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Product Costing Systems for Batch and Continuous Production

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The document discusses product costing and cost accumulation in a batch production environment. It explains that product costs are used for financial accounting, managerial accounting, and cost management purposes. It also describes how costs flow through a manufacturing firm, beginning with being added to work-in-process inventory, then transferred to finished goods inventory when production is complete, and finally expensed as cost of goods sold when products are sold. The document provides an overview of job-order costing and process costing systems.

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Product Costing and Cost Accumulation in a Batch Production Environment Chapter 3 Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Reviewer (R) - Slide 1 NN Added the title of the chapter. Reviewer (R) - CHAPTER 3 CORRECTIONS REQUIRED Note that pagination of the slides is inconsistent. Some slides have a slide number (bottom right), while other slides have no slide number. Chapter 3: Product Costing and Cost Accumulation in a Batch Production Environment Product and Service Costing Financial Accounting Product costs are used to value inventory on the balance sheet and to compute cost of
goods sold on the income statement. Managerial Accounting and Cost Management Product costs are used for planning, control, directing, and management decision making. 3-* Other Interested Organizations There is an ever increasing need to use data in external organizations as well. Product costing is the assignment of production costs to all output of the organization. A product-costing system accumulates the costs incurred in a production process and assigns those costs to the organization’s outputs. Product costing produces data that are needed for a variety of purposes in financial accounting, managerial accounting, and cost management. Use in Financial Accounting – Products costs are used to value inventory on the balance sheet and to compute the cost of goods sold on the income statement. Use in Managerial Accounting - Product costs are needed to help management plan, control, and direct operations. In addition, they are needed to help with management decision making. Use in Reporting to Interested Organizations – There is an ever- growing need for product cost information in relationships between firms and outside organizations. (LO 3-1) Flow of Costs in Manufacturing Firm 3-*
Manufacturing costs consist of direct material, direct labor, and manufacturing overhead. As production takes place, all manufacturing costs are added to the Work-in-Process Inventory (WIP) account with a debit. As soon as products are completed, their product costs are transferred from Work-in-Process Inventory to Finished-Goods Inventory with a credit to Work in Process and a debit to Finished Goods. During the time period when products are sold, the product cost of the inventory sold is removed from Finished Goods and added to Cost of Goods Sold, which is an expense of the period in which the sale occurred. A credit to Finished Goods and a debit to Cost of Goods Sold completes this step. Cost of Goods Sold is closed into the Income Summary account at the end of the accounting period, along with all other expenses and revenues of the period. We will look at this in more detail and go through each journal entry recorded as the costs progress through the accounting system. (LO 3-2) Sheet1Work-in-Process InventoryFinished Goods InventoryDirect material costProduct cost transferredDirect labor costManufacturing overheadwhen product is finishedCost of Goods SoldIncome SummaryExpense closed intoIncome Summary at endof accounting period Sheet2 Sheet3 Process Costing Job-Order
Costing Types of Product-Costing Systems 3-* Used for production of large, unique, high-cost items. Built to order rather than mass produced. Many costs can be directly traced to each job. TWO TYPES: Job-shop operations Products manufactured in very low volumes or one at a time. Batch-production operations Multiple products in batches of relatively small quantity. Reviewer (R) - Slide 7 NN First paragraph, first sentence: Changed the words 'Job-order costing' to bold font. Job-order costing is used by companies with job-shop operations or batch-production operations. In a job-shop environment, products are manufactured in very low volumes or one at a time. In job-order costing, each distinct batch of production is called a job or job order. The cost-accounting procedures are designed to assign costs to each job. Then the total costs assigned to each job are divided by the units of production in the job to obtain an average cost per unit. Examples of job-shop environments include film production, custom home building, and aircraft manufacturing.
In a batch-production environment, multiple products are produced in batches of relatively small quantity. Examples include furniture manufacture, printing, agricultural equipment, and pleasure boat production. (LO 3-3) Process Costing Job-Order Costing Types of Product-Costing Systems 3-* Used for production of small, identical, low cost items. Mass produced in automated continuous production process. Costs cannot be directly traced to each unit of product. Typical process cost applications: Petrochemical refinery Paint manufacturer Paper mill Process costing is used by companies that produce large numbers of identical units. A process-costing system accumulates all the production costs for a large number of units of output, and then these costs are averaged over all of the units. Firms that produce chemicals, microchips, gasoline, beer,
fertilizer, textiles, processed food, and electricity are among those using process costing. In these kinds of firms, there is no need to trace costs to specific batches of production because the products in the different batches are identical. (LO 3-3) The primary document for tracking the costs associated with a given job is the job-cost record. Accumulating Costs in a Job-Order Costing System 3-* In a job-order costing system, costs of direct material, direct labor, and manufacturing overhead are assigned to each production job. These costs comprise the inputs of the product- costing system. As costs are incurred, they are added to the Work-in-Process Inventory account in the ledger. To keep track of the manufacturing costs assigned to each job, a subsidiary ledger is maintained. The subsidiary ledger account assigned to each job is a document called a job-cost record. (LO 3-3) Job-Order Cost Accounting 3-* Three major sections on the job-cost record are used to accumulate the costs of direct material, direct labor, and manufacturing overhead assigned to the job. The other two sections are used to record the total cost and average unit cost
for the job, and to keep track of units shipped to customers. A job-cost record may be a paper document upon which the entries for direct material, direct labor, and manufacturing overhead are written. Increasingly, it is a computer file where entries are made using a computer. (LO 3-3) Sheet1Managerial AccountingFinancial AccountingUsers of InformationManagers, within the organization.Interested parties, outside the organization.RegulationNot required and unregulated, since it is intended only for management.Required and must conform to generally accepted accounting principles. Regulated by the Financial Accounting Standards Board, and, to a lesser degree, the Securities and Exchange Commission.Source of DataThe organization's basic accounting system, plus various other sources, such as rates of effective products manufactured, physical quantities of material and labor used in production, occupancy rates in hotels and hospitals, and average take-off delaysAlmost exclusively drawn from the organization's basic accounting system, which accumulates financial information.Nature of Reports and ProceduresReports often focus on subunits within the organization, such as departments, divisions, geographical regions, or product lines. Based on a combination of historical data, estimates, and projections of future events.Reports focus on the enterprise in its entirety. Based almost exclusively on historical transaction data. Sheet2One Production DepartmentWork-in-ProcessFinished GoodsInventoryInventoryCost of Goods SoldDirect materialCost of goods completedCost of goods soldDirect laborTwo Sequential Production DepartmentsApplied manufacturingand transferred toWork-in-Process InventoryWork-in-Process Inventoryoverheadfinished goodsProduction Department AProduction Department BDirect materialCost of goods completed in department A andCost of goods completedDirect laborApplied manufacturingtransferred toand transferred
tooverheaddepartment Bfinished goodsDirect materialDirect laborApplied manufacturingoverheadFinished Goods InventoryCost of Goods SoldCost of goods soldduring current periodOne Production DepartmentWork-in-Process InventoryFinished Goods InventoryDirect materialCost of goods completedCost of goods completedDirect laborApplied manufacturingand transferred toand transferred tooverheadFinished goodsfinished goodsDirect materialDirect laborApplied manufacturingoverhead Sheet3Cost of goods completed and transferred during MarchCost of goods completed and transferred during MarchCost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in- process on March 31Costs remaining in work-in-process on March 31Costs remaining in work-in-process on March 31Direct Material:Direct Material:Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,000Convserion:Convserion:Convserion:5,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total costs accounted for$ 340,700Total costs accounted for$ 340,700Total costs accounted for$ 340,700Cost of goods completed and transferred out of Stitching Dept. during March30,000 units x $12.228 per equivalent unit$ 366,840Costs remaining in work-in-process in Stitching Dept. on March 31Direct Material:20,000 equivalent units x $7.028 per equivalent unit$ 140,560Convserion:18,000 equivalent units x $4.95 per equivalent unit89,100Total cost of March 31 work-in-process229,660Total costs accounted for$
596,500 Sheet4ConversionPhysicalPhysicalPercentageTransferredDirect UnitsUnitsCompletionInMaterialConversionWork in process, March 110,000Work in process, March 110,00020%Units transferred in during March40,000Units transferred in during March40,000Total units to account for50,000Total units to account for50,000Units completed and transferred out during March30,000Units completed and transferred out during March30,00030,00030,00030,000Work in process, March 3120,000Work in process, March 3120,00090%20,000-0- 18,000Total units accounted for50,000Total units accounted for50,000Total equivalent units50,00030,00048,000PhysicalUnitsWork in process, March 110,000Units transferred in during March40,000Total units to account for50,000Units completed and transferred out during March30,000Work in process, March 3120,000Total units accounted for50,000 Sheet5Work-in-Process Inventory:Work-in-Process Inventory:TransferredDirectCutting DepartmentStitching DepartmentInMaterialConversionTotalDirect materialCost of goodsTransferred-completed andin costsWork in Process, March 1$ 61,000-0-$ 7,600$ 68,600Conversion:transferred outCosts incurred during March290,400$ 7,500230,000527,900Direct laborDirect materialTotal costs to account for$ 351,400$ 7,500$ 237,600$ 596,500ManufacturingoverheadConversion:Equivalent units50,00030,00048,000Direct laborCost per equivalent unit$ 7.028$ 0.25$ 4.95$ 12.228Manufacturingoverhead$351,400$7,500$237,600$ 7.02850,00030,00048,000+ $.25+ $4.95 Sheet6MVP SPORTS EQUIPMENT COMPANYProduction Report: Cutting DepartmentPercentage ofCompletionEquivalent UnitsPhysicalwith Respect toDirectUnitsConversionMaterialConversionWork in process, March 120,00010%Units started during March30,000Total units to account for50,000Units completed and
transferred40,000100%40,00040,000Work in process, March 3110,00050%10,0005,000Total units accounted for50,000Total equivalent units50,00045,000DirectMaterialConversionTotalWork in Process, March 1$ 50,000$ 7,200$ 57,200Costs incurred during March90,000193,500283,500Total costs to account for$ 140,000$ 200,700$ 340,700Equivalent units50,00045,000Cost per equivalent unit$ 2.80$ 4.46$ 7.26Cost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in-process50,300Total costs accounted for$ 340,700 Sheet7JOB-COST RECORDJob NumberF16Description80 deluxe alum. fishing boatsDate StartedNov. 1, 20x1Date CompletedNov. 22, 20x1Number of Units Completed80Direct MaterialDateRequisition NumberQuantityUnit PriceCostDirect LaborDateRequisition NumberQuantityUnit PriceCostManufacturing OverheadDateRequisition NumberQuantityUnit PriceCostCost SummaryCost ItemAmountTotal direct materialTotal direct laborTotal manufacturing overheadTotal costUnit costShipping SummaryDateUnits ShippedUnits Remaining in InventoryCost Balance Cost of goods completed and transferred during March 40,000 units × $7.26 per equivalent unit290,400$ Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units × $2.80 per equivalent unit28,000$ Conversion: 5,000 equivalent units × $4.46 per equivalent unit22,300 Total cost of March 31 work in process50,300
Total costs accounted for340,700$ MBD000FE9F8.xls Sheet1Cost of goods completed and transferred during March40,000 units × $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units × $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units × $4.46 per equivalent unit22,300Total cost of March 31 work in process50,300Total costs accounted for$ 340,700 &A Page &P Sheet2 &A Page &P Sheet3 &A Page &P Sheet4 &A Page &P Sheet5 &A Page &P Sheet6 &A Page &P Sheet7 &A Page &P Sheet8 &A
Page &P Sheet9 &A Page &P Sheet10 &A Page &P Sheet11 &A Page &P Sheet12 &A Page &P Sheet13 &A Page &P Sheet14 &A Page &P Sheet15 &A Page &P Sheet16 &A Page &P Job-Order Cost Accounting 3-* Let’s see one A materials requisition form is used to authorize the use of materials on a job.
As raw materials are needed for the production process, they are transferred from the warehouse to the production department. To authorize the release of materials, the production department supervisor completes a material requisition form and presents it to the warehouse supervisor. (LO 3-3) Sheet1Managerial AccountingFinancial AccountingUsers of InformationManagers, within the organization.Interested parties, outside the organization.RegulationNot required and unregulated, since it is intended only for management.Required and must conform to generally accepted accounting principles. Regulated by the Financial Accounting Standards Board, and, to a lesser degree, the Securities and Exchange Commission.Source of DataThe organization's basic accounting system, plus various other sources, such as rates of effective products manufactured, physical quantities of material and labor used in production, occupancy rates in hotels and hospitals, and average take-off delaysAlmost exclusively drawn from the organization's basic accounting system, which accumulates financial information.Nature of Reports and ProceduresReports often focus on subunits within the organization, such as departments, divisions, geographical regions, or product lines. Based on a combination of historical data, estimates, and projections of future events.Reports focus on the enterprise in its entirety. Based almost exclusively on historical transaction data. Sheet2One Production DepartmentWork-in-ProcessFinished GoodsInventoryInventoryCost of Goods SoldDirect materialCost of goods completedCost of goods soldDirect laborTwo Sequential Production DepartmentsApplied manufacturingand transferred toWork-in-Process InventoryWork-in-Process Inventoryoverheadfinished goodsProduction Department AProduction Department BDirect materialCost of goods completed in
department A andCost of goods completedDirect laborApplied manufacturingtransferred toand transferred tooverheaddepartment Bfinished goodsDirect materialDirect laborApplied manufacturingoverheadFinished Goods InventoryCost of Goods SoldCost of goods soldduring current periodOne Production DepartmentWork-in-Process InventoryFinished Goods InventoryDirect materialCost of goods completedCost of goods completedDirect laborApplied manufacturingand transferred toand transferred tooverheadFinished goodsfinished goodsDirect materialDirect laborApplied manufacturingoverhead Sheet3Cost of goods completed and transferred during MarchCost of goods completed and transferred during MarchCost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in- process on March 31Costs remaining in work-in-process on March 31Costs remaining in work-in-process on March 31Direct Material:Direct Material:Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,000Convserion:Convserion:Convserion:5,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total costs accounted for$ 340,700Total costs accounted for$ 340,700Total costs accounted for$ 340,700Cost of goods completed and transferred out of Stitching Dept. during March30,000 units x $12.228 per equivalent unit$ 366,840Costs remaining in work-in-process in Stitching Dept. on March 31Direct Material:20,000 equivalent units x $7.028 per equivalent unit$ 140,560Convserion:18,000
equivalent units x $4.95 per equivalent unit89,100Total cost of March 31 work-in-process229,660Total costs accounted for$ 596,500 Sheet4ConversionPhysicalPhysicalPercentageTransferredDirect UnitsUnitsCompletionInMaterialConversionWork in process, March 110,000Work in process, March 110,00020%Units transferred in during March40,000Units transferred in during March40,000Total units to account for50,000Total units to account for50,000Units completed and transferred out during March30,000Units completed and transferred out during March30,00030,00030,00030,000Work in process, March 3120,000Work in process, March 3120,00090%20,000-0- 18,000Total units accounted for50,000Total units accounted for50,000Total equivalent units50,00030,00048,000PhysicalUnitsWork in process, March 110,000Units transferred in during March40,000Total units to account for50,000Units completed and transferred out during March30,000Work in process, March 3120,000Total units accounted for50,000 Sheet5Work-in-Process Inventory:Work-in-Process Inventory:TransferredDirectCutting DepartmentStitching DepartmentInMaterialConversionTotalDirect materialCost of goodsTransferred-completed andin costsWork in Process, March 1$ 61,000-0-$ 7,600$ 68,600Conversion:transferred outCosts incurred during March290,400$ 7,500230,000527,900Direct laborDirect materialTotal costs to account for$ 351,400$ 7,500$ 237,600$ 596,500ManufacturingoverheadConversion:Equivalent units50,00030,00048,000Direct laborCost per equivalent unit$ 7.028$ 0.25$ 4.95$ 12.228Manufacturingoverhead$351,400$7,500$237,600$ 7.02850,00030,00048,000+ $.25+ $4.95 Sheet6MVP SPORTS EQUIPMENT COMPANYProduction Report: Cutting DepartmentPercentage ofCompletionEquivalent UnitsPhysicalwith Respect toDirectUnitsConversionMaterialConversionWork in process,
March 120,00010%Units started during March30,000Total units to account for50,000Units completed and transferred40,000100%40,00040,000Work in process, March 3110,00050%10,0005,000Total units accounted for50,000Total equivalent units50,00045,000DirectMaterialConversionTotalWork in Process, March 1$ 50,000$ 7,200$ 57,200Costs incurred during March90,000193,500283,500Total costs to account for$ 140,000$ 200,700$ 340,700Equivalent units50,00045,000Cost per equivalent unit$ 2.80$ 4.46$ 7.26Cost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in-process50,300Total costs accounted for$ 340,700 Sheet7JOB-COST RECORDJob NumberF16Description80 deluxe alum. fishing boatsDate StartedNov. 1, 20x1Date CompletedNov. 22, 20x1Number of Units Completed80Direct MaterialDateRequisition NumberQuantityUnit PriceCostDirect LaborDateRequisition NumberQuantityUnit PriceCostManufacturing OverheadDateRequisition NumberQuantityUnit PriceCostCost SummaryCost ItemAmountTotal direct materialTotal direct laborTotal manufacturing overheadTotal costUnit costShipping SummaryDateUnits ShippedUnits Remaining in InventoryCost Balance Cost of goods completed and transferred during March 40,000 units × $7.26 per equivalent unit290,400$ Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units × $2.80 per equivalent unit28,000$ Conversion:
5,000 equivalent units × $4.46 per equivalent unit22,300 Total cost of March 31 work in process50,300 Total costs accounted for340,700$ MBD000FE9F8.xls Sheet1Cost of goods completed and transferred during March40,000 units × $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units × $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units × $4.46 per equivalent unit22,300Total cost of March 31 work in process50,300Total costs accounted for$ 340,700 &A Page &P Sheet2 &A Page &P Sheet3 &A Page &P Sheet4 &A Page &P Sheet5 &A Page &P Sheet6 &A Page &P Sheet7 &A Page &P
Sheet8 &A Page &P Sheet9 &A Page &P Sheet10 &A Page &P Sheet11 &A Page &P Sheet12 &A Page &P Sheet13 &A Page &P Sheet14 &A Page &P Sheet15 &A Page &P Sheet16 &A Page &P Timothy Williams Job-Order Cost Accounting 3-* A copy of the material requisition form goes to the cost
accounting department. (LO 3-3) Sheet1RoseCo Materials Requisition FormRequisition No. 352Date 11/1/x1Job Number to Be Charged F16Dept. PaintingDepartment Supervisor Timothy WilliamsItemQuantityUnit CostAmountAluminum7,200 sq ft$ 2.50$ 18,000.00AuthorizedSignature &A Page &P Sheet2 &A Page &P Sheet3 &A Page &P Sheet4 &A Page &P Sheet5 &A Page &P Sheet6 &A Page &P Sheet7 &A Page &P Sheet8 &A Page &P Sheet9 &A Page &P Sheet10 &A Page &P
Sheet11 &A Page &P Sheet12 &A Page &P Sheet13 &A Page &P Sheet14 &A Page &P Sheet15 &A Page &P Sheet16 &A Page &P Accumulate direct labor costs by means of a work record, such as a time ticket, for each employee. Let’s see one Job-Order Cost Accounting 3-* The assignment of direct-labor costs to jobs is based on time records filled out by employees. (LO 3-3) Sheet1Managerial AccountingFinancial AccountingUsers of InformationManagers, within the organization.Interested parties, outside the organization.RegulationNot required and
