unique and tracked separately, while process costing is used when large quantities of a standard product are produced.
2) Job-order costing involves tracking direct material, direct labor, and allocated manufacturing overhead costs for each individual job. Documents used include job cost sheets, materials requisition forms, time tickets, and predetermined overhead rates.
3) Predetermined overhead rates are estimated before production and allow overhead to be allocated to jobs based on an allocation base like direct labor hours. This allows job costs to be estimated before actual overhead amounts are known for the period.
This document provides an overview of job order costing concepts and journal entries. It discusses how to record direct materials, direct labor, manufacturing overhead, and non-manufacturing expenses. It also covers calculating and applying overhead rates, recording work in process and finished goods inventory, and journal entries for job completion and sales. Examples are provided for each step to illustrate the full job order costing process.
The document provides an overview of job order costing systems used in manufacturing. It discusses key terms like direct materials, direct labor, and factory overhead. It also outlines the flow of costs through the production process from purchasing raw materials to completing jobs and transferring finished goods to inventory or selling products. The example shows how costs like materials, labor, and overhead are assigned to specific jobs and accumulated to calculate the total cost of goods manufactured.
SYSTEMS DESIGN:JOB-ORDER COSTINGandPROCESS COSTINGMargie Capitle
This document discusses different accounting systems used for costing. Cost accounting is concerned with accumulating costs for inventory valuation and profit measurement. Managerial accounting provides information for decision-making. There are two main costing systems - job order costing and process costing. Job order costing accumulates costs for each unique job while process costing aggregates costs for mass production. In designing a cost accounting system, decisions must be made regarding the use of historical or standard costs, job order or process costing, absorption or direct costing, and plant-wide or activity-based overhead allocation.
Job order costing systems use a predetermined overhead rate to apply manufacturing overhead to jobs, which can result in overapplied or underapplied overhead for the period depending on actual overhead costs. Over or underapplied amounts are allocated to work in process, finished goods, and cost of goods sold inventory accounts or closed directly to cost of goods sold based on the percentage of total overhead applied to each account. This process ensures overhead costs are properly matched with the time period they relate to.
The document discusses concepts and methods in job order costing. It describes building block concepts like cost objects, direct/indirect costs, cost assignment, tracing, allocation and cost pools. It also distinguishes between job costing and process costing, outlines a seven step approach to job costing, and discusses actual versus normal costing. The document provides examples to illustrate tracking costs through a job costing system and accounting for under or overallocated indirect costs at period end.
Job order costing is used to track costs for unique products or services. It involves tracking direct materials, direct labor, manufacturing overhead (MOH), and non-manufacturing expenses. MOH can be under- or over-applied. Recording transactions involves journal entries to record costs in inventory, MOH, work in process, finished goods, and cost of goods sold accounts. When a job is complete, finished goods are recorded and the job is sold, with sales revenue and cost of goods sold recorded. Any over- or under-applied MOH is also adjusted.
1) The document discusses job-order costing and process costing systems. It explains that job-order costing is used when individual products are unique and tracked separately, while process costing is used when large quantities of a standard product are produced.
2) Job-order costing involves tracking direct material, direct labor, and allocated manufacturing overhead costs for each individual job. Documents used include job cost sheets, materials requisition forms, time tickets, and predetermined overhead rates.
3) Predetermined overhead rates are estimated before production and allow overhead to be allocated to jobs based on an allocation base like direct labor hours. This allows job costs to be estimated before actual overhead amounts are known for the period.
This document provides an overview of job order costing concepts and journal entries. It discusses how to record direct materials, direct labor, manufacturing overhead, and non-manufacturing expenses. It also covers calculating and applying overhead rates, recording work in process and finished goods inventory, and journal entries for job completion and sales. Examples are provided for each step to illustrate the full job order costing process.
The document provides an overview of job order costing systems used in manufacturing. It discusses key terms like direct materials, direct labor, and factory overhead. It also outlines the flow of costs through the production process from purchasing raw materials to completing jobs and transferring finished goods to inventory or selling products. The example shows how costs like materials, labor, and overhead are assigned to specific jobs and accumulated to calculate the total cost of goods manufactured.
SYSTEMS DESIGN:JOB-ORDER COSTINGandPROCESS COSTINGMargie Capitle
This document discusses different accounting systems used for costing. Cost accounting is concerned with accumulating costs for inventory valuation and profit measurement. Managerial accounting provides information for decision-making. There are two main costing systems - job order costing and process costing. Job order costing accumulates costs for each unique job while process costing aggregates costs for mass production. In designing a cost accounting system, decisions must be made regarding the use of historical or standard costs, job order or process costing, absorption or direct costing, and plant-wide or activity-based overhead allocation.