unregulated, since it is intended only for management.Required and must conform to generally accepted accounting principles. Regulated by the Financial Accounting Standards Board, and, to a lesser degree, the Securities and Exchange Commission.Source of DataThe organization's basic accounting system, plus various other sources, such as rates of effective products manufactured, physical quantities of material and labor used in production, occupancy rates in hotels and hospitals, and average take-off delaysAlmost exclusively drawn from the organization's basic accounting system, which accumulates financial information.Nature of Reports and ProceduresReports often focus on subunits within the organization, such as departments, divisions, geographical regions, or product lines. Based on a combination of historical data, estimates, and projections of future events.Reports focus on the enterprise in its entirety. Based almost exclusively on historical transaction data. Sheet2One Production DepartmentWork-in-ProcessFinished GoodsInventoryInventoryCost of Goods SoldDirect materialCost of goods completedCost of goods soldDirect laborTwo Sequential Production DepartmentsApplied manufacturingand transferred toWork-in-Process InventoryWork-in-Process Inventoryoverheadfinished goodsProduction Department AProduction Department BDirect materialCost of goods completed in department A andCost of goods completedDirect laborApplied manufacturingtransferred toand transferred tooverheaddepartment Bfinished goodsDirect materialDirect laborApplied manufacturingoverheadFinished Goods InventoryCost of Goods SoldCost of goods soldduring current periodOne Production DepartmentWork-in-Process InventoryFinished Goods InventoryDirect materialCost of goods completedCost of goods completedDirect laborApplied manufacturingand transferred toand transferred tooverheadFinished goodsfinished goodsDirect materialDirect laborApplied manufacturingoverhead
Sheet3Cost of goods completed and transferred during MarchCost of goods completed and transferred during MarchCost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in- process on March 31Costs remaining in work-in-process on March 31Costs remaining in work-in-process on March 31Direct Material:Direct Material:Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,000Convserion:Convserion:Convserion:5,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total costs accounted for$ 340,700Total costs accounted for$ 340,700Total costs accounted for$ 340,700Cost of goods completed and transferred out of Stitching Dept. during March30,000 units x $12.228 per equivalent unit$ 366,840Costs remaining in work-in-process in Stitching Dept. on March 31Direct Material:20,000 equivalent units x $7.028 per equivalent unit$ 140,560Convserion:18,000 equivalent units x $4.95 per equivalent unit89,100Total cost of March 31 work-in-process229,660Total costs accounted for$ 596,500 Sheet4ConversionPhysicalPhysicalPercentageTransferredDirect UnitsUnitsCompletionInMaterialConversionWork in process, March 110,000Work in process, March 110,00020%Units transferred in during March40,000Units transferred in during March40,000Total units to account for50,000Total units to account for50,000Units completed and transferred out during March30,000Units completed and transferred out during March30,00030,00030,00030,000Work in process, March
3120,000Work in process, March 3120,00090%20,000-0- 18,000Total units accounted for50,000Total units accounted for50,000Total equivalent units50,00030,00048,000PhysicalUnitsWork in process, March 110,000Units transferred in during March40,000Total units to account for50,000Units completed and transferred out during March30,000Work in process, March 3120,000Total units accounted for50,000 Sheet5Work-in-Process Inventory:Work-in-Process Inventory:TransferredDirectCutting DepartmentStitching DepartmentInMaterialConversionTotalDirect materialCost of goodsTransferred-completed andin costsWork in Process, March 1$ 61,000-0-$ 7,600$ 68,600Conversion:transferred outCosts incurred during March290,400$ 7,500230,000527,900Direct laborDirect materialTotal costs to account for$ 351,400$ 7,500$ 237,600$ 596,500ManufacturingoverheadConversion:Equivalent units50,00030,00048,000Direct laborCost per equivalent unit$ 7.028$ 0.25$ 4.95$ 12.228Manufacturingoverhead$351,400$7,500$237,600$ 7.02850,00030,00048,000+ $.25+ $4.95 Sheet6MVP SPORTS EQUIPMENT COMPANYProduction Report: Cutting DepartmentPercentage ofCompletionEquivalent UnitsPhysicalwith Respect toDirectUnitsConversionMaterialConversionWork in process, March 120,00010%Units started during March30,000Total units to account for50,000Units completed and transferred40,000100%40,00040,000Work in process, March 3110,00050%10,0005,000Total units accounted for50,000Total equivalent units50,00045,000DirectMaterialConversionTotalWork in Process, March 1$ 50,000$ 7,200$ 57,200Costs incurred during March90,000193,500283,500Total costs to account for$ 140,000$ 200,700$ 340,700Equivalent units50,00045,000Cost per equivalent unit$ 2.80$ 4.46$ 7.26Cost of goods completed and transferred during
March40,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in-process50,300Total costs accounted for$ 340,700 Sheet7JOB-COST RECORDJob NumberF16Description80 deluxe alum. fishing boatsDate StartedNov. 1, 20x1Date CompletedNov. 22, 20x1Number of Units Completed80Direct MaterialDateRequisition NumberQuantityUnit PriceCost11/18037,200 sq ft$2.50$18,000Direct LaborDateRequisition NumberQuantityUnit PriceCostManufacturing OverheadDateRequisition NumberQuantityUnit PriceCostCost SummaryCost ItemAmountTotal direct material$18,000Total direct laborTotal manufacturing overheadTotal costUnit costShipping SummaryDateUnits ShippedUnits Remaining in InventoryCost Balance Cost of goods completed and transferred during March 40,000 units × $7.26 per equivalent unit290,400$ Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units × $2.80 per equivalent unit28,000$ Conversion: 5,000 equivalent units × $4.46 per equivalent unit22,300 Total cost of March 31 work in process50,300 Total costs accounted for340,700$ MBD000FE9F8.xls Sheet1Cost of goods completed and transferred during
March40,000 units × $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units × $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units × $4.46 per equivalent unit22,300Total cost of March 31 work in process50,300Total costs accounted for$ 340,700 &A Page &P Sheet2 &A Page &P Sheet3 &A Page &P Sheet4 &A Page &P Sheet5 &A Page &P Sheet6 &A Page &P Sheet7 &A Page &P Sheet8 &A Page &P Sheet9 &A Page &P Sheet10 &A Page &P Sheet11
&A Page &P Sheet12 &A Page &P Sheet13 &A Page &P Sheet14 &A Page &P Sheet15 &A Page &P Sheet16 &A Page &P Employee Time Ticket 3-* A time record is a form that records the amount of time an employee spends on each production job. (LO 3-3) Sheet1EmployeeRon BradleyDate 11/5/20x1Employee Number 12Department PaintingStationTime StartedTime StoppedJob Number8:0011:30F1611:3012:00Shop cleanup1:005:00A26Totals8.00$ 11.00$ 88.00A-143 &A Page &P Sheet2 &A Page &P
Sheet3 &A Page &P Sheet4 &A Page &P Sheet5 &A Page &P Sheet6 &A Page &P Sheet7 &A Page &P Sheet8 &A Page &P Sheet9 &A Page &P Sheet10 &A Page &P Sheet11 &A Page &P Sheet12 &A Page &P Sheet13 &A Page &P Sheet14 &A Page &P
Sheet15 &A Page &P Sheet16 &A Page &P Apply manufacturing overhead to jobs using a predetermined overhead rate based on direct labor hours (DLH). Let’s do it Job-Order Cost Accounting 3-* Manufacturing overhead is a pool of indirect production costs, such as indirect material, indirect labor, utility costs, and depreciation. These costs often bear no obvious relationship to individual jobs or units of product, but they must be incurred for production to take place. (LO 3-3) Sheet1Managerial AccountingFinancial AccountingUsers of InformationManagers, within the organization.Interested parties, outside the organization.RegulationNot required and unregulated, since it is intended only for management.Required and must conform to generally accepted accounting principles. Regulated by the Financial Accounting Standards Board, and, to a lesser degree, the Securities and Exchange Commission.Source of DataThe organization's basic accounting system, plus various other sources, such as rates of effective products manufactured, physical quantities of material and labor
used in production, occupancy rates in hotels and hospitals, and average take-off delaysAlmost exclusively drawn from the organization's basic accounting system, which accumulates financial information.Nature of Reports and ProceduresReports often focus on subunits within the organization, such as departments, divisions, geographical regions, or product lines. Based on a combination of historical data, estimates, and projections of future events.Reports focus on the enterprise in its entirety. Based almost exclusively on historical transaction data. Sheet2One Production DepartmentWork-in-ProcessFinished GoodsInventoryInventoryCost of Goods SoldDirect materialCost of goods completedCost of goods soldDirect laborTwo Sequential Production DepartmentsApplied manufacturingand transferred toWork-in-Process InventoryWork-in-Process Inventoryoverheadfinished goodsProduction Department AProduction Department BDirect materialCost of goods completed in department A andCost of goods completedDirect laborApplied manufacturingtransferred toand transferred tooverheaddepartment Bfinished goodsDirect materialDirect laborApplied manufacturingoverheadFinished Goods InventoryCost of Goods SoldCost of goods soldduring current periodOne Production DepartmentWork-in-Process InventoryFinished Goods InventoryDirect materialCost of goods completedCost of goods completedDirect laborApplied manufacturingand transferred toand transferred tooverheadFinished goodsfinished goodsDirect materialDirect laborApplied manufacturingoverhead Sheet3Cost of goods completed and transferred during MarchCost of goods completed and transferred during MarchCost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in- process on March 31Costs remaining in work-in-process on
March 31Costs remaining in work-in-process on March 31Direct Material:Direct Material:Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,000Convserion:Convserion:Convserion:5,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total costs accounted for$ 340,700Total costs accounted for$ 340,700Total costs accounted for$ 340,700Cost of goods completed and transferred out of Stitching Dept. during March30,000 units x $12.228 per equivalent unit$ 366,840Costs remaining in work-in-process in Stitching Dept. on March 31Direct Material:20,000 equivalent units x $7.028 per equivalent unit$ 140,560Convserion:18,000 equivalent units x $4.95 per equivalent unit89,100Total cost of March 31 work-in-process229,660Total costs accounted for$ 596,500 Sheet4ConversionPhysicalPhysicalPercentageTransferredDirect UnitsUnitsCompletionInMaterialConversionWork in process, March 110,000Work in process, March 110,00020%Units transferred in during March40,000Units transferred in during March40,000Total units to account for50,000Total units to account for50,000Units completed and transferred out during March30,000Units completed and transferred out during March30,00030,00030,00030,000Work in process, March 3120,000Work in process, March 3120,00090%20,000-0- 18,000Total units accounted for50,000Total units accounted for50,000Total equivalent units50,00030,00048,000PhysicalUnitsWork in process, March 110,000Units transferred in during March40,000Total units to account for50,000Units completed and transferred out during March30,000Work in process, March 3120,000Total units
accounted for50,000 Sheet5Work-in-Process Inventory:Work-in-Process Inventory:TransferredDirectCutting DepartmentStitching DepartmentInMaterialConversionTotalDirect materialCost of goodsTransferred-completed andin costsWork in Process, March 1$ 61,000-0-$ 7,600$ 68,600Conversion:transferred outCosts incurred during March290,400$ 7,500230,000527,900Direct laborDirect materialTotal costs to account for$ 351,400$ 7,500$ 237,600$ 596,500ManufacturingoverheadConversion:Equivalent units50,00030,00048,000Direct laborCost per equivalent unit$ 7.028$ 0.25$ 4.95$ 12.228Manufacturingoverhead$351,400$7,500$237,600$ 7.02850,00030,00048,000+ $.25+ $4.95 Sheet6MVP SPORTS EQUIPMENT COMPANYProduction Report: Cutting DepartmentPercentage ofCompletionEquivalent UnitsPhysicalwith Respect toDirectUnitsConversionMaterialConversionWork in process, March 120,00010%Units started during March30,000Total units to account for50,000Units completed and transferred40,000100%40,00040,000Work in process, March 3110,00050%10,0005,000Total units accounted for50,000Total equivalent units50,00045,000DirectMaterialConversionTotalWork in Process, March 1$ 50,000$ 7,200$ 57,200Costs incurred during March90,000193,500283,500Total costs to account for$ 140,000$ 200,700$ 340,700Equivalent units50,00045,000Cost per equivalent unit$ 2.80$ 4.46$ 7.26Cost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in-process50,300Total costs accounted for$ 340,700 Sheet7JOB-COST RECORDJob NumberF16Description80
deluxe alum. fishing boatsDate StartedNov. 1, 20x1Date CompletedNov. 22, 20x1Number of Units Completed80Direct MaterialDateRequisition NumberQuantityUnit PriceCost11/18037,200 sq ft$2.50$18,000Direct LaborDateRequisition NumberQuantityUnit PriceCostVarious datesVarious time cards600$20$12,000Manufacturing OverheadDateRequisition NumberQuantityUnit PriceCostCost SummaryCost ItemAmountTotal direct material$18,000Total direct labor12,000Total manufacturing overheadTotal costUnit costShipping SummaryDateUnits ShippedUnits Remaining in InventoryCost Balance Cost of goods completed and transferred during March 40,000 units × $7.26 per equivalent unit290,400$ Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units × $2.80 per equivalent unit28,000$ Conversion: 5,000 equivalent units × $4.46 per equivalent unit22,300 Total cost of March 31 work in process50,300 Total costs accounted for340,700$ MBD000FE9F8.xls Sheet1Cost of goods completed and transferred during March40,000 units × $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units × $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units × $4.46 per equivalent unit22,300Total cost of March 31 work in process50,300Total costs accounted for$ 340,700 &A
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Page &P Sheet14 &A Page &P Sheet15 &A Page &P Sheet16 &A Page &P Job-Order Cost Accounting 3-* Therefore, it is necessary to assign manufacturing-overhead costs to jobs in order to have a complete picture of product costs. This process of assigning manufacturing-overhead costs to production jobs is called overhead application. A predetermined overhead rate is used to apply overhead on the job-cost record. (LO 3-3) Sheet1Managerial AccountingFinancial AccountingUsers of InformationManagers, within the organization.Interested parties, outside the organization.RegulationNot required and unregulated, since it is intended only for management.Required and must conform to generally accepted accounting principles. Regulated by the Financial Accounting Standards Board, and, to a lesser degree, the Securities and Exchange Commission.Source of DataThe organization's basic accounting system, plus various other sources, such as rates of effective
products manufactured, physical quantities of material and labor used in production, occupancy rates in hotels and hospitals, and average take-off delaysAlmost exclusively drawn from the organization's basic accounting system, which accumulates financial information.Nature of Reports and ProceduresReports often focus on subunits within the organization, such as departments, divisions, geographical regions, or product lines. Based on a combination of historical data, estimates, and projections of future events.Reports focus on the enterprise in its entirety. Based almost exclusively on historical transaction data. Sheet2One Production DepartmentWork-in-ProcessFinished GoodsInventoryInventoryCost of Goods SoldDirect materialCost of goods completedCost of goods soldDirect laborTwo Sequential Production DepartmentsApplied manufacturingand transferred toWork-in-Process InventoryWork-in-Process Inventoryoverheadfinished goodsProduction Department AProduction Department BDirect materialCost of goods completed in department A andCost of goods completedDirect laborApplied manufacturingtransferred toand transferred tooverheaddepartment Bfinished goodsDirect materialDirect laborApplied manufacturingoverheadFinished Goods InventoryCost of Goods SoldCost of goods soldduring current periodOne Production DepartmentWork-in-Process InventoryFinished Goods InventoryDirect materialCost of goods completedCost of goods completedDirect laborApplied manufacturingand transferred toand transferred tooverheadFinished goodsfinished goodsDirect materialDirect laborApplied manufacturingoverhead Sheet3Cost of goods completed and transferred during MarchCost of goods completed and transferred during MarchCost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in-
process on March 31Costs remaining in work-in-process on March 31Costs remaining in work-in-process on March 31Direct Material:Direct Material:Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,000Convserion:Convserion:Convserion:5,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total costs accounted for$ 340,700Total costs accounted for$ 340,700Total costs accounted for$ 340,700Cost of goods completed and transferred out of Stitching Dept. during March30,000 units x $12.228 per equivalent unit$ 366,840Costs remaining in work-in-process in Stitching Dept. on March 31Direct Material:20,000 equivalent units x $7.028 per equivalent unit$ 140,560Convserion:18,000 equivalent units x $4.95 per equivalent unit89,100Total cost of March 31 work-in-process229,660Total costs accounted for$ 596,500 Sheet4ConversionPhysicalPhysicalPercentageTransferredDirect UnitsUnitsCompletionInMaterialConversionWork in process, March 110,000Work in process, March 110,00020%Units transferred in during March40,000Units transferred in during March40,000Total units to account for50,000Total units to account for50,000Units completed and transferred out during March30,000Units completed and transferred out during March30,00030,00030,00030,000Work in process, March 3120,000Work in process, March 3120,00090%20,000-0- 18,000Total units accounted for50,000Total units accounted for50,000Total equivalent units50,00030,00048,000PhysicalUnitsWork in process, March 110,000Units transferred in during March40,000Total units to account for50,000Units completed and transferred out during
March30,000Work in process, March 3120,000Total units accounted for50,000 Sheet5Work-in-Process Inventory:Work-in-Process Inventory:TransferredDirectCutting DepartmentStitching DepartmentInMaterialConversionTotalDirect materialCost of goodsTransferred-completed andin costsWork in Process, March 1$ 61,000-0-$ 7,600$ 68,600Conversion:transferred outCosts incurred during March290,400$ 7,500230,000527,900Direct laborDirect materialTotal costs to account for$ 351,400$ 7,500$ 237,600$ 596,500ManufacturingoverheadConversion:Equivalent units50,00030,00048,000Direct laborCost per equivalent unit$ 7.028$ 0.25$ 4.95$ 12.228Manufacturingoverhead$351,400$7,500$237,600$ 7.02850,00030,00048,000+ $.25+ $4.95 Sheet6MVP SPORTS EQUIPMENT COMPANYProduction Report: Cutting DepartmentPercentage ofCompletionEquivalent UnitsPhysicalwith Respect toDirectUnitsConversionMaterialConversionWork in process, March 120,00010%Units started during March30,000Total units to account for50,000Units completed and transferred40,000100%40,00040,000Work in process, March 3110,00050%10,0005,000Total units accounted for50,000Total equivalent units50,00045,000DirectMaterialConversionTotalWork in Process, March 1$ 50,000$ 7,200$ 57,200Costs incurred during March90,000193,500283,500Total costs to account for$ 140,000$ 200,700$ 340,700Equivalent units50,00045,000Cost per equivalent unit$ 2.80$ 4.46$ 7.26Cost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in-process50,300Total costs accounted for$ 340,700
Sheet7JOB-COST RECORDJob NumberF16Description80 deluxe alum. fishing boatsDate StartedNov. 1, 20x1Date CompletedNov. 22, 20x1Number of Units Completed80Direct MaterialDateRequisition NumberQuantityUnit PriceCost11/18037,200 sq ft$2.50$18,000Direct LaborDateRequisition NumberQuantityUnit PriceCostVarious datesVarious time cards600$20$12,000Manufacturing OverheadDateRequisition NumberQuantityUnit PriceCost11/30Direct Labor Hours600$30.00$18,000Cost SummaryCost ItemAmountTotal direct material$18,000Total direct labor12,000Total manufacturing overhead18,000Total costUnit costShipping SummaryDateUnits ShippedUnits Remaining in InventoryCost Balance Cost of goods completed and transferred during March 40,000 units × $7.26 per equivalent unit290,400$ Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units × $2.80 per equivalent unit28,000$ Conversion: 5,000 equivalent units × $4.46 per equivalent unit22,300 Total cost of March 31 work in process50,300 Total costs accounted for340,700$ MBD000FE9F8.xls Sheet1Cost of goods completed and transferred during March40,000 units × $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units × $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units × $4.46 per equivalent unit22,300Total cost of March 31 work in process50,300Total
costs accounted for$ 340,700 &A Page &P Sheet2 &A Page &P Sheet3 &A Page &P Sheet4 &A Page &P Sheet5 &A Page &P Sheet6 &A Page &P Sheet7 &A Page &P Sheet8 &A Page &P Sheet9 &A Page &P Sheet10 &A Page &P Sheet11 &A Page &P Sheet12 &A Page &P
Sheet13 &A Page &P Sheet14 &A Page &P Sheet15 &A Page &P Sheet16 &A Page &P Overhead is applied to jobs using a predetermined overhead rate based on estimates made at the beginning of the accounting period. Overhead applied = Rate × Actual activity Based on estimates, and determined before the period begins Actual amount of the allocation base, such as direct labor hours, incurred during the period Manufacturing Overhead Costs 3-* Predetermined Rate = Budgeted manufacturing overhead cost Budgeted amount of cost driver (or activity base)
The accounting department chooses some measure of productive activity to use as the basis for overhead application. In traditional product-costing systems, this measure is usually some volume-based cost driver (or activity base), such as direct-labor hours, direct-labor cost, or machine hours. An estimate is made of (1) the amount of manufacturing overhead that will be incurred during a specified period of time and (2) the amount of the cost driver (or activity base) that will be used or incurred during the same time period. (LO 3-4) Job-Order Cost Accounting 3-* Reviewer (R) - Slide 19 NN First sentence: Added a comma after the word 'costs' (total direct labor costs). Once manufacturing overhead has been applied, the cost summary can be completed. Total direct material costs, total direct labor costs, and total manufacturing overhead costs are added together to determine total costs. These costs are divided by the number of units completed to arrive at the unit cost. (LO 3-3) Sheet1Managerial AccountingFinancial AccountingUsers of InformationManagers, within the organization.Interested parties, outside the organization.RegulationNot required and unregulated, since it is intended only for management.Required and must conform to generally accepted accounting principles.