Job order costing systems use a predetermined overhead rate to apply manufacturing overhead to jobs, which can result in overapplied or underapplied overhead for the period depending on actual overhead costs. Over or underapplied amounts are allocated to work in process, finished goods, and cost of goods sold inventory accounts or closed directly to cost of goods sold based on the percentage of total overhead applied to each account. This process ensures overhead costs are properly matched with the time period they relate to.
Solutions Manual for Managerial Accounting 4th Edition by Braunriven020
This document provides solutions to exercises from Chapter 2 of the textbook "Managerial Accounting 4th Edition by Braun". It includes classification of costs into relevant categories such as direct materials, direct labor, manufacturing overhead and period costs. There are also calculations of inventoriable product costs, prime costs and conversion costs. Short answer and multiple choice questions from the chapter are provided along with explanations and solutions.
This document discusses key concepts in managerial accounting, including:
1. The differences between managerial and financial accounting in terms of users, reports, purposes, and verification.
2. The importance of managerial accounting information for decision making through planning, directing, and controlling.
3. Key cost concepts like classifications of costs by behavior, function, and period.
4. Preparing key statements for manufacturing companies including the statement of cost of goods manufactured, income statement, and balance sheet.
The document discusses job order costing and outlines the key concepts and steps involved. It describes how to track costs as they flow through the production process, from acquiring direct materials and allocating overhead to the completion and sale of jobs. It also addresses how to account for underallocated or overallocated overhead at the end of a period using different approaches, such as adjusting allocation rates or prorating the difference.
| Managerial Accounting | Chapter 1 | An Overview to Managerial Accounting | ...Ahmad Hassan
Chapter 1: an overview of managerial accounting -- managerial accounting and financial accounting, work of management, planning and control cycle, differences b/w managerial accounting and financial accounting, comparing merchandising and manufacturing activities, Chapter 2: managerial accounting and cost concepts -- classifications of costs, manufacturing and non-manufacturing costs, product costs versus period costs, cost classifications for predicting cost behavior, fixed costs and variable costs, direct and indirect costs, differential costs and revenues, opportunity and sunk costs.
Chapter 3: systems design: job-order costing -- types of costing systems used to determine product costs, sequence of events in a job-order costing system, job-order cost accounting, application of manufacturing overhead, the need for predetermined manufacturing overhead rate, job-order costing document flow summary, job-order system cost flows, job-order costing--typical accounting entries.
Acc mgt noreen02 systems design job order costingJudianto Nugroho
This document discusses job-order costing and process costing systems. It defines the two systems, providing examples of companies that would typically use each. Job-order costing is used when many different products are produced to customer orders, requiring unique cost records for each job. Process costing is used when a company produces large quantities of a single product. The document also outlines the key documents used in a job-order costing system, such as job cost sheets, materials requisitions, and time tickets. It explains how predetermined overhead rates are used to apply manufacturing overhead costs and discusses the flow of costs through a job-order system using T-accounts.
- Process costing is used for products that are similar and produced continuously, while job-order costing is used for unique jobs.
- Process costing accumulates costs by department rather than individual jobs. Costs flow through manufacturing accounts like Work in Process and are ultimately transferred to Finished Goods.
- Equivalent units of production considers partially completed units by calculating a percentage of completion and combining it with fully completed units to determine total production for the period.
Managerial Accounting Garrison Noreen Brewer Chapter 04Asif Hasan
This document provides an overview of process costing, including definitions, similarities and differences between job-order and process costing systems, and examples of how costs flow through processing departments using T-accounts and journal entries. Key points covered include: process costing is used for products produced continuously and in large quantities, costs are accumulated and traced by department rather than individual jobs, and examples illustrate the flow of direct materials, direct labor, and applied overhead from raw materials to work in process to finished goods.
For more course tutorials visit
www.tutorialrank.com
B6021 Module 1 Assignment 3 Calculating Inventory
Finlon Upholstery Inc. uses a job-order costing system to accumulate manufacturing costs. The company's work-in-process on December 31, 2001, consisted of one job (no. 2077), which was carried on the year-end balance sheet at $156,800. There was no finished-goods inventory on this date.