Regulated by the Financial Accounting Standards Board, and, to a lesser degree, the Securities and Exchange Commission.Source of DataThe organization's basic accounting system, plus various other sources, such as rates of effective products manufactured, physical quantities of material and labor used in production, occupancy rates in hotels and hospitals, and average take-off delaysAlmost exclusively drawn from the organization's basic accounting system, which accumulates financial information.Nature of Reports and ProceduresReports often focus on subunits within the organization, such as departments, divisions, geographical regions, or product lines. Based on a combination of historical data, estimates, and projections of future events.Reports focus on the enterprise in its entirety. Based almost exclusively on historical transaction data. Sheet2One Production DepartmentWork-in-ProcessFinished GoodsInventoryInventoryCost of Goods SoldDirect materialCost of goods completedCost of goods soldDirect laborTwo Sequential Production DepartmentsApplied manufacturingand transferred toWork-in-Process InventoryWork-in-Process Inventoryoverheadfinished goodsProduction Department AProduction Department BDirect materialCost of goods completed in department A andCost of goods completedDirect laborApplied manufacturingtransferred toand transferred tooverheaddepartment Bfinished goodsDirect materialDirect laborApplied manufacturingoverheadFinished Goods InventoryCost of Goods SoldCost of goods soldduring current periodOne Production DepartmentWork-in-Process InventoryFinished Goods InventoryDirect materialCost of goods completedCost of goods completedDirect laborApplied manufacturingand transferred toand transferred tooverheadFinished goodsfinished goodsDirect materialDirect laborApplied manufacturingoverhead Sheet3Cost of goods completed and transferred during MarchCost of goods completed and transferred during
MarchCost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in- process on March 31Costs remaining in work-in-process on March 31Costs remaining in work-in-process on March 31Direct Material:Direct Material:Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,000Convserion:Convserion:Convserion:5,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total costs accounted for$ 340,700Total costs accounted for$ 340,700Total costs accounted for$ 340,700Cost of goods completed and transferred out of Stitching Dept. during March30,000 units x $12.228 per equivalent unit$ 366,840Costs remaining in work-in-process in Stitching Dept. on March 31Direct Material:20,000 equivalent units x $7.028 per equivalent unit$ 140,560Convserion:18,000 equivalent units x $4.95 per equivalent unit89,100Total cost of March 31 work-in-process229,660Total costs accounted for$ 596,500 Sheet4ConversionPhysicalPhysicalPercentageTransferredDirect UnitsUnitsCompletionInMaterialConversionWork in process, March 110,000Work in process, March 110,00020%Units transferred in during March40,000Units transferred in during March40,000Total units to account for50,000Total units to account for50,000Units completed and transferred out during March30,000Units completed and transferred out during March30,00030,00030,00030,000Work in process, March 3120,000Work in process, March 3120,00090%20,000-0- 18,000Total units accounted for50,000Total units accounted
for50,000Total equivalent units50,00030,00048,000PhysicalUnitsWork in process, March 110,000Units transferred in during March40,000Total units to account for50,000Units completed and transferred out during March30,000Work in process, March 3120,000Total units accounted for50,000 Sheet5Work-in-Process Inventory:Work-in-Process Inventory:TransferredDirectCutting DepartmentStitching DepartmentInMaterialConversionTotalDirect materialCost of goodsTransferred-completed andin costsWork in Process, March 1$ 61,000-0-$ 7,600$ 68,600Conversion:transferred outCosts incurred during March290,400$ 7,500230,000527,900Direct laborDirect materialTotal costs to account for$ 351,400$ 7,500$ 237,600$ 596,500ManufacturingoverheadConversion:Equivalent units50,00030,00048,000Direct laborCost per equivalent unit$ 7.028$ 0.25$ 4.95$ 12.228Manufacturingoverhead$351,400$7,500$237,600$ 7.02850,00030,00048,000+ $.25+ $4.95 Sheet6MVP SPORTS EQUIPMENT COMPANYProduction Report: Cutting DepartmentPercentage ofCompletionEquivalent UnitsPhysicalwith Respect toDirectUnitsConversionMaterialConversionWork in process, March 120,00010%Units started during March30,000Total units to account for50,000Units completed and transferred40,000100%40,00040,000Work in process, March 3110,00050%10,0005,000Total units accounted for50,000Total equivalent units50,00045,000DirectMaterialConversionTotalWork in Process, March 1$ 50,000$ 7,200$ 57,200Costs incurred during March90,000193,500283,500Total costs to account for$ 140,000$ 200,700$ 340,700Equivalent units50,00045,000Cost per equivalent unit$ 2.80$ 4.46$ 7.26Cost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct
Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in-process50,300Total costs accounted for$ 340,700 Sheet7JOB-COST RECORDJob NumberF16Description80 deluxe alum. fishing boatsDate StartedNov. 1, 20x1Date CompletedNov. 22, 20x1Number of Units Completed80Direct MaterialDateRequisition NumberQuantityUnit PriceCost11/18037,200 sq ft$2.50$18,000Direct LaborDateRequisition NumberQuantityUnit PriceCostVarious datesVarious time cards600$20$12,000Manufacturing OverheadDateRequisition NumberQuantityUnit PriceCost11/30Direct Labor Hours600$30.00$18,000Cost SummaryCost ItemAmountTotal direct material$18,000Total direct labor12,000Total manufacturing overhead18,000Total cost$48,000Unit cost$600Shipping SummaryDateUnits ShippedUnits Remaining in InventoryCost Balance11/306020$12,000 Cost of goods completed and transferred during March 40,000 units × $7.26 per equivalent unit290,400$ Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units × $2.80 per equivalent unit28,000$ Conversion: 5,000 equivalent units × $4.46 per equivalent unit22,300 Total cost of March 31 work in process50,300 Total costs accounted for340,700$ MBD000FE9F8.xls Sheet1Cost of goods completed and transferred during
March40,000 units × $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units × $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units × $4.46 per equivalent unit22,300Total cost of March 31 work in process50,300Total costs accounted for$ 340,700 &A Page &P Sheet2 &A Page &P Sheet3 &A Page &P Sheet4 &A Page &P Sheet5 &A Page &P Sheet6 &A Page &P Sheet7 &A Page &P Sheet8 &A Page &P Sheet9 &A Page &P Sheet10 &A Page &P Sheet11
&A Page &P Sheet12 &A Page &P Sheet13 &A Page &P Sheet14 &A Page &P Sheet15 &A Page &P Sheet16 &A Page &P Overhead is applied to jobs using a predetermined overhead rate (POHR) based on estimates made at the beginning of the accounting period. $360,000 / 40,000 hours = $9 per machine hour Overhead applied = Hours on Job = 30 X $9 per hour = $270 Manufacturing Overhead Costs 3-* Rate = Budgeted manufacturing overhead cost Budgeted amount of cost driver (or activity base) Reviewer (R) - Slide 23
Bottom text box: Added a space after the value '30.' So if we assume that the company has budgeted manufacturing overhead for the period of $360,000 and they expect to use a total of 40,000 machine hours over that same period, then the pre-determined rate would be computed by taking the estimated overhead of $360,000 and dividing it by the number of machine hours to be used over that same period – in this case 40,000 hours. This equates to a rate of $9 per machine hour that will be used to charge overhead to all of the jobs. If one specific job took 30 machine hours to complete, then a total of $270 or 30 hours multiplied by 9 per hour would be charged to the job. (LO 3-4) Production Order for Job The materials requisition indicates the cost of direct material to charge to jobs and the cost of indirect material to charge to overhead. Material Requisition The production order for the job authorizes the start of the production process. Labor Time Records Employee time tickets indicate the cost of direct labor to charge to jobs and the cost of indirect labor to charge to overhead. Actual Cost Driver (or Activity Base) X Predetermined Overhead Rate Apply Manufacturing Overhead Job-Order Costing Document Flow Summary
3-* The production order for the job authorizes the start of the production process. The materials requisition form identifies the amount of direct material to add to the job-cost records and the amount of indirect materials to add to the manufacturing overhead account. The employee time tickets identity the amount of direct labor to add to the job-cost records and the amount of indirect labor to add to the manufacturing overhead account. Overhead is applied to the job-cost records using some cost driver or activity base and a predetermined overhead rate. Let’s examine the cost flows in a job-order costing system. We will use T-accounts and start with materials. (LO 3-5) Journal Entry Purchases of Raw Materials A company worked on two jobs during the accounting cycle. One of the jobs involved making 80 deluxe models and another job involved making 80 standard models. During the month, the company purchased, on account, $38,000 worth of materials and parts to be used in the manufacturing operation. The journal entry to record the purchase of the materials on account is shown. (LO 3-5)
Journal Entry Use of Direct Materials During the month, materials were requisitioned for use to manufacture the products. One job (Job D42) requisitioned $34,000 of direct materials and the second job (Job S116) requisitioned $28,000 of direct materials. The journal entries record the release of the materials requested into production. (LO 3-5) Journal Entry Use of Indirect Materials Reviewer (R) - Slide 29 NN First sentence: Added a comma after the word 'month.' During the month, indirect materials were requisitioned into use. These materials are used on all types of jobs and the cost incurred is relatively small. Since the amounts cannot be easily traced to specific jobs, the company makes the decision to charge the amounts to the Manufacturing Overhead account. (An example of such a material would be epoxy or glue products.) (LO 3-5) Journal Entry
Use of Direct Labor Reviewer (R) - Slide 32 & Slide 32 NN CORRECTION REQUIRED This slide and the narration notes does not make sense. The slide shows $31,000, while the narration notes discusses $28,000 ($16,000 + $12,000). The cost accounting department uses the labor time records filed during the month to determine the following direct labor costs of all jobs. One job (Job D42) used $16,000 worth of direct labor costs and the other job (Job S116) used $12,000 of direct labor costs. The journal entry to record these costs is shown. (LO 3-5) Journal Entry Use of Indirect Labor The analysis of labor time records also revealed that the company incurred $14,000 of labor costs that were not charged out to any particular job. This labor cost comprises some production supervisor time and wages of various employees who spent some of their time on maintenance and general clean up of the factory. This journal entry records the indirect labor costs to manufacturing overhead. (LO 3-5)
Journal Entry Manufacturing Costs Incurred The company incurred various overhead costs or indirect production costs provided during the month. After analyzing the costs, the compound entry is made to record these overhead costs. (LO 3-5) Direct Labor Mfg. OverheadIndirect MaterialDirect MaterialOverhead Applied to Work in Process Actual and applied manufacturing overhead are usually not equal so a year-end adjustment is required. We will look at the procedure to accomplish this later.Indirect LaborDirect LaborOverhead AppliedIndirect Labor Wages Payable
Work in Process (Job-Cost Record) Job-Order System Cost Flows 3-* In a previous slide, we saw how overhead costs were incurred or accumulated on the debit side of the manufacturing overhead account. Overhead must be applied to each job-cost record based on the predetermined overhead rate and the actual activity for that job. The overhead applied is also recorded in the work- in-process account with a debit. The manufacturing overhead account is decreased by the amount of overhead applied with a credit. The actual overhead cost incurred and the amount of applied overhead rarely will match. This is caused by errors in the estimates of overhead and activity used to compute the predetermined overhead rate. Let’s see how overhead is applied through the journal entry process. (LO 3-5) Application of Overhead Actual use of machine hours for the two jobs were as follows: Reviewer (R) - Slide 36 NN Second paragraph, third sentence: Changed the value '1800' to read '1,800.' Recall that we discussed the pre-determined overhead rate
earlier. The rate was computed by taking the company’s estimated manufacturing overhead and dividing by the total budgeted machine hours. We computed the rate per machine hour to be $9.00. The company reviewed factory machine usage records that indicated that the actual machine usage was as shown. Now let’s make a journal entry to reflect the application of the overhead costs to the jobs. Job number D42 used 1,800 machine hours and so that job will be charged with $16,200 in overhead costs. Job S116 used 2,000 machine hours and so that job will be charged with $18,000 in overhead costs. The journal entry to show how the overhead is applied will be shown next. (LO 3-5) Journal Entry Application of Manufacturing Overhead The journal entry to add applied manufacturing overhead to Work-In-Process using the previous computations includes a debit to WIP and a credit to Manufacturing Overhead. (LO 3-5) Journal Entry Selling and Administrative Costs Actual Costs Incurred Journal Entry to record the costs During the month the company incurred some typical selling and administrative costs as shown. Remember that these costs
are period costs, not product costs. They are NOT manufacturing costs and so they do NOT go through the WIP account. They are instead treated as expenses of the accounting period in which they are incurred. Take a moment to review the costs incurred and the resulting journal entry. (LO 3-5) Journal Entry Completion of a Production Job Job Number S116 was completed during the period, whereas Job umber D42 remained in process at the end of the period. As the job cost record (or Cost Summary) for Job S116 indicates, the total cost of job S116 was $48,000. Since this job was completed, the cost of $48,000 is transferred out of the WIP account and into Finished-Goods. (LO 3-5) Journal Entry Sale of Goods Sixty of the standard product in job number S116 were sold for $900 each during the period. The cost of each unit sold was $600 as shown in the job record. The following journal entries are made. The first one for $54,000 records the revenue generated by the sale and can be computed by taking the sixty units sold multiplied by the selling price of $900 each. Next, the per unit cost associated with the sale was $600 each. So the $36,000 or $600 multiplied by 60 units was taken out of the
Finished Goods inventory and charged to Cost of Goods Sold. The remaining unsold units are still in Finished Goods account and will remain there until the units are sold. (LO 3-5) Underapplied and Overapplied Overhead Remember that the company incurred actual manufacturing overhead of $34,450, but only applied $34,200 to the jobs in Work-In-Process. The amount by which the actual overhead exceeded the applied overhead was $250 as shown. This is referred to as underapplied overhead. This means that the pre- determined overhead rate was underestimated by just a small amount. If the actual overhead had been less than the applied overhead, then we would have overapplied overhead. If the amount is immaterial, you can close it to cost of goods sold. In this case, the $250 would be disposed of by the journal entry shown. (LO 3-5) Overapplied and Underapplied Manufacturing Overhead - Summary 3-* This table summarizes the disposition of underapplied or overapplied overhead. (LO 3-5) Sheet: Sheet1 Sheet: Sheet2 Sheet: Sheet3 Sheet: Sheet4 Sheet: Sheet5
Sheet: Sheet6 Sheet: Sheet7 Sheet: Sheet8 Sheet: Sheet9 Sheet: Sheet10 Sheet: Sheet11 Sheet: Sheet12 Sheet: Sheet13 Sheet: Sheet14 Sheet: Sheet15 Sheet: Sheet16 Alternative 1 Alternative 2 If Manufacturing Close to Cost Overhead is . . . Allocation of Goods Sold UNDERAPPLIED INCREASE INCREASE Work in Process Cost of Goods Sold (Applied OH is less Finished Goods than actual OH) Cost of Goods Sold OVERAPPLIED DECREASE DECREASE Work in Process Cost of Goods Sold (Applied OH is greater Finished Goods than actual OH) Cost of Goods Sold
Schedule of Cost of Goods Manufactured 3-* The schedule of cost of goods manufactured details the costs of direct material, direct labor, and manufacturing overhead applied to work in process during the period and shows the change in Work-in-Process Inventory. It is basically a summary of what went into and out of the Work-In-Process account. The cost of goods manufactured is shown in the last line of the schedule. This is the amount transferred from Work-in-Process Inventory to Finished-Goods Inventory during the period. (LO 3-6) Sheet1Work-in-Process InventoryFinished Goods InventoryDirect material costProduct cost transferredDirect labor costManufacturing overheadwhen product is finishedCost of Goods SoldIncome SummaryExpense closed intoIncome Summary at endof accounting period Sheet2Schedule of Cost of Goods ManufacturedDirect material:Raw material inventory, beginning$xxxAdd: Raw material purchasesxxxRaw material available for use$xxxDeduct: Raw material, endingxxxRaw material used$xxxDirect laborxxxManufacturing overheadIndirect material$xxxIndirect laborxxxOther actual overhead chargesxxxTotal actual manufacturing overhead$xxxAdd: Overapplied overheadorDeduct: Underapplied overheadxxxOverhead applied to work-in-processxxxTotal manufacturing costs$xxxAdd: Work-in-process inventory, beginningxxxSubtotal$xxxDeduct: Work-in-process inventory, endingxxxCost of goods manufactured$xxx Sheet3
Schedule of Cost of Goods Sold 3-* This schedule shows the cost of goods sold for the period and details the changes in Finished-Goods Inventory during the month. The adjusted cost of goods sold appears as an expense on the income statement. (LO 3-6) Sheet1Work-in-Process InventoryFinished Goods InventoryDirect material costProduct cost transferredDirect labor costManufacturing overheadwhen product is finishedCost of Goods SoldIncome SummaryExpense closed intoIncome Summary at endof accounting period Sheet2Schedule of Cost of Goods ManufacturedDirect material:Raw material inventory, beginning$xxxAdd: Raw material purchasesxxxRaw material available for use$xxxDeduct: Raw material, endingxxxRaw material used$xxxDirect laborxxxManufacturing overheadIndirect material$xxxIndirect laborxxxOther actual overhead chargesxxxTotal actual manufacturing overhead$xxxAdd: Overapplied overheadorDeduct: Underapplied overheadxxxOverhead applied to work-in-processxxxTotal manufacturing costs$xxxAdd: Work-in-process inventory, beginningxxxSubtotal$xxxDeduct: Work-in-process inventory, endingxxxCost of goods manufactured$xxxSchedule of Cost of Goods SoldFinished goods inventory, beginning$xxxAdd: Cost of goods manufactured*xxxCost of goods available for sale$xxxDeduct: Finished goods inventory, endingxxxCost of goods sold$xxxAdd: Underapplied overheadxxxCost of goods sold (adjusted)$xxx* From Cost of Goods Manufactured Schedule
Sheet3 The Income Statement Reviewer (R) - Slide 50 NN Added the LO '(LO 3-6).' This is an example of an income statement. The Cost of Goods Sold line item would have been transferred over from the schedule of cost of goods sold. (LO 3-6) Direct material costProduct cost transferred Direct labor cost Manufacturing overheadwhen product is finished Expense closed into Income Summary at end of accounting period Work-in-Process InventoryFinished Goods Inventory Cost of Goods SoldIncome Summary Job Number F16Description Date Started Nov. 1, 20x1Date Completed Number of Units Completed80 DateQuantityCost DateQuantityCost DateQuantityCost DateCost Balance JOB-COST RECORD
Direct Material Requisition NumberUnit Price Direct Labor Requisition NumberUnit Price 80 deluxe alum. fishing boats Nov. 22, 20x1 Manufacturing Overhead Requisition NumberUnit Price Cost Item Total direct material Amount Cost Summary Total direct labor Total manufacturing overhead Total cost Unit cost Shipping Summary Units Shipped Units Remaining in Inventory Job Number F16Description Date Started Nov. 1, 20x1Date Completed Number of Units Completed80 DateQuantityCost DateQuantityCost DateQuantityCost DateCost Balance JOB-COST RECORD Direct Material
Requisition NumberUnit Price Direct Labor Requisition NumberUnit Price 80 deluxe alum. fishing boats Nov. 22, 20x1 Manufacturing Overhead Requisition NumberUnit Price Cost Item Total direct material Amount Cost Summary Total direct labor Total manufacturing overhead Total cost Unit cost Shipping Summary Units Shipped Units Remaining in Inventory Requisition No. 352Date 11/1/x1 Job Number to Be Charged F16Dept. Painting Department Supervisor Timothy Williams ItemQuantityUnit CostAmount Aluminum7,200 sq ft2.50$ 18,000.00$ Authorized Signature Job Number F16Description Date Started Nov. 1, 20x1Date Completed Number of Units Completed80
DateQuantityCost 11/17,200 sq ft$18,000 DateQuantityCost DateQuantityCost DateCost Balance JOB-COST RECORD Direct Material Requisition NumberUnit Price $2.50 Direct Labor Requisition NumberUnit Price 80 deluxe alum. fishing boats Nov. 22, 20x1 Manufacturing Overhead Requisition NumberUnit Price 803 Cost Item Total direct material Amount Cost Summary $18,000 Total direct labor Total manufacturing overhead Total cost Unit cost Shipping Summary Units Shipped Units Remaining in Inventory EmployeeRon Bradley Date 11/5/20x1 Employee Number 12 Department Painting Station
Shop cleanup A26 11:30 1:00 12:00 5:00 Time StartedTime StoppedJob Number 8:00F1611:30 Job Number F16Description Date Started Nov. 1, 20x1Date Completed Number of Units Completed80 DateQuantityCost 11/17,200 sq ft$18,000 DateQuantityCost Various dates600$12,000 DateQuantityCost DateCost Balance JOB-COST RECORD Direct Material Requisition NumberUnit Price $2.50 Direct Labor Requisition NumberUnit Price 80 deluxe alum. fishing boats Nov. 22, 20x1 Various time cards$20 Manufacturing Overhead Requisition NumberUnit Price 803 Cost Item Total direct material Amount Cost Summary $18,000
Total direct labor Total manufacturing overhead 12,000 Total cost Unit cost Shipping Summary Units Shipped Units Remaining in Inventory Job Number F16Description Date Started Nov. 1, 20x1Date Completed Number of Units Completed80 DateQuantityCost 11/17,200 sq ft$18,000 DateQuantityCost Various dates600$12,000 DateQuantityCost 11/30600$18,000 DateCost Balance Shipping Summary Units Shipped Units Remaining in Inventory Total cost Unit cost Total direct labor Total manufacturing overhead 12,000 18,000 Cost Item Total direct material Amount Cost Summary
$18,000 Direct Labor Hours$30.00 80 deluxe alum. fishing boats Nov. 22, 20x1 Various time cards$20 Manufacturing Overhead Requisition NumberUnit Price 803$2.50 Direct Labor Requisition NumberUnit Price JOB-COST RECORD Direct Material Requisition NumberUnit Price Job Number F16Description Date Started Nov. 1, 20x1Date Completed Number of Units Completed80 DateQuantityCost 11/17,200 sq ft$18,000 DateQuantityCost Various dates600$12,000 DateQuantityCost 11/30600$18,000 DateCost Balance 11/30$12,000 Shipping Summary Units Shipped Units Remaining in Inventory 6020 Total cost $48,000 Unit cost $600 Total direct labor Total manufacturing overhead 12,000 18,000
Cost Item Total direct material Amount Cost Summary $18,000 Direct Labor Hours$30.00 80 deluxe alum. fishing boats Nov. 22, 20x1 Various time cards$20 Manufacturing Overhead Requisition NumberUnit Price 803$2.50 Direct Labor Requisition NumberUnit Price JOB-COST RECORD Direct Material Requisition NumberUnit Price Alternative 1 Alternative 2 If Manufacturing Close to Cost Overhead is . . . Allocation of Goods Sold UNDERAPPLIED INCREASE INCREASE Work in Process Cost of Goods Sold (Applied OH is less Finished Goods than actual OH) Cost of Goods Sold OVERAPPLIED DECREASE DECREASE
Work in Process Cost of Goods Sold (Applied OH is greater Finished Goods than actual OH) Cost of Goods Sold Schedule of Cost of Goods Manufactured Direct material: Raw material inventory, beginning$xxx Add: Raw material purchasesxxx Raw material available for use$xxx Deduct: Raw material, endingxxx Raw material used$xxx Direct laborxxx Manufacturing overhead Indirect material$xxx Indirect laborxxx Other actual overhead chargesxxx Total actual manufacturing overhead$xxx Add: Overapplied overhead orDeduct: Underapplied overheadxxx Overhead applied to work-in-processxxx Total manufacturing costs$xxx Add: Work-in-process inventory, beginningxxx Subtotal$xxx Deduct: Work-in-process inventory, endingxxx Cost of goods manufactured$xxx Schedule of Cost of Goods Sold Finished goods inventory, beginning $xxx Add: Cost of goods manufactured* xxx Cost of goods available for sale $xxx Deduct: Finished goods inventory, ending xxx Cost of goods sold $xxx Add: Underapplied overhead or Deduct: Overapplied overhead xxx
Cost of goods sold (adjusted) $xxx * From Cost of Goods Manufactured Schedule Process Costing and Hybrid Product-Costing Systems Chapter 4 Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Reviewer (R) - CHAPTER 4 CORRECTIONS ARE REQUIRED Note that the font used for the narration notes is inconsistent throughtout the chapter and with previous chapters. Note that some slides are numbered, while other slides are not. Note that some slides have page numbers, while other slides do not. * Chapter 4: Process Costing and Hybrid Product-Costing Systems
Learning Objective 4-1 – List and explain the similarities and important differences between job-order and process costing. 4-* * Learning Objective 4-1. List and explain the similarities and important differences between job-order and process costing. Comparison of Job-Order Costing and Process Costing 4-* Process Costing Process Costing Job-order Costing Used for production of small, identical, low cost items. Mass produced in automated continuous production processes. Costs cannot be directly traced to each unit of product.
* This chapter covers process-costing systems. Process costing is used in repetitive production environments, where large numbers of identical or very similar products are manufactured in a continuous flow. (LO 4-1) Comparison of Job-Order Costing and Process Costing 4-* Process Costing Process Costing Job-order Costing Typical process cost applications: Petrochemical refinery Paint manufacturer Paper mill
* Industries using process costing include paper, petroleum, chemicals, textiles, food processing, lumber, and electronics. (LO 4-1) Comparison of Job-Order Costing and Process Costing Job-order costingCosts accumulated by the job.Work in process has a job-cost sheet for each job.Many unique, high cost jobs.Jobs built to customer order. Process costingCosts accumulated by department or process.Work in process has a production report for each batch of products. A few identical, low cost products. Units continuously produced for inventory in automated process. 4-* * In many ways, job-order costing and process costing are similar. Both product-costing systems have the same ultimate purpose— assignment of production costs to units of output. Moreover, the flow of costs through the manufacturing accounts is the same in the two systems. (LO 4-1) Direct Material
Finished Goods Cost of Goods Sold Direct Labor Manufacturing Overhead Jobs The work-in-process account consists of individual jobs in a job-order cost system. Differences Between Job-Order and Job Job-Order Costing 4-* Reviewer (R) - Slide 6 Title: Deleted the words '(Covered in Chapter 3)' from the title. Note that this reference is provided in the narration notes. Bottom right: Shortened the arrow to fit the space. * In job-order costing, costs are accumulated by job order and recorded on job-cost records. The cost of each unit in a particular job order is found by dividing the total cost of the job order by the number of units in the job. This cost flow was described in the previous chapter. (LO 4-1)
Direct Material Finished Goods Cost of Goods Sold Products The work-in-process account consists of individual products in a process-cost system. Differences Between Job-Order and Process Costing Direct Labor & Overhead (Conversion) When direct labor is a relatively small amount compared to material and overhead, it is often combined with overhead. 4-* * In process costing, costs are accumulated by department, rather than by job order or batch. The cost per unit is found by dividing the total costs incurred by the units produced. (LO 4- 1)
Learning Objective 4-2 – Prepare journal entries to record the flow of costs in a process-costing system with sequential production departments 4-* Reviewer (R) - Slide 8 Changed the word 'depts.' to read 'departments' and reduced the font size the fit within the text box. * Learning Objective 4-2. Prepare journal entries to record the flow of costs in a process-costing system with sequential production departments. Process Cost Flows 4-* * In a single production department situation, direct-material, direct-labor, and manufacturing-overhead costs are added to a Work-in-Process Inventory account. As goods are finished, costs are transferred to Finished-Goods Inventory. During the period when goods are sold, the product costs are transferred to Cost of Goods Sold. Let’s take a look at the specific journal entries involved in a two-department process. (LO 4-2) Sheet1Managerial AccountingFinancial AccountingUsers of
InformationManagers, within the organization.Interested parties, outside the organization.RegulationNot required and unregulated, since it is intended only for management.Required and must conform to generally accepted accounting principles. Regulated by the Financial Accounting Standards Board, and, to a lesser degree, the Securities and Exchange Commission.Source of DataThe organization's basic accounting system, plus various other sources, such as rates of effective products manufactured, physical quantities of material and labor used in production, occupancy rates in hotels and hospitals, and average take-off delaysAlmost exclusively drawn from the organization's basic accounting system, which accumulates financial information.Nature of Reports and ProceduresReports often focus on subunits within the organization, such as departments, divisions, geographical regions, or product lines. Based on a combination of historical data, estimates, and projections of future events.Reports focus on the enterprise in its entirety. Based almost exclusively on historical transaction data. Sheet2One Production DepartmentWork-in-ProcessFinished GoodsInventoryInventoryCost of Goods SoldDirect materialCost of goods completedCost of goods soldDirect laborTwo Sequential Production DepartmentsApplied manufacturingand transferred toduring currentWork-in-Process InventoryWork-in-Process Inventoryoverheadfinished goodsperiodProduction Department AProduction Department BDirect materialCost of goods completed in department A andCost of goods completedDirect laborApplied manufacturingtransferred toand transferred tooverheaddepartment Bfinished goodsDirect materialDirect laborApplied manufacturingoverheadFinished Goods InventoryCost of Goods SoldCost of goods soldduring current periodOne Production DepartmentWork-in-Process InventoryFinished Goods InventoryDirect materialCost of goods completedCost of goods completedDirect laborApplied manufacturingand transferred toand transferred
tooverheadFinished goodsfinished goodsDirect materialDirect laborApplied manufacturingoverhead Sheet3Cost of goods completed and transferred during MarchCost of goods completed and transferred during MarchCost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in- process on March 31Costs remaining in work-in-process on March 31Costs remaining in work-in-process on March 31Direct Material:Direct Material:Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,000Convserion:Convserion:Convserion:5,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total costs accounted for$ 340,700Total costs accounted for$ 340,700Total costs accounted for$ 340,700 Cost of goods completed and transferred during March 40,000 units × $7.26 per equivalent unit290,400$ Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units × $2.80 per equivalent unit28,000$ Conversion: 5,000 equivalent units × $4.46 per equivalent unit22,300 Total cost of March 31 work in process50,300 Total costs accounted for340,700$ MBD000FE9F8.xls Sheet1Cost of goods completed and transferred during March40,000 units × $7.26 per equivalent unit$ 290,400Costs
remaining in work-in-process on March 31Direct Material:10,000 equivalent units × $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units × $4.46 per equivalent unit22,300Total cost of March 31 work in process50,300Total costs accounted for$ 340,700 &A Page &P Sheet2 &A Page &P Sheet3 &A Page &P Sheet4 &A Page &P Sheet5 &A Page &P Sheet6 &A Page &P Sheet7 &A Page &P Sheet8 &A Page &P Sheet9 &A Page &P Sheet10 &A Page &P Sheet11 &A
Page &P Sheet12 &A Page &P Sheet13 &A Page &P Sheet14 &A Page &P Sheet15 &A Page &P Sheet16 &A Page &P Journal Entry Direct Material, Direct Labor, and Overhead Applied The journal entry for the case of two sequential departments, as illustrated in your text, will be demonstrated. In this journal entry, we see $50,000 of direct materials, $20,000 of direct labor, and $30,000 of manufacturing overhead applied to the WIP account for Department A – the first department. The overhead would have been applied using the same method as we learned about in the job order costing chapter. The numbers used in the journal entry are assumed for the purpose of showing the form of the entries. (LO 4-2)
Process Cost Flows 4-* Reviewer (R) - Slide 11 Update the artwork (see Exhibit 4-1, page 139, Hilton 11e). * In the two-department case, when goods are finished in the first production department, costs accumulated in the Work-in- Process Inventory account for production department A are transferred to the Work-in-Process Inventory account for production department B. Let’s take a look at a typical entry when the costs are transferred from one department to the next. (LO 4-2) Sheet1Managerial AccountingFinancial AccountingUsers of InformationManagers, within the organization.Interested parties, outside the organization.RegulationNot required and unregulated, since it is intended only for management.Required and must conform to generally accepted accounting principles. Regulated by the Financial Accounting Standards Board, and, to a lesser degree, the Securities and Exchange Commission.Source of DataThe organization's basic accounting system, plus various other sources, such as rates of effective products manufactured, physical quantities of material and labor used in production, occupancy rates in hotels and hospitals, and average take-off delaysAlmost exclusively drawn from the organization's basic accounting system, which accumulates financial information.Nature of Reports and ProceduresReports often focus on subunits within the organization, such as departments, divisions, geographical regions, or product lines. Based on a combination of historical data, estimates, and
projections of future events.Reports focus on the enterprise in its entirety. Based almost exclusively on historical transaction data. Sheet2One Production DepartmentWork-in-ProcessFinished GoodsInventoryInventoryCost of Goods SoldDirect materialCost of goods completedCost of goods soldDirect laborTwo Sequential Production DepartmentsApplied manufacturingand transferred toWork-in-Process InventoryWork-in-Process Inventoryoverheadfinished goodsProduction Department AProduction Department BDirect materialCost of goods completed in department A andCost of goods completedDirect laborApplied manufacturingtransferred toand transferred tooverheaddepartment Bfinished goodsDirect materialDirect laborApplied manufacturingoverheadFinished Goods InventoryCost of Goods SoldCost of goods soldduring current periodOne Production DepartmentWork-in-Process InventoryFinished Goods InventoryDirect materialCost of goods completedCost of goods completedDirect laborApplied manufacturingand transferred toand transferred tooverheadFinished goodsfinished goodsDirect materialDirect laborApplied manufacturingoverhead Sheet3Cost of goods completed and transferred during MarchCost of goods completed and transferred during MarchCost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in- process on March 31Costs remaining in work-in-process on March 31Costs remaining in work-in-process on March 31Direct Material:Direct Material:Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,000Convserion:Convserion:Convserion:5,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x
$4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total costs accounted for$ 340,700Total costs accounted for$ 340,700Total costs accounted for$ 340,700 Cost of goods completed and transferred during March 40,000 units × $7.26 per equivalent unit290,400$ Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units × $2.80 per equivalent unit28,000$ Conversion: 5,000 equivalent units × $4.46 per equivalent unit22,300 Total cost of March 31 work in process50,300 Total costs accounted for340,700$ MBD000FE9F8.xls Sheet1Cost of goods completed and transferred during March40,000 units × $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units × $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units × $4.46 per equivalent unit22,300Total cost of March 31 work in process50,300Total costs accounted for$ 340,700 &A Page &P Sheet2 &A Page &P Sheet3 &A Page &P Sheet4 &A Page &P
Sheet5 &A Page &P Sheet6 &A Page &P Sheet7 &A Page &P Sheet8 &A Page &P Sheet9 &A Page &P Sheet10 &A Page &P Sheet11 &A Page &P Sheet12 &A Page &P Sheet13 &A Page &P Sheet14 &A Page &P Sheet15 &A Page &P Sheet16 &A Page &P
Journal Entry Dept. B – Transferred In Costs When production in Department A completes its work on some units of the product, those units are transferred to production department B. The costs assigned to these goods are transferred from the Work-In-Process Inventory account for department A to the Work-In-Process Inventory Account for Department B. In Department B, the costs assigned to those partially completed products are called transferred-in costs. (LO 4-2) Journal Entry Dept. B – Direct materials, Direct Labor, and Manufacturing Overhead Direct material and direct labor are used in production department B, and manufacturing overhead is applied using a predetermined rate. These costs are accumulated in Department B and recorded as shown. (LO 4-2) Journal Entry Goods Completed
As goods are completed in Department B, the cost of those goods are transferred out of Work-In-Process and into Finished Goods Inventory. (LO 4-2) Journal Entry Goods Sold The costs of the goods completed stay in the Finished-Goods Inventory account until the units are sold, at which point the costs are transferred OUT of Finished-Goods Inventory and INTO Cost of Goods Sold. At this point, the cost has finally been transferred to the Income Statement. The costs have no more future value. (Note: Just as in Job-Order Costing, the revenue earned from the units sold would also typically be recorded when the goods are sold.) (LO 4-2) Learning Objective 4-3 – Prepare a table of equivalent units under weighted-average process costing. 4-* * Learning Objective 4-3. Prepare a table of equivalent units under weighted-average process costing. Equivalent Units: A Key Concept Costs are accumulated for a period of time for products in work- in-process inventory.