For more course tutorials visit
www.tutorialrank.com
B6021 Module 1 Assignment 3 Calculating Inventory
Finlon Upholstery Inc. uses a job-order costing system to accumulate manufacturing costs. The company's work-in-process on December 31, 2001, consisted of one job (no. 2077), which was carried on the year-end balance sheet at $156,800. There was no finished-goods inventory on this date.
| Managerial Accounting | Chapter 4 | Systems Design: Process Costing | Intro...Ahmad Hassan
This document discusses process costing and provides examples of how to prepare a production report using the weighted average method. It defines key process costing concepts like equivalent units and shows how to calculate costs per equivalent unit. The production report sections include a quantity schedule with equivalent units calculation, computation of cost per equivalent unit, and a cost reconciliation section.
The document discusses job-order costing, including:
1. Job-order costing is used when different products are produced to customer orders and the unique nature of each job requires tracing costs.
2. Manufacturing overhead is allocated to jobs using a predetermined overhead rate based on an allocation base like direct labor hours.
3. Underapplied or overapplied overhead can occur if actual overhead differs from the amount applied using the predetermined rate.
This document discusses different costing methods used in management accounting including job costing, process costing, batch costing, contract costing, and service costing. It provides examples and explanations of key concepts in job costing like job cost sheets, predetermined overhead rates, and manufacturing overhead. Process costing is explained as a method used for mass production of nearly identical units where costs are accumulated and assigned to units produced. Batch costing is defined as identifying and assigning costs to a set amount of similar goods produced in a batch. Contract costing applies especially to long-term construction projects performed over multiple periods. Finally, service costing calculates the full costs of services an entity provides using direct and indirect costs.
This document provides an overview of managerial accounting. It discusses the differences between managerial and financial accounting, managerial cost concepts including direct materials, direct labor, and manufacturing overhead, and job order cost accounting. Job order cost accounting involves accumulating manufacturing costs, assigning costs to work in process and finished goods, and recognizing cost of goods sold. Costs flow through the job cost sheet which tracks costs by job.
Introduction to Managerial Accounting and Cost ConceptsViệt Hoàng Dương
The document provides an overview of managerial accounting concepts including the four functions of management, planning and control cycles, classifications of manufacturing costs, and distinctions between product and period costs. It defines direct materials, direct labor, and manufacturing overhead as the three basic manufacturing cost categories. Product costs include direct materials, direct labor, and manufacturing overhead, and are recorded in inventory accounts. Period costs are expensed on the income statement as incurred rather than included in inventory.
The document also discusses the schedule of cost of goods manufactured, which calculates manufacturing costs to determine the cost of goods produced during a period. It distinguishes between variable costs, which change with activity levels, and fixed costs, which remain constant with changes in activity.
This document provides information about job order costing and process costing systems. It defines job order costing as a system that separately accumulates costs for each unique job, while process costing collects costs by department for mass produced homogeneous items. The key differences are that job order costing tracks heterogeneous jobs individually, while process costing tracks homogeneous production on a departmental basis. The document also includes examples of journal entries, a job order cost sheet, and a process costing production report with calculations.
Cost classifications are used for four main purposes: preparing external financial statements, predicting cost behavior, assigning costs to cost objects, and making decisions. For financial statements, costs are classified as either product costs (recognized as assets until goods are sold) or period costs (expensed in the period incurred). Direct costs can be traced to specific cost objects, while indirect costs cannot. Variable costs change with activity level, while fixed costs remain constant. Only differential costs that differ between alternatives are relevant for decision making.
The document discusses job-order costing and process costing systems. It provides examples of how direct materials, direct labor, and manufacturing overhead are traced or assigned to jobs. It also describes how predetermined overhead rates are used to apply overhead to jobs when actual overhead amounts are not yet known for the period. The document summarizes the basic cost flows and accounting entries used in a job-order costing system.
This document discusses job costing, including its definition, purpose, characteristics, applicability, differences from process costing, basic terminology, the seven steps of job costing, related journal entries, and an example problem involving actual, normal, and variance costing for a job. Job costing involves collecting and assigning costs to identifiable jobs or orders, and is used when production involves made-to-order or custom goods of short duration. It helps with planning, cost control, and decision making.
cost accounting chapter 6, fundamentals of product and service designBeaDelaPenia1
This document discusses job-order costing systems used by manufacturing firms that produce unique products in small batches. It explains the key aspects of setting up a job-order costing system including cost accumulation, measurement, and assignment. Costs like direct materials, direct labor, and applied overhead are traced to individual jobs and accumulated on job cost sheets. The chapter compares using a single overhead rate versus multiple rates and how they impact cost assignment.
Solutions Manual for Managerial Accounting 4th Edition by Braunriven020
This document provides solutions to exercises from Chapter 2 of the textbook "Managerial Accounting 4th Edition by Braun". It includes classification of costs into relevant categories such as direct materials, direct labor, manufacturing overhead and period costs. There are also calculations of inventoriable product costs, prime costs and conversion costs. Short answer and multiple choice questions from the chapter are provided along with explanations and solutions.