Products in work-in-process inventory at the beginning and end of the period are only partially complete. Equivalent units is a concept expressing these partially completed products as a smaller number of fully completed products. The term equivalent units is used in process costing to refer to the amount of manufacturing activity that has been applied to a batch of physical units. (LO 4-3) * Equivalent Units Example Two half completed products are equivalent to one completed product. So, 10,000 units that are 70% complete are equivalent to 7,000 complete units. 4-*
l + = * For example, two units which are 50 percent complete are equivalent to one unit that is 100 percent complete. Likewise, 10,000 units that are 70 percent complete is 7,000 equivalent units. (LO3) For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30% complete. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 Equivalent Units Question 1 4-* * Jones started 15,000 units and transferred 10,000 units to finished goods. The remaining 5,000 units were 30 percent complete. How many equivalent units did Jones have for the period? (LO 4-3)
For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 10,000 units + (5,000 units × .30) = 11,500 equivalent units Equivalent Units Question 1 4-* * The 5,000 units that are 30 percent complete are equivalent to 1,500 units. Add that to the 10,000 units that are 100 percent complete for a total of 11,500 equivalent units. (LO 4-3) Jones incurred $27,600 in production costs for the 11,500 equivalent units. What was Jones’s cost per equivalent unit for the period? a. $1.84 b. $2.40 c. $2.76 d. $2.90 Equivalent Units Question 2 4-*
* The production costs incurred for the period were $27,600. What is the cost per equivalent unit? (LO 4-3) Jones incurred $27,600 in production costs for the 11,500 equivalent units. What was Jones’s cost per equivalent unit for the period? a. $1.84 b. $2.76 c. $2.40 d. $2.90 Equivalent Units Question 2 4-* $27,600 ÷ 11,500 equivalent units = $2.40 per equivalent unit * The production costs are divided by the number of equivalent units to arrive at the cost per equivalent unit. (LO 4-3) Calculating and Using Equivalent Units of Production To calculate the direct materials and conversion costs per equivalent unit for the period: Materials cost per equivalent
unit = Materials cost for the period Materials equivalent units for the period Conversion cost per equivalent unit = Conversion cost for the period Conversion equivalent units for the period 4-* * Direct material is usually placed into production at beginning of the production process. In contrast, direct labor and manufacturing overhead, called conversion costs, usually are incurred uniformly throughout the process. When an accounting period ends, the partially completed goods that remain in process generally are at different stages of completion with respect to material and conversion activity. The most important feature of process costing is that the costs of direct material and conversion are assigned to equivalent units rather than to physical units. (LO 4-3) Departmental Production Report 4-* Production
Report Analysis of physical flow of units. Calculation of equivalent units. Computation of unit costs. Analysis of total costs. * The key document in a typical process-costing system is the departmental production report, prepared for each production department at the end of each accounting period. The departmental production report summarizes the flow of production quantities through the department, and it shows the amount of production cost transferred out of the department’s Work-in-Process Inventory account during the period. There are four steps used in preparing a departmental production report:
1. Analysis of physical flow of units. 2. Calculation of equivalent units. 3. Computation of unit costs. 4. Analysis of total costs. (LO 4-3) Equivalent Units of Production – Weighted-Average Method The weighted-average method . . .Makes no distinction between work done in the prior period and work done in the current period.Blends together units and costs from the prior period and the current period. 4-* The FIFO method is a more complex method and is rarely used in practice. * The method of process costing that we will focus on in this chapter is called the weighted-average method. This method is almost always used in practice by companies using process costing. There is another process-costing method called the first-in, first-out, or FIFO, method. (LO 4-3) Production Report ExampleMVP Sports Equipment Company makes baseball gloves in two departments, Cutting and Stitching. MVP uses the weighted-average process costing.Material is added at the beginning of the Cutting
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production
Product Costing Systems for Batch and Continuous Production

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Product Costing Systems for Batch and Continuous Production

  • 1. Product Costing and Cost Accumulation in a Batch Production Environment Chapter 3 Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Reviewer (R) - Slide 1 NN Added the title of the chapter. Reviewer (R) - CHAPTER 3 CORRECTIONS REQUIRED Note that pagination of the slides is inconsistent. Some slides have a slide number (bottom right), while other slides have no slide number. Chapter 3: Product Costing and Cost Accumulation in a Batch Production Environment Product and Service Costing Financial Accounting Product costs are used to value inventory on the balance sheet and to compute cost of
  • 2. goods sold on the income statement. Managerial Accounting and Cost Management Product costs are used for planning, control, directing, and management decision making. 3-* Other Interested Organizations There is an ever increasing need to use data in external organizations as well. Product costing is the assignment of production costs to all output of the organization. A product-costing system accumulates the costs incurred in a production process and assigns those costs to the organization’s outputs. Product costing produces data that are needed for a variety of purposes in financial accounting, managerial accounting, and cost management. Use in Financial Accounting – Products costs are used to value inventory on the balance sheet and to compute the cost of goods sold on the income statement. Use in Managerial Accounting - Product costs are needed to help management plan, control, and direct operations. In addition, they are needed to help with management decision making. Use in Reporting to Interested Organizations – There is an ever- growing need for product cost information in relationships between firms and outside organizations. (LO 3-1) Flow of Costs in Manufacturing Firm 3-*
  • 3. Manufacturing costs consist of direct material, direct labor, and manufacturing overhead. As production takes place, all manufacturing costs are added to the Work-in-Process Inventory (WIP) account with a debit. As soon as products are completed, their product costs are transferred from Work-in-Process Inventory to Finished-Goods Inventory with a credit to Work in Process and a debit to Finished Goods. During the time period when products are sold, the product cost of the inventory sold is removed from Finished Goods and added to Cost of Goods Sold, which is an expense of the period in which the sale occurred. A credit to Finished Goods and a debit to Cost of Goods Sold completes this step. Cost of Goods Sold is closed into the Income Summary account at the end of the accounting period, along with all other expenses and revenues of the period. We will look at this in more detail and go through each journal entry recorded as the costs progress through the accounting system. (LO 3-2) Sheet1Work-in-Process InventoryFinished Goods InventoryDirect material costProduct cost transferredDirect labor costManufacturing overheadwhen product is finishedCost of Goods SoldIncome SummaryExpense closed intoIncome Summary at endof accounting period Sheet2 Sheet3 Process Costing Job-Order
  • 4. Costing Types of Product-Costing Systems 3-* Used for production of large, unique, high-cost items. Built to order rather than mass produced. Many costs can be directly traced to each job. TWO TYPES: Job-shop operations Products manufactured in very low volumes or one at a time. Batch-production operations Multiple products in batches of relatively small quantity. Reviewer (R) - Slide 7 NN First paragraph, first sentence: Changed the words 'Job-order costing' to bold font. Job-order costing is used by companies with job-shop operations or batch-production operations. In a job-shop environment, products are manufactured in very low volumes or one at a time. In job-order costing, each distinct batch of production is called a job or job order. The cost-accounting procedures are designed to assign costs to each job. Then the total costs assigned to each job are divided by the units of production in the job to obtain an average cost per unit. Examples of job-shop environments include film production, custom home building, and aircraft manufacturing.
  • 5. In a batch-production environment, multiple products are produced in batches of relatively small quantity. Examples include furniture manufacture, printing, agricultural equipment, and pleasure boat production. (LO 3-3) Process Costing Job-Order Costing Types of Product-Costing Systems 3-* Used for production of small, identical, low cost items. Mass produced in automated continuous production process. Costs cannot be directly traced to each unit of product. Typical process cost applications: Petrochemical refinery Paint manufacturer Paper mill Process costing is used by companies that produce large numbers of identical units. A process-costing system accumulates all the production costs for a large number of units of output, and then these costs are averaged over all of the units. Firms that produce chemicals, microchips, gasoline, beer,
  • 6. fertilizer, textiles, processed food, and electricity are among those using process costing. In these kinds of firms, there is no need to trace costs to specific batches of production because the products in the different batches are identical. (LO 3-3) The primary document for tracking the costs associated with a given job is the job-cost record. Accumulating Costs in a Job-Order Costing System 3-* In a job-order costing system, costs of direct material, direct labor, and manufacturing overhead are assigned to each production job. These costs comprise the inputs of the product- costing system. As costs are incurred, they are added to the Work-in-Process Inventory account in the ledger. To keep track of the manufacturing costs assigned to each job, a subsidiary ledger is maintained. The subsidiary ledger account assigned to each job is a document called a job-cost record. (LO 3-3) Job-Order Cost Accounting 3-* Three major sections on the job-cost record are used to accumulate the costs of direct material, direct labor, and manufacturing overhead assigned to the job. The other two sections are used to record the total cost and average unit cost
  • 7. for the job, and to keep track of units shipped to customers. A job-cost record may be a paper document upon which the entries for direct material, direct labor, and manufacturing overhead are written. Increasingly, it is a computer file where entries are made using a computer. (LO 3-3) Sheet1Managerial AccountingFinancial AccountingUsers of InformationManagers, within the organization.Interested parties, outside the organization.RegulationNot required and unregulated, since it is intended only for management.Required and must conform to generally accepted accounting principles. Regulated by the Financial Accounting Standards Board, and, to a lesser degree, the Securities and Exchange Commission.Source of DataThe organization's basic accounting system, plus various other sources, such as rates of effective products manufactured, physical quantities of material and labor used in production, occupancy rates in hotels and hospitals, and average take-off delaysAlmost exclusively drawn from the organization's basic accounting system, which accumulates financial information.Nature of Reports and ProceduresReports often focus on subunits within the organization, such as departments, divisions, geographical regions, or product lines. Based on a combination of historical data, estimates, and projections of future events.Reports focus on the enterprise in its entirety. Based almost exclusively on historical transaction data. Sheet2One Production DepartmentWork-in-ProcessFinished GoodsInventoryInventoryCost of Goods SoldDirect materialCost of goods completedCost of goods soldDirect laborTwo Sequential Production DepartmentsApplied manufacturingand transferred toWork-in-Process InventoryWork-in-Process Inventoryoverheadfinished goodsProduction Department AProduction Department BDirect materialCost of goods completed in department A andCost of goods completedDirect laborApplied manufacturingtransferred toand transferred
  • 8. tooverheaddepartment Bfinished goodsDirect materialDirect laborApplied manufacturingoverheadFinished Goods InventoryCost of Goods SoldCost of goods soldduring current periodOne Production DepartmentWork-in-Process InventoryFinished Goods InventoryDirect materialCost of goods completedCost of goods completedDirect laborApplied manufacturingand transferred toand transferred tooverheadFinished goodsfinished goodsDirect materialDirect laborApplied manufacturingoverhead Sheet3Cost of goods completed and transferred during MarchCost of goods completed and transferred during MarchCost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in- process on March 31Costs remaining in work-in-process on March 31Costs remaining in work-in-process on March 31Direct Material:Direct Material:Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,000Convserion:Convserion:Convserion:5,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total costs accounted for$ 340,700Total costs accounted for$ 340,700Total costs accounted for$ 340,700Cost of goods completed and transferred out of Stitching Dept. during March30,000 units x $12.228 per equivalent unit$ 366,840Costs remaining in work-in-process in Stitching Dept. on March 31Direct Material:20,000 equivalent units x $7.028 per equivalent unit$ 140,560Convserion:18,000 equivalent units x $4.95 per equivalent unit89,100Total cost of March 31 work-in-process229,660Total costs accounted for$
  • 9. 596,500 Sheet4ConversionPhysicalPhysicalPercentageTransferredDirect UnitsUnitsCompletionInMaterialConversionWork in process, March 110,000Work in process, March 110,00020%Units transferred in during March40,000Units transferred in during March40,000Total units to account for50,000Total units to account for50,000Units completed and transferred out during March30,000Units completed and transferred out during March30,00030,00030,00030,000Work in process, March 3120,000Work in process, March 3120,00090%20,000-0- 18,000Total units accounted for50,000Total units accounted for50,000Total equivalent units50,00030,00048,000PhysicalUnitsWork in process, March 110,000Units transferred in during March40,000Total units to account for50,000Units completed and transferred out during March30,000Work in process, March 3120,000Total units accounted for50,000 Sheet5Work-in-Process Inventory:Work-in-Process Inventory:TransferredDirectCutting DepartmentStitching DepartmentInMaterialConversionTotalDirect materialCost of goodsTransferred-completed andin costsWork in Process, March 1$ 61,000-0-$ 7,600$ 68,600Conversion:transferred outCosts incurred during March290,400$ 7,500230,000527,900Direct laborDirect materialTotal costs to account for$ 351,400$ 7,500$ 237,600$ 596,500ManufacturingoverheadConversion:Equivalent units50,00030,00048,000Direct laborCost per equivalent unit$ 7.028$ 0.25$ 4.95$ 12.228Manufacturingoverhead$351,400$7,500$237,600$ 7.02850,00030,00048,000+ $.25+ $4.95 Sheet6MVP SPORTS EQUIPMENT COMPANYProduction Report: Cutting DepartmentPercentage ofCompletionEquivalent UnitsPhysicalwith Respect toDirectUnitsConversionMaterialConversionWork in process, March 120,00010%Units started during March30,000Total units to account for50,000Units completed and
  • 10. transferred40,000100%40,00040,000Work in process, March 3110,00050%10,0005,000Total units accounted for50,000Total equivalent units50,00045,000DirectMaterialConversionTotalWork in Process, March 1$ 50,000$ 7,200$ 57,200Costs incurred during March90,000193,500283,500Total costs to account for$ 140,000$ 200,700$ 340,700Equivalent units50,00045,000Cost per equivalent unit$ 2.80$ 4.46$ 7.26Cost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in-process50,300Total costs accounted for$ 340,700 Sheet7JOB-COST RECORDJob NumberF16Description80 deluxe alum. fishing boatsDate StartedNov. 1, 20x1Date CompletedNov. 22, 20x1Number of Units Completed80Direct MaterialDateRequisition NumberQuantityUnit PriceCostDirect LaborDateRequisition NumberQuantityUnit PriceCostManufacturing OverheadDateRequisition NumberQuantityUnit PriceCostCost SummaryCost ItemAmountTotal direct materialTotal direct laborTotal manufacturing overheadTotal costUnit costShipping SummaryDateUnits ShippedUnits Remaining in InventoryCost Balance Cost of goods completed and transferred during March 40,000 units × $7.26 per equivalent unit290,400$ Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units × $2.80 per equivalent unit28,000$ Conversion: 5,000 equivalent units × $4.46 per equivalent unit22,300 Total cost of March 31 work in process50,300
  • 11. Total costs accounted for340,700$ MBD000FE9F8.xls Sheet1Cost of goods completed and transferred during March40,000 units × $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units × $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units × $4.46 per equivalent unit22,300Total cost of March 31 work in process50,300Total costs accounted for$ 340,700 &A Page &P Sheet2 &A Page &P Sheet3 &A Page &P Sheet4 &A Page &P Sheet5 &A Page &P Sheet6 &A Page &P Sheet7 &A Page &P Sheet8 &A
  • 12. Page &P Sheet9 &A Page &P Sheet10 &A Page &P Sheet11 &A Page &P Sheet12 &A Page &P Sheet13 &A Page &P Sheet14 &A Page &P Sheet15 &A Page &P Sheet16 &A Page &P Job-Order Cost Accounting 3-* Let’s see one A materials requisition form is used to authorize the use of materials on a job.
  • 13. As raw materials are needed for the production process, they are transferred from the warehouse to the production department. To authorize the release of materials, the production department supervisor completes a material requisition form and presents it to the warehouse supervisor. (LO 3-3) Sheet1Managerial AccountingFinancial AccountingUsers of InformationManagers, within the organization.Interested parties, outside the organization.RegulationNot required and unregulated, since it is intended only for management.Required and must conform to generally accepted accounting principles. Regulated by the Financial Accounting Standards Board, and, to a lesser degree, the Securities and Exchange Commission.Source of DataThe organization's basic accounting system, plus various other sources, such as rates of effective products manufactured, physical quantities of material and labor used in production, occupancy rates in hotels and hospitals, and average take-off delaysAlmost exclusively drawn from the organization's basic accounting system, which accumulates financial information.Nature of Reports and ProceduresReports often focus on subunits within the organization, such as departments, divisions, geographical regions, or product lines. Based on a combination of historical data, estimates, and projections of future events.Reports focus on the enterprise in its entirety. Based almost exclusively on historical transaction data. Sheet2One Production DepartmentWork-in-ProcessFinished GoodsInventoryInventoryCost of Goods SoldDirect materialCost of goods completedCost of goods soldDirect laborTwo Sequential Production DepartmentsApplied manufacturingand transferred toWork-in-Process InventoryWork-in-Process Inventoryoverheadfinished goodsProduction Department AProduction Department BDirect materialCost of goods completed in
  • 14. department A andCost of goods completedDirect laborApplied manufacturingtransferred toand transferred tooverheaddepartment Bfinished goodsDirect materialDirect laborApplied manufacturingoverheadFinished Goods InventoryCost of Goods SoldCost of goods soldduring current periodOne Production DepartmentWork-in-Process InventoryFinished Goods InventoryDirect materialCost of goods completedCost of goods completedDirect laborApplied manufacturingand transferred toand transferred tooverheadFinished goodsfinished goodsDirect materialDirect laborApplied manufacturingoverhead Sheet3Cost of goods completed and transferred during MarchCost of goods completed and transferred during MarchCost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in- process on March 31Costs remaining in work-in-process on March 31Costs remaining in work-in-process on March 31Direct Material:Direct Material:Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,000Convserion:Convserion:Convserion:5,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total costs accounted for$ 340,700Total costs accounted for$ 340,700Total costs accounted for$ 340,700Cost of goods completed and transferred out of Stitching Dept. during March30,000 units x $12.228 per equivalent unit$ 366,840Costs remaining in work-in-process in Stitching Dept. on March 31Direct Material:20,000 equivalent units x $7.028 per equivalent unit$ 140,560Convserion:18,000
  • 15. equivalent units x $4.95 per equivalent unit89,100Total cost of March 31 work-in-process229,660Total costs accounted for$ 596,500 Sheet4ConversionPhysicalPhysicalPercentageTransferredDirect UnitsUnitsCompletionInMaterialConversionWork in process, March 110,000Work in process, March 110,00020%Units transferred in during March40,000Units transferred in during March40,000Total units to account for50,000Total units to account for50,000Units completed and transferred out during March30,000Units completed and transferred out during March30,00030,00030,00030,000Work in process, March 3120,000Work in process, March 3120,00090%20,000-0- 18,000Total units accounted for50,000Total units accounted for50,000Total equivalent units50,00030,00048,000PhysicalUnitsWork in process, March 110,000Units transferred in during March40,000Total units to account for50,000Units completed and transferred out during March30,000Work in process, March 3120,000Total units accounted for50,000 Sheet5Work-in-Process Inventory:Work-in-Process Inventory:TransferredDirectCutting DepartmentStitching DepartmentInMaterialConversionTotalDirect materialCost of goodsTransferred-completed andin costsWork in Process, March 1$ 61,000-0-$ 7,600$ 68,600Conversion:transferred outCosts incurred during March290,400$ 7,500230,000527,900Direct laborDirect materialTotal costs to account for$ 351,400$ 7,500$ 237,600$ 596,500ManufacturingoverheadConversion:Equivalent units50,00030,00048,000Direct laborCost per equivalent unit$ 7.028$ 0.25$ 4.95$ 12.228Manufacturingoverhead$351,400$7,500$237,600$ 7.02850,00030,00048,000+ $.25+ $4.95 Sheet6MVP SPORTS EQUIPMENT COMPANYProduction Report: Cutting DepartmentPercentage ofCompletionEquivalent UnitsPhysicalwith Respect toDirectUnitsConversionMaterialConversionWork in process,
  • 16. March 120,00010%Units started during March30,000Total units to account for50,000Units completed and transferred40,000100%40,00040,000Work in process, March 3110,00050%10,0005,000Total units accounted for50,000Total equivalent units50,00045,000DirectMaterialConversionTotalWork in Process, March 1$ 50,000$ 7,200$ 57,200Costs incurred during March90,000193,500283,500Total costs to account for$ 140,000$ 200,700$ 340,700Equivalent units50,00045,000Cost per equivalent unit$ 2.80$ 4.46$ 7.26Cost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in-process50,300Total costs accounted for$ 340,700 Sheet7JOB-COST RECORDJob NumberF16Description80 deluxe alum. fishing boatsDate StartedNov. 1, 20x1Date CompletedNov. 22, 20x1Number of Units Completed80Direct MaterialDateRequisition NumberQuantityUnit PriceCostDirect LaborDateRequisition NumberQuantityUnit PriceCostManufacturing OverheadDateRequisition NumberQuantityUnit PriceCostCost SummaryCost ItemAmountTotal direct materialTotal direct laborTotal manufacturing overheadTotal costUnit costShipping SummaryDateUnits ShippedUnits Remaining in InventoryCost Balance Cost of goods completed and transferred during March 40,000 units × $7.26 per equivalent unit290,400$ Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units × $2.80 per equivalent unit28,000$ Conversion:
  • 17. 5,000 equivalent units × $4.46 per equivalent unit22,300 Total cost of March 31 work in process50,300 Total costs accounted for340,700$ MBD000FE9F8.xls Sheet1Cost of goods completed and transferred during March40,000 units × $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units × $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units × $4.46 per equivalent unit22,300Total cost of March 31 work in process50,300Total costs accounted for$ 340,700 &A Page &P Sheet2 &A Page &P Sheet3 &A Page &P Sheet4 &A Page &P Sheet5 &A Page &P Sheet6 &A Page &P Sheet7 &A Page &P
  • 18. Sheet8 &A Page &P Sheet9 &A Page &P Sheet10 &A Page &P Sheet11 &A Page &P Sheet12 &A Page &P Sheet13 &A Page &P Sheet14 &A Page &P Sheet15 &A Page &P Sheet16 &A Page &P Timothy Williams Job-Order Cost Accounting 3-* A copy of the material requisition form goes to the cost
  • 19. accounting department. (LO 3-3) Sheet1RoseCo Materials Requisition FormRequisition No. 352Date 11/1/x1Job Number to Be Charged F16Dept. PaintingDepartment Supervisor Timothy WilliamsItemQuantityUnit CostAmountAluminum7,200 sq ft$ 2.50$ 18,000.00AuthorizedSignature &A Page &P Sheet2 &A Page &P Sheet3 &A Page &P Sheet4 &A Page &P Sheet5 &A Page &P Sheet6 &A Page &P Sheet7 &A Page &P Sheet8 &A Page &P Sheet9 &A Page &P Sheet10 &A Page &P
  • 20. Sheet11 &A Page &P Sheet12 &A Page &P Sheet13 &A Page &P Sheet14 &A Page &P Sheet15 &A Page &P Sheet16 &A Page &P Accumulate direct labor costs by means of a work record, such as a time ticket, for each employee. Let’s see one Job-Order Cost Accounting 3-* The assignment of direct-labor costs to jobs is based on time records filled out by employees. (LO 3-3) Sheet1Managerial AccountingFinancial AccountingUsers of InformationManagers, within the organization.Interested parties, outside the organization.RegulationNot required and
  • 21. unregulated, since it is intended only for management.Required and must conform to generally accepted accounting principles. Regulated by the Financial Accounting Standards Board, and, to a lesser degree, the Securities and Exchange Commission.Source of DataThe organization's basic accounting system, plus various other sources, such as rates of effective products manufactured, physical quantities of material and labor used in production, occupancy rates in hotels and hospitals, and average take-off delaysAlmost exclusively drawn from the organization's basic accounting system, which accumulates financial information.Nature of Reports and ProceduresReports often focus on subunits within the organization, such as departments, divisions, geographical regions, or product lines. Based on a combination of historical data, estimates, and projections of future events.Reports focus on the enterprise in its entirety. Based almost exclusively on historical transaction data. Sheet2One Production DepartmentWork-in-ProcessFinished GoodsInventoryInventoryCost of Goods SoldDirect materialCost of goods completedCost of goods soldDirect laborTwo Sequential Production DepartmentsApplied manufacturingand transferred toWork-in-Process InventoryWork-in-Process Inventoryoverheadfinished goodsProduction Department AProduction Department BDirect materialCost of goods completed in department A andCost of goods completedDirect laborApplied manufacturingtransferred toand transferred tooverheaddepartment Bfinished goodsDirect materialDirect laborApplied manufacturingoverheadFinished Goods InventoryCost of Goods SoldCost of goods soldduring current periodOne Production DepartmentWork-in-Process InventoryFinished Goods InventoryDirect materialCost of goods completedCost of goods completedDirect laborApplied manufacturingand transferred toand transferred tooverheadFinished goodsfinished goodsDirect materialDirect laborApplied manufacturingoverhead
  • 22. Sheet3Cost of goods completed and transferred during MarchCost of goods completed and transferred during MarchCost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in- process on March 31Costs remaining in work-in-process on March 31Costs remaining in work-in-process on March 31Direct Material:Direct Material:Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,000Convserion:Convserion:Convserion:5,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total costs accounted for$ 340,700Total costs accounted for$ 340,700Total costs accounted for$ 340,700Cost of goods completed and transferred out of Stitching Dept. during March30,000 units x $12.228 per equivalent unit$ 366,840Costs remaining in work-in-process in Stitching Dept. on March 31Direct Material:20,000 equivalent units x $7.028 per equivalent unit$ 140,560Convserion:18,000 equivalent units x $4.95 per equivalent unit89,100Total cost of March 31 work-in-process229,660Total costs accounted for$ 596,500 Sheet4ConversionPhysicalPhysicalPercentageTransferredDirect UnitsUnitsCompletionInMaterialConversionWork in process, March 110,000Work in process, March 110,00020%Units transferred in during March40,000Units transferred in during March40,000Total units to account for50,000Total units to account for50,000Units completed and transferred out during March30,000Units completed and transferred out during March30,00030,00030,00030,000Work in process, March
  • 23. 3120,000Work in process, March 3120,00090%20,000-0- 18,000Total units accounted for50,000Total units accounted for50,000Total equivalent units50,00030,00048,000PhysicalUnitsWork in process, March 110,000Units transferred in during March40,000Total units to account for50,000Units completed and transferred out during March30,000Work in process, March 3120,000Total units accounted for50,000 Sheet5Work-in-Process Inventory:Work-in-Process Inventory:TransferredDirectCutting DepartmentStitching DepartmentInMaterialConversionTotalDirect materialCost of goodsTransferred-completed andin costsWork in Process, March 1$ 61,000-0-$ 7,600$ 68,600Conversion:transferred outCosts incurred during March290,400$ 7,500230,000527,900Direct laborDirect materialTotal costs to account for$ 351,400$ 7,500$ 237,600$ 596,500ManufacturingoverheadConversion:Equivalent units50,00030,00048,000Direct laborCost per equivalent unit$ 7.028$ 0.25$ 4.95$ 12.228Manufacturingoverhead$351,400$7,500$237,600$ 7.02850,00030,00048,000+ $.25+ $4.95 Sheet6MVP SPORTS EQUIPMENT COMPANYProduction Report: Cutting DepartmentPercentage ofCompletionEquivalent UnitsPhysicalwith Respect toDirectUnitsConversionMaterialConversionWork in process, March 120,00010%Units started during March30,000Total units to account for50,000Units completed and transferred40,000100%40,00040,000Work in process, March 3110,00050%10,0005,000Total units accounted for50,000Total equivalent units50,00045,000DirectMaterialConversionTotalWork in Process, March 1$ 50,000$ 7,200$ 57,200Costs incurred during March90,000193,500283,500Total costs to account for$ 140,000$ 200,700$ 340,700Equivalent units50,00045,000Cost per equivalent unit$ 2.80$ 4.46$ 7.26Cost of goods completed and transferred during
  • 24. March40,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in-process50,300Total costs accounted for$ 340,700 Sheet7JOB-COST RECORDJob NumberF16Description80 deluxe alum. fishing boatsDate StartedNov. 1, 20x1Date CompletedNov. 22, 20x1Number of Units Completed80Direct MaterialDateRequisition NumberQuantityUnit PriceCost11/18037,200 sq ft$2.50$18,000Direct LaborDateRequisition NumberQuantityUnit PriceCostManufacturing OverheadDateRequisition NumberQuantityUnit PriceCostCost SummaryCost ItemAmountTotal direct material$18,000Total direct laborTotal manufacturing overheadTotal costUnit costShipping SummaryDateUnits ShippedUnits Remaining in InventoryCost Balance Cost of goods completed and transferred during March 40,000 units × $7.26 per equivalent unit290,400$ Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units × $2.80 per equivalent unit28,000$ Conversion: 5,000 equivalent units × $4.46 per equivalent unit22,300 Total cost of March 31 work in process50,300 Total costs accounted for340,700$ MBD000FE9F8.xls Sheet1Cost of goods completed and transferred during
  • 25. March40,000 units × $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units × $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units × $4.46 per equivalent unit22,300Total cost of March 31 work in process50,300Total costs accounted for$ 340,700 &A Page &P Sheet2 &A Page &P Sheet3 &A Page &P Sheet4 &A Page &P Sheet5 &A Page &P Sheet6 &A Page &P Sheet7 &A Page &P Sheet8 &A Page &P Sheet9 &A Page &P Sheet10 &A Page &P Sheet11
  • 26. &A Page &P Sheet12 &A Page &P Sheet13 &A Page &P Sheet14 &A Page &P Sheet15 &A Page &P Sheet16 &A Page &P Employee Time Ticket 3-* A time record is a form that records the amount of time an employee spends on each production job. (LO 3-3) Sheet1EmployeeRon BradleyDate 11/5/20x1Employee Number 12Department PaintingStationTime StartedTime StoppedJob Number8:0011:30F1611:3012:00Shop cleanup1:005:00A26Totals8.00$ 11.00$ 88.00A-143 &A Page &P Sheet2 &A Page &P
  • 27. Sheet3 &A Page &P Sheet4 &A Page &P Sheet5 &A Page &P Sheet6 &A Page &P Sheet7 &A Page &P Sheet8 &A Page &P Sheet9 &A Page &P Sheet10 &A Page &P Sheet11 &A Page &P Sheet12 &A Page &P Sheet13 &A Page &P Sheet14 &A Page &P
  • 28. Sheet15 &A Page &P Sheet16 &A Page &P Apply manufacturing overhead to jobs using a predetermined overhead rate based on direct labor hours (DLH). Let’s do it Job-Order Cost Accounting 3-* Manufacturing overhead is a pool of indirect production costs, such as indirect material, indirect labor, utility costs, and depreciation. These costs often bear no obvious relationship to individual jobs or units of product, but they must be incurred for production to take place. (LO 3-3) Sheet1Managerial AccountingFinancial AccountingUsers of InformationManagers, within the organization.Interested parties, outside the organization.RegulationNot required and unregulated, since it is intended only for management.Required and must conform to generally accepted accounting principles. Regulated by the Financial Accounting Standards Board, and, to a lesser degree, the Securities and Exchange Commission.Source of DataThe organization's basic accounting system, plus various other sources, such as rates of effective products manufactured, physical quantities of material and labor
  • 29. used in production, occupancy rates in hotels and hospitals, and average take-off delaysAlmost exclusively drawn from the organization's basic accounting system, which accumulates financial information.Nature of Reports and ProceduresReports often focus on subunits within the organization, such as departments, divisions, geographical regions, or product lines. Based on a combination of historical data, estimates, and projections of future events.Reports focus on the enterprise in its entirety. Based almost exclusively on historical transaction data. Sheet2One Production DepartmentWork-in-ProcessFinished GoodsInventoryInventoryCost of Goods SoldDirect materialCost of goods completedCost of goods soldDirect laborTwo Sequential Production DepartmentsApplied manufacturingand transferred toWork-in-Process InventoryWork-in-Process Inventoryoverheadfinished goodsProduction Department AProduction Department BDirect materialCost of goods completed in department A andCost of goods completedDirect laborApplied manufacturingtransferred toand transferred tooverheaddepartment Bfinished goodsDirect materialDirect laborApplied manufacturingoverheadFinished Goods InventoryCost of Goods SoldCost of goods soldduring current periodOne Production DepartmentWork-in-Process InventoryFinished Goods InventoryDirect materialCost of goods completedCost of goods completedDirect laborApplied manufacturingand transferred toand transferred tooverheadFinished goodsfinished goodsDirect materialDirect laborApplied manufacturingoverhead Sheet3Cost of goods completed and transferred during MarchCost of goods completed and transferred during MarchCost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in- process on March 31Costs remaining in work-in-process on
  • 30. March 31Costs remaining in work-in-process on March 31Direct Material:Direct Material:Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,000Convserion:Convserion:Convserion:5,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total costs accounted for$ 340,700Total costs accounted for$ 340,700Total costs accounted for$ 340,700Cost of goods completed and transferred out of Stitching Dept. during March30,000 units x $12.228 per equivalent unit$ 366,840Costs remaining in work-in-process in Stitching Dept. on March 31Direct Material:20,000 equivalent units x $7.028 per equivalent unit$ 140,560Convserion:18,000 equivalent units x $4.95 per equivalent unit89,100Total cost of March 31 work-in-process229,660Total costs accounted for$ 596,500 Sheet4ConversionPhysicalPhysicalPercentageTransferredDirect UnitsUnitsCompletionInMaterialConversionWork in process, March 110,000Work in process, March 110,00020%Units transferred in during March40,000Units transferred in during March40,000Total units to account for50,000Total units to account for50,000Units completed and transferred out during March30,000Units completed and transferred out during March30,00030,00030,00030,000Work in process, March 3120,000Work in process, March 3120,00090%20,000-0- 18,000Total units accounted for50,000Total units accounted for50,000Total equivalent units50,00030,00048,000PhysicalUnitsWork in process, March 110,000Units transferred in during March40,000Total units to account for50,000Units completed and transferred out during March30,000Work in process, March 3120,000Total units