This document discusses key concepts in managerial accounting, including:
1. The differences between managerial and financial accounting in terms of users, reports, purposes, and verification.
2. The importance of managerial accounting information for decision making through planning, directing, and controlling.
3. Key cost concepts like classifications of costs by behavior, function, and period.
4. Preparing key statements for manufacturing companies including the statement of cost of goods manufactured, income statement, and balance sheet.
The document discusses job order costing and outlines the key concepts and steps involved. It describes how to track costs as they flow through the production process, from acquiring direct materials and allocating overhead to the completion and sale of jobs. It also addresses how to account for underallocated or overallocated overhead at the end of a period using different approaches, such as adjusting allocation rates or prorating the difference.
| Managerial Accounting | Chapter 1 | An Overview to Managerial Accounting | ...Ahmad Hassan
Chapter 1: an overview of managerial accounting -- managerial accounting and financial accounting, work of management, planning and control cycle, differences b/w managerial accounting and financial accounting, comparing merchandising and manufacturing activities, Chapter 2: managerial accounting and cost concepts -- classifications of costs, manufacturing and non-manufacturing costs, product costs versus period costs, cost classifications for predicting cost behavior, fixed costs and variable costs, direct and indirect costs, differential costs and revenues, opportunity and sunk costs.
Chapter 3: systems design: job-order costing -- types of costing systems used to determine product costs, sequence of events in a job-order costing system, job-order cost accounting, application of manufacturing overhead, the need for predetermined manufacturing overhead rate, job-order costing document flow summary, job-order system cost flows, job-order costing--typical accounting entries.
Acc mgt noreen02 systems design job order costingJudianto Nugroho
This document discusses job-order costing and process costing systems. It defines the two systems, providing examples of companies that would typically use each. Job-order costing is used when many different products are produced to customer orders, requiring unique cost records for each job. Process costing is used when a company produces large quantities of a single product. The document also outlines the key documents used in a job-order costing system, such as job cost sheets, materials requisitions, and time tickets. It explains how predetermined overhead rates are used to apply manufacturing overhead costs and discusses the flow of costs through a job-order system using T-accounts.
- Process costing is used for products that are similar and produced continuously, while job-order costing is used for unique jobs.
- Process costing accumulates costs by department rather than individual jobs. Costs flow through manufacturing accounts like Work in Process and are ultimately transferred to Finished Goods.
- Equivalent units of production considers partially completed units by calculating a percentage of completion and combining it with fully completed units to determine total production for the period.
Managerial Accounting Garrison Noreen Brewer Chapter 04Asif Hasan
This document provides an overview of process costing, including definitions, similarities and differences between job-order and process costing systems, and examples of how costs flow through processing departments using T-accounts and journal entries. Key points covered include: process costing is used for products produced continuously and in large quantities, costs are accumulated and traced by department rather than individual jobs, and examples illustrate the flow of direct materials, direct labor, and applied overhead from raw materials to work in process to finished goods.
For more course tutorials visit
www.tutorialrank.com
B6021 Module 1 Assignment 3 Calculating Inventory
Finlon Upholstery Inc. uses a job-order costing system to accumulate manufacturing costs. The company's work-in-process on December 31, 2001, consisted of one job (no. 2077), which was carried on the year-end balance sheet at $156,800. There was no finished-goods inventory on this date.
For more course tutorials visit
www.tutorialrank.com
B6021 Module 1 Assignment 3 Calculating Inventory
Finlon Upholstery Inc. uses a job-order costing system to accumulate manufacturing costs. The company's work-in-process on December 31, 2001, consisted of one job (no. 2077), which was carried on the year-end balance sheet at $156,800. There was no finished-goods inventory on this date.
| Managerial Accounting | Chapter 4 | Systems Design: Process Costing | Intro...Ahmad Hassan
This document discusses process costing and provides examples of how to prepare a production report using the weighted average method. It defines key process costing concepts like equivalent units and shows how to calculate costs per equivalent unit. The production report sections include a quantity schedule with equivalent units calculation, computation of cost per equivalent unit, and a cost reconciliation section.
The document discusses job-order costing, including:
1. Job-order costing is used when different products are produced to customer orders and the unique nature of each job requires tracing costs.
2. Manufacturing overhead is allocated to jobs using a predetermined overhead rate based on an allocation base like direct labor hours.
3. Underapplied or overapplied overhead can occur if actual overhead differs from the amount applied using the predetermined rate.
This document discusses different costing methods used in management accounting including job costing, process costing, batch costing, contract costing, and service costing. It provides examples and explanations of key concepts in job costing like job cost sheets, predetermined overhead rates, and manufacturing overhead. Process costing is explained as a method used for mass production of nearly identical units where costs are accumulated and assigned to units produced. Batch costing is defined as identifying and assigning costs to a set amount of similar goods produced in a batch. Contract costing applies especially to long-term construction projects performed over multiple periods. Finally, service costing calculates the full costs of services an entity provides using direct and indirect costs.
This document provides an overview of managerial accounting. It discusses the differences between managerial and financial accounting, managerial cost concepts including direct materials, direct labor, and manufacturing overhead, and job order cost accounting. Job order cost accounting involves accumulating manufacturing costs, assigning costs to work in process and finished goods, and recognizing cost of goods sold. Costs flow through the job cost sheet which tracks costs by job.
Introduction to Managerial Accounting and Cost ConceptsViệt Hoàng Dương
The document provides an overview of managerial accounting concepts including the four functions of management, planning and control cycles, classifications of manufacturing costs, and distinctions between product and period costs. It defines direct materials, direct labor, and manufacturing overhead as the three basic manufacturing cost categories. Product costs include direct materials, direct labor, and manufacturing overhead, and are recorded in inventory accounts. Period costs are expensed on the income statement as incurred rather than included in inventory.
The document also discusses the schedule of cost of goods manufactured, which calculates manufacturing costs to determine the cost of goods produced during a period. It distinguishes between variable costs, which change with activity levels, and fixed costs, which remain constant with changes in activity.
This document provides information about job order costing and process costing systems. It defines job order costing as a system that separately accumulates costs for each unique job, while process costing collects costs by department for mass produced homogeneous items. The key differences are that job order costing tracks heterogeneous jobs individually, while process costing tracks homogeneous production on a departmental basis. The document also includes examples of journal entries, a job order cost sheet, and a process costing production report with calculations.
Cost classifications are used for four main purposes: preparing external financial statements, predicting cost behavior, assigning costs to cost objects, and making decisions. For financial statements, costs are classified as either product costs (recognized as assets until goods are sold) or period costs (expensed in the period incurred). Direct costs can be traced to specific cost objects, while indirect costs cannot. Variable costs change with activity level, while fixed costs remain constant. Only differential costs that differ between alternatives are relevant for decision making.
The document discusses job-order costing and process costing systems. It provides examples of how direct materials, direct labor, and manufacturing overhead are traced or assigned to jobs. It also describes how predetermined overhead rates are used to apply overhead to jobs when actual overhead amounts are not yet known for the period. The document summarizes the basic cost flows and accounting entries used in a job-order costing system.
This document discusses job costing, including its definition, purpose, characteristics, applicability, differences from process costing, basic terminology, the seven steps of job costing, related journal entries, and an example problem involving actual, normal, and variance costing for a job. Job costing involves collecting and assigning costs to identifiable jobs or orders, and is used when production involves made-to-order or custom goods of short duration. It helps with planning, cost control, and decision making.
cost accounting chapter 6, fundamentals of product and service designBeaDelaPenia1
This document discusses job-order costing systems used by manufacturing firms that produce unique products in small batches. It explains the key aspects of setting up a job-order costing system including cost accumulation, measurement, and assignment. Costs like direct materials, direct labor, and applied overhead are traced to individual jobs and accumulated on job cost sheets. The chapter compares using a single overhead rate versus multiple rates and how they impact cost assignment.
The document discusses cost sheets, which break down the total costs of producing a product into various components. It explains that cost sheets are used to determine accurate product costs, fix selling prices, compare costs over time for cost control, and help with decision making. The document then defines different types of costs like fixed, variable, operating, and direct costs. It also outlines the components that make up total cost, such as prime cost, factory cost, office cost, and discusses how to calculate costs like material consumed. Finally, it provides an example of the information needed to prepare a cost sheet statement.
Chapter 2 Managerial Accounting and Cost Concepts.pptjoellynpatrona
The document discusses key concepts in managerial accounting including the functions of management, planning and control, cost classifications, and inventory accounting. It defines direct materials, direct labor, and manufacturing overhead as the three basic manufacturing cost categories. It also distinguishes between product costs and period costs, with examples of each. Finally, it covers the differences between variable and fixed costs, direct and indirect costs, and defines differential costs, opportunity costs, and sunk costs.
This document discusses different costing methods used to determine the costs of jobs, batches, and services. It explains that job costing is used for customer-specific orders, batch costing for identical units produced in batches, and service costing for intangible services. The key steps in job costing include obtaining a customer order, estimating costs, setting a selling price, producing the job, and determining profit or loss. The document also provides examples and outlines the process for calculating costs and profits under different costing methods.