  • 31. accounted for50,000 Sheet5Work-in-Process Inventory:Work-in-Process Inventory:TransferredDirectCutting DepartmentStitching DepartmentInMaterialConversionTotalDirect materialCost of goodsTransferred-completed andin costsWork in Process, March 1$ 61,000-0-$ 7,600$ 68,600Conversion:transferred outCosts incurred during March290,400$ 7,500230,000527,900Direct laborDirect materialTotal costs to account for$ 351,400$ 7,500$ 237,600$ 596,500ManufacturingoverheadConversion:Equivalent units50,00030,00048,000Direct laborCost per equivalent unit$ 7.028$ 0.25$ 4.95$ 12.228Manufacturingoverhead$351,400$7,500$237,600$ 7.02850,00030,00048,000+ $.25+ $4.95 Sheet6MVP SPORTS EQUIPMENT COMPANYProduction Report: Cutting DepartmentPercentage ofCompletionEquivalent UnitsPhysicalwith Respect toDirectUnitsConversionMaterialConversionWork in process, March 120,00010%Units started during March30,000Total units to account for50,000Units completed and transferred40,000100%40,00040,000Work in process, March 3110,00050%10,0005,000Total units accounted for50,000Total equivalent units50,00045,000DirectMaterialConversionTotalWork in Process, March 1$ 50,000$ 7,200$ 57,200Costs incurred during March90,000193,500283,500Total costs to account for$ 140,000$ 200,700$ 340,700Equivalent units50,00045,000Cost per equivalent unit$ 2.80$ 4.46$ 7.26Cost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in-process50,300Total costs accounted for$ 340,700 Sheet7JOB-COST RECORDJob NumberF16Description80
  • 32. deluxe alum. fishing boatsDate StartedNov. 1, 20x1Date CompletedNov. 22, 20x1Number of Units Completed80Direct MaterialDateRequisition NumberQuantityUnit PriceCost11/18037,200 sq ft$2.50$18,000Direct LaborDateRequisition NumberQuantityUnit PriceCostVarious datesVarious time cards600$20$12,000Manufacturing OverheadDateRequisition NumberQuantityUnit PriceCostCost SummaryCost ItemAmountTotal direct material$18,000Total direct labor12,000Total manufacturing overheadTotal costUnit costShipping SummaryDateUnits ShippedUnits Remaining in InventoryCost Balance Cost of goods completed and transferred during March 40,000 units × $7.26 per equivalent unit290,400$ Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units × $2.80 per equivalent unit28,000$ Conversion: 5,000 equivalent units × $4.46 per equivalent unit22,300 Total cost of March 31 work in process50,300 Total costs accounted for340,700$ MBD000FE9F8.xls Sheet1Cost of goods completed and transferred during March40,000 units × $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units × $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units × $4.46 per equivalent unit22,300Total cost of March 31 work in process50,300Total costs accounted for$ 340,700 &A
  • 33. Page &P Sheet2 &A Page &P Sheet3 &A Page &P Sheet4 &A Page &P Sheet5 &A Page &P Sheet6 &A Page &P Sheet7 &A Page &P Sheet8 &A Page &P Sheet9 &A Page &P Sheet10 &A Page &P Sheet11 &A Page &P Sheet12 &A Page &P Sheet13 &A
  • 34. Page &P Sheet14 &A Page &P Sheet15 &A Page &P Sheet16 &A Page &P Job-Order Cost Accounting 3-* Therefore, it is necessary to assign manufacturing-overhead costs to jobs in order to have a complete picture of product costs. This process of assigning manufacturing-overhead costs to production jobs is called overhead application. A predetermined overhead rate is used to apply overhead on the job-cost record. (LO 3-3) Sheet1Managerial AccountingFinancial AccountingUsers of InformationManagers, within the organization.Interested parties, outside the organization.RegulationNot required and unregulated, since it is intended only for management.Required and must conform to generally accepted accounting principles. Regulated by the Financial Accounting Standards Board, and, to a lesser degree, the Securities and Exchange Commission.Source of DataThe organization's basic accounting system, plus various other sources, such as rates of effective
  • 35. products manufactured, physical quantities of material and labor used in production, occupancy rates in hotels and hospitals, and average take-off delaysAlmost exclusively drawn from the organization's basic accounting system, which accumulates financial information.Nature of Reports and ProceduresReports often focus on subunits within the organization, such as departments, divisions, geographical regions, or product lines. Based on a combination of historical data, estimates, and projections of future events.Reports focus on the enterprise in its entirety. Based almost exclusively on historical transaction data. Sheet2One Production DepartmentWork-in-ProcessFinished GoodsInventoryInventoryCost of Goods SoldDirect materialCost of goods completedCost of goods soldDirect laborTwo Sequential Production DepartmentsApplied manufacturingand transferred toWork-in-Process InventoryWork-in-Process Inventoryoverheadfinished goodsProduction Department AProduction Department BDirect materialCost of goods completed in department A andCost of goods completedDirect laborApplied manufacturingtransferred toand transferred tooverheaddepartment Bfinished goodsDirect materialDirect laborApplied manufacturingoverheadFinished Goods InventoryCost of Goods SoldCost of goods soldduring current periodOne Production DepartmentWork-in-Process InventoryFinished Goods InventoryDirect materialCost of goods completedCost of goods completedDirect laborApplied manufacturingand transferred toand transferred tooverheadFinished goodsfinished goodsDirect materialDirect laborApplied manufacturingoverhead Sheet3Cost of goods completed and transferred during MarchCost of goods completed and transferred during MarchCost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in-
  • 36. process on March 31Costs remaining in work-in-process on March 31Costs remaining in work-in-process on March 31Direct Material:Direct Material:Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,000Convserion:Convserion:Convserion:5,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total costs accounted for$ 340,700Total costs accounted for$ 340,700Total costs accounted for$ 340,700Cost of goods completed and transferred out of Stitching Dept. during March30,000 units x $12.228 per equivalent unit$ 366,840Costs remaining in work-in-process in Stitching Dept. on March 31Direct Material:20,000 equivalent units x $7.028 per equivalent unit$ 140,560Convserion:18,000 equivalent units x $4.95 per equivalent unit89,100Total cost of March 31 work-in-process229,660Total costs accounted for$ 596,500 Sheet4ConversionPhysicalPhysicalPercentageTransferredDirect UnitsUnitsCompletionInMaterialConversionWork in process, March 110,000Work in process, March 110,00020%Units transferred in during March40,000Units transferred in during March40,000Total units to account for50,000Total units to account for50,000Units completed and transferred out during March30,000Units completed and transferred out during March30,00030,00030,00030,000Work in process, March 3120,000Work in process, March 3120,00090%20,000-0- 18,000Total units accounted for50,000Total units accounted for50,000Total equivalent units50,00030,00048,000PhysicalUnitsWork in process, March 110,000Units transferred in during March40,000Total units to account for50,000Units completed and transferred out during
  • 37. March30,000Work in process, March 3120,000Total units accounted for50,000 Sheet5Work-in-Process Inventory:Work-in-Process Inventory:TransferredDirectCutting DepartmentStitching DepartmentInMaterialConversionTotalDirect materialCost of goodsTransferred-completed andin costsWork in Process, March 1$ 61,000-0-$ 7,600$ 68,600Conversion:transferred outCosts incurred during March290,400$ 7,500230,000527,900Direct laborDirect materialTotal costs to account for$ 351,400$ 7,500$ 237,600$ 596,500ManufacturingoverheadConversion:Equivalent units50,00030,00048,000Direct laborCost per equivalent unit$ 7.028$ 0.25$ 4.95$ 12.228Manufacturingoverhead$351,400$7,500$237,600$ 7.02850,00030,00048,000+ $.25+ $4.95 Sheet6MVP SPORTS EQUIPMENT COMPANYProduction Report: Cutting DepartmentPercentage ofCompletionEquivalent UnitsPhysicalwith Respect toDirectUnitsConversionMaterialConversionWork in process, March 120,00010%Units started during March30,000Total units to account for50,000Units completed and transferred40,000100%40,00040,000Work in process, March 3110,00050%10,0005,000Total units accounted for50,000Total equivalent units50,00045,000DirectMaterialConversionTotalWork in Process, March 1$ 50,000$ 7,200$ 57,200Costs incurred during March90,000193,500283,500Total costs to account for$ 140,000$ 200,700$ 340,700Equivalent units50,00045,000Cost per equivalent unit$ 2.80$ 4.46$ 7.26Cost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in-process50,300Total costs accounted for$ 340,700
  • 38. Sheet7JOB-COST RECORDJob NumberF16Description80 deluxe alum. fishing boatsDate StartedNov. 1, 20x1Date CompletedNov. 22, 20x1Number of Units Completed80Direct MaterialDateRequisition NumberQuantityUnit PriceCost11/18037,200 sq ft$2.50$18,000Direct LaborDateRequisition NumberQuantityUnit PriceCostVarious datesVarious time cards600$20$12,000Manufacturing OverheadDateRequisition NumberQuantityUnit PriceCost11/30Direct Labor Hours600$30.00$18,000Cost SummaryCost ItemAmountTotal direct material$18,000Total direct labor12,000Total manufacturing overhead18,000Total costUnit costShipping SummaryDateUnits ShippedUnits Remaining in InventoryCost Balance Cost of goods completed and transferred during March 40,000 units × $7.26 per equivalent unit290,400$ Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units × $2.80 per equivalent unit28,000$ Conversion: 5,000 equivalent units × $4.46 per equivalent unit22,300 Total cost of March 31 work in process50,300 Total costs accounted for340,700$ MBD000FE9F8.xls Sheet1Cost of goods completed and transferred during March40,000 units × $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units × $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units × $4.46 per equivalent unit22,300Total cost of March 31 work in process50,300Total
  • 39. costs accounted for$ 340,700 &A Page &P Sheet2 &A Page &P Sheet3 &A Page &P Sheet4 &A Page &P Sheet5 &A Page &P Sheet6 &A Page &P Sheet7 &A Page &P Sheet8 &A Page &P Sheet9 &A Page &P Sheet10 &A Page &P Sheet11 &A Page &P Sheet12 &A Page &P
  • 40. Sheet13 &A Page &P Sheet14 &A Page &P Sheet15 &A Page &P Sheet16 &A Page &P Overhead is applied to jobs using a predetermined overhead rate based on estimates made at the beginning of the accounting period. Overhead applied = Rate × Actual activity Based on estimates, and determined before the period begins Actual amount of the allocation base, such as direct labor hours, incurred during the period Manufacturing Overhead Costs 3-* Predetermined Rate = Budgeted manufacturing overhead cost Budgeted amount of cost driver (or activity base)
  • 41. The accounting department chooses some measure of productive activity to use as the basis for overhead application. In traditional product-costing systems, this measure is usually some volume-based cost driver (or activity base), such as direct-labor hours, direct-labor cost, or machine hours. An estimate is made of (1) the amount of manufacturing overhead that will be incurred during a specified period of time and (2) the amount of the cost driver (or activity base) that will be used or incurred during the same time period. (LO 3-4) Job-Order Cost Accounting 3-* Reviewer (R) - Slide 19 NN First sentence: Added a comma after the word 'costs' (total direct labor costs). Once manufacturing overhead has been applied, the cost summary can be completed. Total direct material costs, total direct labor costs, and total manufacturing overhead costs are added together to determine total costs. These costs are divided by the number of units completed to arrive at the unit cost. (LO 3-3) Sheet1Managerial AccountingFinancial AccountingUsers of InformationManagers, within the organization.Interested parties, outside the organization.RegulationNot required and unregulated, since it is intended only for management.Required and must conform to generally accepted accounting principles.
  • 42. Regulated by the Financial Accounting Standards Board, and, to a lesser degree, the Securities and Exchange Commission.Source of DataThe organization's basic accounting system, plus various other sources, such as rates of effective products manufactured, physical quantities of material and labor used in production, occupancy rates in hotels and hospitals, and average take-off delaysAlmost exclusively drawn from the organization's basic accounting system, which accumulates financial information.Nature of Reports and ProceduresReports often focus on subunits within the organization, such as departments, divisions, geographical regions, or product lines. Based on a combination of historical data, estimates, and projections of future events.Reports focus on the enterprise in its entirety. Based almost exclusively on historical transaction data. Sheet2One Production DepartmentWork-in-ProcessFinished GoodsInventoryInventoryCost of Goods SoldDirect materialCost of goods completedCost of goods soldDirect laborTwo Sequential Production DepartmentsApplied manufacturingand transferred toWork-in-Process InventoryWork-in-Process Inventoryoverheadfinished goodsProduction Department AProduction Department BDirect materialCost of goods completed in department A andCost of goods completedDirect laborApplied manufacturingtransferred toand transferred tooverheaddepartment Bfinished goodsDirect materialDirect laborApplied manufacturingoverheadFinished Goods InventoryCost of Goods SoldCost of goods soldduring current periodOne Production DepartmentWork-in-Process InventoryFinished Goods InventoryDirect materialCost of goods completedCost of goods completedDirect laborApplied manufacturingand transferred toand transferred tooverheadFinished goodsfinished goodsDirect materialDirect laborApplied manufacturingoverhead Sheet3Cost of goods completed and transferred during MarchCost of goods completed and transferred during
  • 43. MarchCost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in- process on March 31Costs remaining in work-in-process on March 31Costs remaining in work-in-process on March 31Direct Material:Direct Material:Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,000Convserion:Convserion:Convserion:5,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total costs accounted for$ 340,700Total costs accounted for$ 340,700Total costs accounted for$ 340,700Cost of goods completed and transferred out of Stitching Dept. during March30,000 units x $12.228 per equivalent unit$ 366,840Costs remaining in work-in-process in Stitching Dept. on March 31Direct Material:20,000 equivalent units x $7.028 per equivalent unit$ 140,560Convserion:18,000 equivalent units x $4.95 per equivalent unit89,100Total cost of March 31 work-in-process229,660Total costs accounted for$ 596,500 Sheet4ConversionPhysicalPhysicalPercentageTransferredDirect UnitsUnitsCompletionInMaterialConversionWork in process, March 110,000Work in process, March 110,00020%Units transferred in during March40,000Units transferred in during March40,000Total units to account for50,000Total units to account for50,000Units completed and transferred out during March30,000Units completed and transferred out during March30,00030,00030,00030,000Work in process, March 3120,000Work in process, March 3120,00090%20,000-0- 18,000Total units accounted for50,000Total units accounted
  • 44. for50,000Total equivalent units50,00030,00048,000PhysicalUnitsWork in process, March 110,000Units transferred in during March40,000Total units to account for50,000Units completed and transferred out during March30,000Work in process, March 3120,000Total units accounted for50,000 Sheet5Work-in-Process Inventory:Work-in-Process Inventory:TransferredDirectCutting DepartmentStitching DepartmentInMaterialConversionTotalDirect materialCost of goodsTransferred-completed andin costsWork in Process, March 1$ 61,000-0-$ 7,600$ 68,600Conversion:transferred outCosts incurred during March290,400$ 7,500230,000527,900Direct laborDirect materialTotal costs to account for$ 351,400$ 7,500$ 237,600$ 596,500ManufacturingoverheadConversion:Equivalent units50,00030,00048,000Direct laborCost per equivalent unit$ 7.028$ 0.25$ 4.95$ 12.228Manufacturingoverhead$351,400$7,500$237,600$ 7.02850,00030,00048,000+ $.25+ $4.95 Sheet6MVP SPORTS EQUIPMENT COMPANYProduction Report: Cutting DepartmentPercentage ofCompletionEquivalent UnitsPhysicalwith Respect toDirectUnitsConversionMaterialConversionWork in process, March 120,00010%Units started during March30,000Total units to account for50,000Units completed and transferred40,000100%40,00040,000Work in process, March 3110,00050%10,0005,000Total units accounted for50,000Total equivalent units50,00045,000DirectMaterialConversionTotalWork in Process, March 1$ 50,000$ 7,200$ 57,200Costs incurred during March90,000193,500283,500Total costs to account for$ 140,000$ 200,700$ 340,700Equivalent units50,00045,000Cost per equivalent unit$ 2.80$ 4.46$ 7.26Cost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct
  • 45. Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in-process50,300Total costs accounted for$ 340,700 Sheet7JOB-COST RECORDJob NumberF16Description80 deluxe alum. fishing boatsDate StartedNov. 1, 20x1Date CompletedNov. 22, 20x1Number of Units Completed80Direct MaterialDateRequisition NumberQuantityUnit PriceCost11/18037,200 sq ft$2.50$18,000Direct LaborDateRequisition NumberQuantityUnit PriceCostVarious datesVarious time cards600$20$12,000Manufacturing OverheadDateRequisition NumberQuantityUnit PriceCost11/30Direct Labor Hours600$30.00$18,000Cost SummaryCost ItemAmountTotal direct material$18,000Total direct labor12,000Total manufacturing overhead18,000Total cost$48,000Unit cost$600Shipping SummaryDateUnits ShippedUnits Remaining in InventoryCost Balance11/306020$12,000 Cost of goods completed and transferred during March 40,000 units × $7.26 per equivalent unit290,400$ Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units × $2.80 per equivalent unit28,000$ Conversion: 5,000 equivalent units × $4.46 per equivalent unit22,300 Total cost of March 31 work in process50,300 Total costs accounted for340,700$ MBD000FE9F8.xls Sheet1Cost of goods completed and transferred during
  • 46. March40,000 units × $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units × $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units × $4.46 per equivalent unit22,300Total cost of March 31 work in process50,300Total costs accounted for$ 340,700 &A Page &P Sheet2 &A Page &P Sheet3 &A Page &P Sheet4 &A Page &P Sheet5 &A Page &P Sheet6 &A Page &P Sheet7 &A Page &P Sheet8 &A Page &P Sheet9 &A Page &P Sheet10 &A Page &P Sheet11
  • 47. &A Page &P Sheet12 &A Page &P Sheet13 &A Page &P Sheet14 &A Page &P Sheet15 &A Page &P Sheet16 &A Page &P Overhead is applied to jobs using a predetermined overhead rate (POHR) based on estimates made at the beginning of the accounting period. $360,000 / 40,000 hours = $9 per machine hour Overhead applied = Hours on Job = 30 X $9 per hour = $270 Manufacturing Overhead Costs 3-* Rate = Budgeted manufacturing overhead cost Budgeted amount of cost driver (or activity base) Reviewer (R) - Slide 23
  • 48. Bottom text box: Added a space after the value '30.' So if we assume that the company has budgeted manufacturing overhead for the period of $360,000 and they expect to use a total of 40,000 machine hours over that same period, then the pre-determined rate would be computed by taking the estimated overhead of $360,000 and dividing it by the number of machine hours to be used over that same period – in this case 40,000 hours. This equates to a rate of $9 per machine hour that will be used to charge overhead to all of the jobs. If one specific job took 30 machine hours to complete, then a total of $270 or 30 hours multiplied by 9 per hour would be charged to the job. (LO 3-4) Production Order for Job The materials requisition indicates the cost of direct material to charge to jobs and the cost of indirect material to charge to overhead. Material Requisition The production order for the job authorizes the start of the production process. Labor Time Records Employee time tickets indicate the cost of direct labor to charge to jobs and the cost of indirect labor to charge to overhead. Actual Cost Driver (or Activity Base) X Predetermined Overhead Rate Apply Manufacturing Overhead Job-Order Costing Document Flow Summary