PPCE unit 3 (ME8793 – PROCESS PLANNING AND COST ESTIMATION) TAMILMECHKIT
UNIT III - INTRODUCTION TO COST ESTIMATION
Importance of costing and estimation –methods of costing-elements of cost estimation –Types of estimates – Estimating procedure- Estimation labor cost, material cost- allocation of over head charges- Calculation of depreciation cost
The document defines and discusses key cost accounting terms and concepts. It describes how costs flow through a manufacturing company, from raw materials to work in process to finished goods. It also covers cost accumulation procedures like job order costing and process costing, and how costs move from the balance sheet to the income statement. Cost classification categories like direct vs indirect, variable vs fixed, and product vs period costs are also summarized.
This document discusses job costing, which is a costing system where the cost object is a distinct unit or job. It may use different amounts of resources than other jobs. The document outlines the key concepts of job costing, including actual and normal costing approaches, tracking costs through journal entries, and adjusting for over- or under-applied manufacturing overhead at year-end using different methods. It provides examples to illustrate job costing calculations and journal entries.
This document discusses job order costing and process costing systems. Job order costing accumulates costs for each unique job or batch of products, and is used by companies that produce specialized or custom products. Process costing accumulates costs for each production step and is used by companies that mass produce similar products. The document provides examples of companies that would use each type of system and outlines the key differences between how costs are traced and allocated under job order versus process costing.
The document discusses cost accounting concepts and classifications. It defines different types of costs such as product costs, period costs, expenses, direct materials, direct labor, manufacturing overhead. It also discusses how these costs are classified on financial statements and how they flow through the manufacturing process. Schedules for calculating cost of goods manufactured and sold are presented with examples.
The document discusses cost estimating and costing. It defines cost estimating as determining the probable cost of manufacturing a product before production starts. This involves estimating costs for materials, labor, overhead etc. Costing determines the actual costs incurred during production. It provides information for setting prices, cost control, make-or-buy decisions and more. The document outlines different types of costing systems used such as job costing, batch costing and process costing.
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6. Job Order Costing Process Costing
For companies that
manufacture batches of
unique products or
specialized services
◦ Accounting firms
◦ Music studios
◦ Building contractors
◦ Health-care providers
Accumulates cost per batch
or job
More prevalent with
service-based economies
and ERP systems
For companies that produce
identical units through a
series of processes
◦ Large producer of similar
goods
Accumulates cost of each
process needed to
complete the produce
6
7. 7
Step 1:
Identify the chosen cost object.
Step 2:
Identify the direct costs of the job.
Step 3:
Select the cost-allocation bases.
Step 4:
Identify the indirect costs.
8. 8
Step 5:
Compute the overhead rate per unit.
Step 6:
Compute the indirect costs.
Step 7:
Compute the total cost of the job.
9. 9
A manufacturing company is planning to sell
a batch of 25 special machines (Job 650) to a
retailer for $114,800.
10. 10
Step 3:
The cost allocation base is machine-hours.
Job 650 used 500 machine-hours.
2,480 machine-hours were used by all jobs.
Step 1:
The cost object is Job 650.
Step 2:
Direct costs are: Direct materials = $50,000
Direct manufacturing labor = $19,000
Step 4:
Manufacturing overhead costs were $65,100.
11. 11
Step 5:
Actual indirect cost rate is
$65,100 2,480 = $26.25 per machine-hour.
Step 6:
$26.25 per machine-hour 500 hours = $13,125
Step 7:
Direct materials $50,000
Direct labor 19,000
Factory overhead 13,125
Total Cost $82,125
14. Job Cost Record
Job No.
Customer Name and Address
Job Description
Date Promised Date Started Date Completed
Direct Materials Direct Labor Overhead Costs Applied
Date
Requisi-
tion No. Amount
Time
Ticket
No. Amount Date Rate Amount
Cost Summary
Materials
Labor
Overhead
Totals Total Job Cost
14
15. 15
Direct materials
Direct labor
Manufacturing
overhead
Job 1
Job Cost Record
Work in process
inventory
Costs
incurred
in Job 1
Finished goods
inventory
Costs
of
Completed
Job 1
Cost of goods sold
Costs
of Job
1’s output
when sold
Ledger accounts
16. 16
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Materials inventory
Accounts payable
Subsidiary Materials Ledger Card
Item No. ________ Description _________________________
Date Received Used Balance
Units Cost Total Units Cost Total Units Cost Total
Purchases
18. Item no. Item Quantity Unit cost Amount
MATERIALS REQUISITION NO. _____
Date: _______ Job No. _____
18
Is a detailed source document that specifies
the type and quantity of materials as well as
cost of materials used for particular job.
Used to authorize the use of materials on a job
20. Job Cost Record
Job No.
Customer Name and Address
Job Description
Date Promised Date Started Date Completed
Direct Materials Direct Labor Overhead Costs Applied
Date
Requisi-
tion No. Amount
Time
Ticket
No. Amount Date Rate Amount
Cost Summary
Materials
Labor
Overhead
Totals Total Job Cost
20
28. 28
Total estimated manufacturing overhead costs
Total estimated quantity of the manufacturing
overhead allocation base
Primary cost driver of
overhead costs
Examples:
Direct labor hours
Direct labor cost
Machine hours
31. Record completion and sales of finished goods
and the adjustment for under- or overallocated
overhead
31
32. 32
Work in process
•Direct
Materials
•Direct Labor
•Manufacturing
Overhead
Finished goods
Cost of
Goods
Manufactured
Cost of goods sold
Cost of
Goods
Sold
Cost of
Goods Sold
Accounting for Finished Goods
Cost of
Goods
Manufactured
33. 33
Manufacturing overhead
Actual costs Applied to jobs
If actual costs
are greater,
overhead is
underallocated
If amount
applied to jobs is
greater,
overhead is
overallocated
Adjusting Under- or Overallocated
Manufacturing Overhead
34. The underallocated or overallocated overhead
amount is closed to Cost of goods sold
34
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
Cost of goods sold
Manufacturing overhead
If underallocated, Cost
of goods sold increases
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
Manufacturing overhead
Cost of goods sold
If overallocated, Cost of
goods sold decreases
36. Have no inventory
Managers need to know the cost of jobs to set
prices
36
Cost of Job X $1,000
Standard markup of 40% 400
Sale price of Job X $1,400
37. Often service companies largest cost is labor
Employees keep track of time spent on each client
or job
◦ Manually using a time record
◦ Automated system
37
Hourly rate to
the employer
Employee’s annual salary
2,000 work hours per year
The first learning objective is to distinguish between job order costing and process costing.
Some companies manufacture batches of unique products or specialized services. A job order costing system accumulates costs for each batch, or job. Accounting firms, music studios, health-care providers, building contractors, and furniture manufacturers are examples of companies that use job order costing systems. For example, Dell makes personal computers based on customer orders (see the “Customize” button on Dell’s Web site). As we move to a more service-based economy and with the advent of ERP systems, job order costing has become more prevalent.Other companies produce identical units through a series of production steps or processes. A process costing system accumulates the costs of each process needed to complete the product. This method is used primarily by large producers of similar goods.Both job order and process costing systems:• Accumulate the costs incurred to make the product• Assign costs to the productsAccountants use cost tracing to assign directly traceable costs, such as direct materials and direct labor, to the product. They use a technique—cost allocation—to assign manufacturing overhead and other indirect costs to the product. Let’s see how a job order costing system works for a manufacturing company.
The second learning objective is to record materials and labor in a job order costing system.
A job cost record is shown here. It assigns the cost of the direct materials, direct labor, and manufacturing overhead to a job.
The job order costing system tracks costs as raw materials moved from the storeroom to the production floor to finished products. This illustration diagrams the flow of costs through a job order costing system. Let us consider how a manufacturer uses job order costing. Often, each customer order is a separate job. A job cost record is used to accumulate the costs of each job’s:• Direct materials• Direct labor• Manufacturing overheadThe company starts the job cost record when work begins on the job. As costs are incurred, the company adds costs to the job cost record. For jobs started but not yet finished, the job cost records show the Work in process inventory. When a job is finished, the company totals the costs and transfers costs from Work in process inventory to Finished goods inventory. When the job’s units are sold, the costing system moves the costs from Finished goods inventory, an asset, to Cost of goods sold, an expense.
When materials are purchased, an entry is made debiting the Materials inventory account and crediting Accounts payable (if purchased on credit). Materials inventory is a general ledger account. Most companies use a subsidiary ledger for materials. The subsidiary materials ledger includes a separate record for each type of material. The balance of the Materials inventory account in the general ledger should always equal the sum of the balances in the subsidiary materials ledger.
When materials are used, direct material costs go directly into the Work in process inventory account. Indirect materials are debited to Manufacturing overhead. Materials inventory is reduced for the amount of materials taken from storage.
For both direct materials and indirect materials, the production team completes a document called a materials requisition to request the transfer of materials to the production floor.
This diagram summarizes the flow of costs through the ledger accounts impacted by purchases and use of materials.
A job cost record is shown here. It assigns the cost of the direct materials, direct labor, and manufacturing overhead to a job.
We record manufacturing wages by debiting an account called Manufacturing wages. Wages payable is credited. This entry includes the costs of both direct labor and indirect labor.
Each employee completes a labor time record for each job on which he or she works. The labor time record shows the time spent on the job and the rate of pay. The labor records are combined for each job, and the total is added to the job cost sheet.
Accounting for labor costs requires the company to:• assign labor cost to individual jobs.• transfer labor cost out of the Manufacturing wages account and into Work in process inventory (for direct labor) and into Manufacturing overhead (for indirect labor).This journal entry zeroes out the Manufacturing wages account and shifts the labor cost to the Work in process and Manufacturing overhead accounts.
T-accounts demonstrate how labor costs flow through the accounts. When manufacturing wages are incurred, the account is debited. When labor costs are allocated between direct and indirect portions, the direct costs increase Work in process, while the indirect costs increase Manufacturing overhead.
The third learning objective shows how to record overhead in a job order costing system.
All manufacturing overhead costs are accumulated as debits to a single general ledger account—Manufacturing overhead. In addition to indirect materials and indirect labor, companies incur several types of overhead costs. The first entry records any depreciation on the manufacturing plant and its assets. The second entry is for any cash outlay for overhead costs, such as utilities or repairs. The third entry records property taxes on the factory land, building, and plant assets.
Actual overhead costs are accumulated on the debit side of the Manufacturing overhead account in the accounting records. But how do overhead costs get assigned to individual jobs? Overhead includes a variety of costs that the company cannot trace to individual jobs. For example, it is impossible to say how much of the cost of plant utilities is related to a specific job Yet manufacturing overhead costs are as essential as direct materials and direct labor, so overhead costs need to be assigned to specific jobs. Otherwise, each job would not bear its fair share of the total cost.
To allocate overhead to jobs, the application rate is multiplied by the actual quantity of allocation base used on the job. So, if the overhead application rate is based on direct labor hours, the rate is multiplied by the direct labor hours used on each job.
The fourth learning objective is to record completion and sales of finished goods and the adjustment for under- or overallocated overhead.
During the year, manufacturers:• debit Manufacturing overhead for actual overhead costs.• credit Manufacturing overhead for amounts allocated to Work in process inventory.The total debits to the Manufacturing overhead account rarely equal the total credits. Why? Because firms allocate overhead to jobs using a predetermined allocation rate that is based on estimates. The predetermined allocation rate represents the expected relationship between overhead costs and the allocation base. A remaining debit balance of Manufacturing overhead represents underallocated overhead because the manufacturing overhead allocated to Work in process inventory is less than actual overhead cost incurred. (If it had been overallocated instead, Manufacturing overhead would have a credit balance.)
Accountants adjust underallocated and overallocated overhead at year-end, when closing the Manufacturing overhead account. Closing the account means zeroing it out, so when overhead is underallocated, a credit to Manufacturing overhead is needed to bring the account balance to zero. The debit side of the entry is to Cost of goods sold.
Service firms have no inventory. These firms incur only noninventoriable costs. But their managers still need to know the costs of different jobs in order to set prices for their services.
Often, service costs’ most significant cost is direct labor. How do service firms trace direct labor to individual jobs? In some companies, employees can fill out a weekly time record. Software totals the amount of time spent on each job. For automated services like Web-site design, employees enter the client number when they start on the client’s job. Software records the time elapsed until the employee signs off that job. The amount of direct labor charged to the client is computed by determining the employee’s hourly rate. This is done by dividing the employee’s annual salary by the 2,000 work hours per year (40 hours per week x 50 weeks per year)—assuming a 2-week per-year vacation.
Exercise 2-23 provides practice in determining unit cost for a service company. A consulting firm incurred $2.15 million in direct labor costs for 14,000 hours. This means direct labor costs are $153.57 (rounded) per hour.
Indirect costs of the firm include rent, support staff salaries, and utilities. These total $1.46 million. This total is divided by the direct labor hours. The result is $104.29 per direct labor hour allocation rate for indirect costs.
Client Manufacturing, is inviting several consultants to bid for work. Our company estimates that this job will require about 260 direct labor hours. Given this information, the estimated cost of this job is $67,044 (rounded).
If our company company wants to earn a profit that equals 55% of the job’s cost, how much should she bid for the Client manufacturing job? If we multiply the cost by 1 plus the profit percent (1.55 or 155%), we end up with $103,918. Given this is an estimate, it is common to round up.