  • 49. 3-* The production order for the job authorizes the start of the production process. The materials requisition form identifies the amount of direct material to add to the job-cost records and the amount of indirect materials to add to the manufacturing overhead account. The employee time tickets identity the amount of direct labor to add to the job-cost records and the amount of indirect labor to add to the manufacturing overhead account. Overhead is applied to the job-cost records using some cost driver or activity base and a predetermined overhead rate. Let’s examine the cost flows in a job-order costing system. We will use T-accounts and start with materials. (LO 3-5) Journal Entry Purchases of Raw Materials A company worked on two jobs during the accounting cycle. One of the jobs involved making 80 deluxe models and another job involved making 80 standard models. During the month, the company purchased, on account, $38,000 worth of materials and parts to be used in the manufacturing operation. The journal entry to record the purchase of the materials on account is shown. (LO 3-5)
  • 50. Journal Entry Use of Direct Materials During the month, materials were requisitioned for use to manufacture the products. One job (Job D42) requisitioned $34,000 of direct materials and the second job (Job S116) requisitioned $28,000 of direct materials. The journal entries record the release of the materials requested into production. (LO 3-5) Journal Entry Use of Indirect Materials Reviewer (R) - Slide 29 NN First sentence: Added a comma after the word 'month.' During the month, indirect materials were requisitioned into use. These materials are used on all types of jobs and the cost incurred is relatively small. Since the amounts cannot be easily traced to specific jobs, the company makes the decision to charge the amounts to the Manufacturing Overhead account. (An example of such a material would be epoxy or glue products.) (LO 3-5) Journal Entry
  • 51. Use of Direct Labor Reviewer (R) - Slide 32 & Slide 32 NN CORRECTION REQUIRED This slide and the narration notes does not make sense. The slide shows $31,000, while the narration notes discusses $28,000 ($16,000 + $12,000). The cost accounting department uses the labor time records filed during the month to determine the following direct labor costs of all jobs. One job (Job D42) used $16,000 worth of direct labor costs and the other job (Job S116) used $12,000 of direct labor costs. The journal entry to record these costs is shown. (LO 3-5) Journal Entry Use of Indirect Labor The analysis of labor time records also revealed that the company incurred $14,000 of labor costs that were not charged out to any particular job. This labor cost comprises some production supervisor time and wages of various employees who spent some of their time on maintenance and general clean up of the factory. This journal entry records the indirect labor costs to manufacturing overhead. (LO 3-5)
  • 52. Journal Entry Manufacturing Costs Incurred The company incurred various overhead costs or indirect production costs provided during the month. After analyzing the costs, the compound entry is made to record these overhead costs. (LO 3-5) Direct Labor Mfg. OverheadIndirect MaterialDirect MaterialOverhead Applied to Work in Process Actual and applied manufacturing overhead are usually not equal so a year-end adjustment is required. We will look at the procedure to accomplish this later.Indirect LaborDirect LaborOverhead AppliedIndirect Labor Wages Payable
  • 53. Work in Process (Job-Cost Record) Job-Order System Cost Flows 3-* In a previous slide, we saw how overhead costs were incurred or accumulated on the debit side of the manufacturing overhead account. Overhead must be applied to each job-cost record based on the predetermined overhead rate and the actual activity for that job. The overhead applied is also recorded in the work- in-process account with a debit. The manufacturing overhead account is decreased by the amount of overhead applied with a credit. The actual overhead cost incurred and the amount of applied overhead rarely will match. This is caused by errors in the estimates of overhead and activity used to compute the predetermined overhead rate. Let’s see how overhead is applied through the journal entry process. (LO 3-5) Application of Overhead Actual use of machine hours for the two jobs were as follows: Reviewer (R) - Slide 36 NN Second paragraph, third sentence: Changed the value '1800' to read '1,800.' Recall that we discussed the pre-determined overhead rate
  • 54. earlier. The rate was computed by taking the company’s estimated manufacturing overhead and dividing by the total budgeted machine hours. We computed the rate per machine hour to be $9.00. The company reviewed factory machine usage records that indicated that the actual machine usage was as shown. Now let’s make a journal entry to reflect the application of the overhead costs to the jobs. Job number D42 used 1,800 machine hours and so that job will be charged with $16,200 in overhead costs. Job S116 used 2,000 machine hours and so that job will be charged with $18,000 in overhead costs. The journal entry to show how the overhead is applied will be shown next. (LO 3-5) Journal Entry Application of Manufacturing Overhead The journal entry to add applied manufacturing overhead to Work-In-Process using the previous computations includes a debit to WIP and a credit to Manufacturing Overhead. (LO 3-5) Journal Entry Selling and Administrative Costs Actual Costs Incurred Journal Entry to record the costs During the month the company incurred some typical selling and administrative costs as shown. Remember that these costs
  • 55. are period costs, not product costs. They are NOT manufacturing costs and so they do NOT go through the WIP account. They are instead treated as expenses of the accounting period in which they are incurred. Take a moment to review the costs incurred and the resulting journal entry. (LO 3-5) Journal Entry Completion of a Production Job Job Number S116 was completed during the period, whereas Job umber D42 remained in process at the end of the period. As the job cost record (or Cost Summary) for Job S116 indicates, the total cost of job S116 was $48,000. Since this job was completed, the cost of $48,000 is transferred out of the WIP account and into Finished-Goods. (LO 3-5) Journal Entry Sale of Goods Sixty of the standard product in job number S116 were sold for $900 each during the period. The cost of each unit sold was $600 as shown in the job record. The following journal entries are made. The first one for $54,000 records the revenue generated by the sale and can be computed by taking the sixty units sold multiplied by the selling price of $900 each. Next, the per unit cost associated with the sale was $600 each. So the $36,000 or $600 multiplied by 60 units was taken out of the
  • 56. Finished Goods inventory and charged to Cost of Goods Sold. The remaining unsold units are still in Finished Goods account and will remain there until the units are sold. (LO 3-5) Underapplied and Overapplied Overhead Remember that the company incurred actual manufacturing overhead of $34,450, but only applied $34,200 to the jobs in Work-In-Process. The amount by which the actual overhead exceeded the applied overhead was $250 as shown. This is referred to as underapplied overhead. This means that the pre- determined overhead rate was underestimated by just a small amount. If the actual overhead had been less than the applied overhead, then we would have overapplied overhead. If the amount is immaterial, you can close it to cost of goods sold. In this case, the $250 would be disposed of by the journal entry shown. (LO 3-5) Overapplied and Underapplied Manufacturing Overhead - Summary 3-* This table summarizes the disposition of underapplied or overapplied overhead. (LO 3-5) Sheet: Sheet1 Sheet: Sheet2 Sheet: Sheet3 Sheet: Sheet4 Sheet: Sheet5
  • 57. Sheet: Sheet6 Sheet: Sheet7 Sheet: Sheet8 Sheet: Sheet9 Sheet: Sheet10 Sheet: Sheet11 Sheet: Sheet12 Sheet: Sheet13 Sheet: Sheet14 Sheet: Sheet15 Sheet: Sheet16 Alternative 1 Alternative 2 If Manufacturing Close to Cost Overhead is . . . Allocation of Goods Sold UNDERAPPLIED INCREASE INCREASE Work in Process Cost of Goods Sold (Applied OH is less Finished Goods than actual OH) Cost of Goods Sold OVERAPPLIED DECREASE DECREASE Work in Process Cost of Goods Sold (Applied OH is greater Finished Goods than actual OH) Cost of Goods Sold
  • 58. Schedule of Cost of Goods Manufactured 3-* The schedule of cost of goods manufactured details the costs of direct material, direct labor, and manufacturing overhead applied to work in process during the period and shows the change in Work-in-Process Inventory. It is basically a summary of what went into and out of the Work-In-Process account. The cost of goods manufactured is shown in the last line of the schedule. This is the amount transferred from Work-in-Process Inventory to Finished-Goods Inventory during the period. (LO 3-6) Sheet1Work-in-Process InventoryFinished Goods InventoryDirect material costProduct cost transferredDirect labor costManufacturing overheadwhen product is finishedCost of Goods SoldIncome SummaryExpense closed intoIncome Summary at endof accounting period Sheet2Schedule of Cost of Goods ManufacturedDirect material:Raw material inventory, beginning$xxxAdd: Raw material purchasesxxxRaw material available for use$xxxDeduct: Raw material, endingxxxRaw material used$xxxDirect laborxxxManufacturing overheadIndirect material$xxxIndirect laborxxxOther actual overhead chargesxxxTotal actual manufacturing overhead$xxxAdd: Overapplied overheadorDeduct: Underapplied overheadxxxOverhead applied to work-in-processxxxTotal manufacturing costs$xxxAdd: Work-in-process inventory, beginningxxxSubtotal$xxxDeduct: Work-in-process inventory, endingxxxCost of goods manufactured$xxx Sheet3
  • 59. Schedule of Cost of Goods Sold 3-* This schedule shows the cost of goods sold for the period and details the changes in Finished-Goods Inventory during the month. The adjusted cost of goods sold appears as an expense on the income statement. (LO 3-6) Sheet1Work-in-Process InventoryFinished Goods InventoryDirect material costProduct cost transferredDirect labor costManufacturing overheadwhen product is finishedCost of Goods SoldIncome SummaryExpense closed intoIncome Summary at endof accounting period Sheet2Schedule of Cost of Goods ManufacturedDirect material:Raw material inventory, beginning$xxxAdd: Raw material purchasesxxxRaw material available for use$xxxDeduct: Raw material, endingxxxRaw material used$xxxDirect laborxxxManufacturing overheadIndirect material$xxxIndirect laborxxxOther actual overhead chargesxxxTotal actual manufacturing overhead$xxxAdd: Overapplied overheadorDeduct: Underapplied overheadxxxOverhead applied to work-in-processxxxTotal manufacturing costs$xxxAdd: Work-in-process inventory, beginningxxxSubtotal$xxxDeduct: Work-in-process inventory, endingxxxCost of goods manufactured$xxxSchedule of Cost of Goods SoldFinished goods inventory, beginning$xxxAdd: Cost of goods manufactured*xxxCost of goods available for sale$xxxDeduct: Finished goods inventory, endingxxxCost of goods sold$xxxAdd: Underapplied overheadxxxCost of goods sold (adjusted)$xxx* From Cost of Goods Manufactured Schedule
  • 60. Sheet3 The Income Statement Reviewer (R) - Slide 50 NN Added the LO '(LO 3-6).' This is an example of an income statement. The Cost of Goods Sold line item would have been transferred over from the schedule of cost of goods sold. (LO 3-6) Direct material costProduct cost transferred Direct labor cost Manufacturing overheadwhen product is finished Expense closed into Income Summary at end of accounting period Work-in-Process InventoryFinished Goods Inventory Cost of Goods SoldIncome Summary Job Number F16Description Date Started Nov. 1, 20x1Date Completed Number of Units Completed80 DateQuantityCost DateQuantityCost DateQuantityCost DateCost Balance JOB-COST RECORD
  • 61. Direct Material Requisition NumberUnit Price Direct Labor Requisition NumberUnit Price 80 deluxe alum. fishing boats Nov. 22, 20x1 Manufacturing Overhead Requisition NumberUnit Price Cost Item Total direct material Amount Cost Summary Total direct labor Total manufacturing overhead Total cost Unit cost Shipping Summary Units Shipped Units Remaining in Inventory Job Number F16Description Date Started Nov. 1, 20x1Date Completed Number of Units Completed80 DateQuantityCost DateQuantityCost DateQuantityCost DateCost Balance JOB-COST RECORD Direct Material
  • 62. Requisition NumberUnit Price Direct Labor Requisition NumberUnit Price 80 deluxe alum. fishing boats Nov. 22, 20x1 Manufacturing Overhead Requisition NumberUnit Price Cost Item Total direct material Amount Cost Summary Total direct labor Total manufacturing overhead Total cost Unit cost Shipping Summary Units Shipped Units Remaining in Inventory Requisition No. 352Date 11/1/x1 Job Number to Be Charged F16Dept. Painting Department Supervisor Timothy Williams ItemQuantityUnit CostAmount Aluminum7,200 sq ft2.50$ 18,000.00$ Authorized Signature Job Number F16Description Date Started Nov. 1, 20x1Date Completed Number of Units Completed80
  • 63. DateQuantityCost 11/17,200 sq ft$18,000 DateQuantityCost DateQuantityCost DateCost Balance JOB-COST RECORD Direct Material Requisition NumberUnit Price $2.50 Direct Labor Requisition NumberUnit Price 80 deluxe alum. fishing boats Nov. 22, 20x1 Manufacturing Overhead Requisition NumberUnit Price 803 Cost Item Total direct material Amount Cost Summary $18,000 Total direct labor Total manufacturing overhead Total cost Unit cost Shipping Summary Units Shipped Units Remaining in Inventory EmployeeRon Bradley Date 11/5/20x1 Employee Number 12 Department Painting Station
  • 64. Shop cleanup A26 11:30 1:00 12:00 5:00 Time StartedTime StoppedJob Number 8:00F1611:30 Job Number F16Description Date Started Nov. 1, 20x1Date Completed Number of Units Completed80 DateQuantityCost 11/17,200 sq ft$18,000 DateQuantityCost Various dates600$12,000 DateQuantityCost DateCost Balance JOB-COST RECORD Direct Material Requisition NumberUnit Price $2.50 Direct Labor Requisition NumberUnit Price 80 deluxe alum. fishing boats Nov. 22, 20x1 Various time cards$20 Manufacturing Overhead Requisition NumberUnit Price 803 Cost Item Total direct material Amount Cost Summary $18,000
  • 65. Total direct labor Total manufacturing overhead 12,000 Total cost Unit cost Shipping Summary Units Shipped Units Remaining in Inventory Job Number F16Description Date Started Nov. 1, 20x1Date Completed Number of Units Completed80 DateQuantityCost 11/17,200 sq ft$18,000 DateQuantityCost Various dates600$12,000 DateQuantityCost 11/30600$18,000 DateCost Balance Shipping Summary Units Shipped Units Remaining in Inventory Total cost Unit cost Total direct labor Total manufacturing overhead 12,000 18,000 Cost Item Total direct material Amount Cost Summary
  • 66. $18,000 Direct Labor Hours$30.00 80 deluxe alum. fishing boats Nov. 22, 20x1 Various time cards$20 Manufacturing Overhead Requisition NumberUnit Price 803$2.50 Direct Labor Requisition NumberUnit Price JOB-COST RECORD Direct Material Requisition NumberUnit Price Job Number F16Description Date Started Nov. 1, 20x1Date Completed Number of Units Completed80 DateQuantityCost 11/17,200 sq ft$18,000 DateQuantityCost Various dates600$12,000 DateQuantityCost 11/30600$18,000 DateCost Balance 11/30$12,000 Shipping Summary Units Shipped Units Remaining in Inventory 6020 Total cost $48,000 Unit cost $600 Total direct labor Total manufacturing overhead 12,000 18,000
  • 67. Cost Item Total direct material Amount Cost Summary $18,000 Direct Labor Hours$30.00 80 deluxe alum. fishing boats Nov. 22, 20x1 Various time cards$20 Manufacturing Overhead Requisition NumberUnit Price 803$2.50 Direct Labor Requisition NumberUnit Price JOB-COST RECORD Direct Material Requisition NumberUnit Price Alternative 1 Alternative 2 If Manufacturing Close to Cost Overhead is . . . Allocation of Goods Sold UNDERAPPLIED INCREASE INCREASE Work in Process Cost of Goods Sold (Applied OH is less Finished Goods than actual OH) Cost of Goods Sold OVERAPPLIED DECREASE DECREASE
  • 68. Work in Process Cost of Goods Sold (Applied OH is greater Finished Goods than actual OH) Cost of Goods Sold Schedule of Cost of Goods Manufactured Direct material: Raw material inventory, beginning$xxx Add: Raw material purchasesxxx Raw material available for use$xxx Deduct: Raw material, endingxxx Raw material used$xxx Direct laborxxx Manufacturing overhead Indirect material$xxx Indirect laborxxx Other actual overhead chargesxxx Total actual manufacturing overhead$xxx Add: Overapplied overhead orDeduct: Underapplied overheadxxx Overhead applied to work-in-processxxx Total manufacturing costs$xxx Add: Work-in-process inventory, beginningxxx Subtotal$xxx Deduct: Work-in-process inventory, endingxxx Cost of goods manufactured$xxx Schedule of Cost of Goods Sold Finished goods inventory, beginning $xxx Add: Cost of goods manufactured* xxx Cost of goods available for sale $xxx Deduct: Finished goods inventory, ending xxx Cost of goods sold $xxx Add: Underapplied overhead or Deduct: Overapplied overhead xxx
  • 69. Cost of goods sold (adjusted) $xxx * From Cost of Goods Manufactured Schedule Process Costing and Hybrid Product-Costing Systems Chapter 4 Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Reviewer (R) - CHAPTER 4 CORRECTIONS ARE REQUIRED Note that the font used for the narration notes is inconsistent throughtout the chapter and with previous chapters. Note that some slides are numbered, while other slides are not. Note that some slides have page numbers, while other slides do not. * Chapter 4: Process Costing and Hybrid Product-Costing Systems
  • 70. Learning Objective 4-1 – List and explain the similarities and important differences between job-order and process costing. 4-* * Learning Objective 4-1. List and explain the similarities and important differences between job-order and process costing. Comparison of Job-Order Costing and Process Costing 4-* Process Costing Process Costing Job-order Costing Used for production of small, identical, low cost items. Mass produced in automated continuous production processes. Costs cannot be directly traced to each unit of product.
  • 71. * This chapter covers process-costing systems. Process costing is used in repetitive production environments, where large numbers of identical or very similar products are manufactured in a continuous flow. (LO 4-1) Comparison of Job-Order Costing and Process Costing 4-* Process Costing Process Costing Job-order Costing Typical process cost applications: Petrochemical refinery Paint manufacturer Paper mill
  • 72. * Industries using process costing include paper, petroleum, chemicals, textiles, food processing, lumber, and electronics. (LO 4-1) Comparison of Job-Order Costing and Process Costing Job-order costingCosts accumulated by the job.Work in process has a job-cost sheet for each job.Many unique, high cost jobs.Jobs built to customer order. Process costingCosts accumulated by department or process.Work in process has a production report for each batch of products. A few identical, low cost products. Units continuously produced for inventory in automated process. 4-* * In many ways, job-order costing and process costing are similar. Both product-costing systems have the same ultimate purpose— assignment of production costs to units of output. Moreover, the flow of costs through the manufacturing accounts is the same in the two systems. (LO 4-1) Direct Material
  • 73. Finished Goods Cost of Goods Sold Direct Labor Manufacturing Overhead Jobs The work-in-process account consists of individual jobs in a job-order cost system. Differences Between Job-Order and Job Job-Order Costing 4-* Reviewer (R) - Slide 6 Title: Deleted the words '(Covered in Chapter 3)' from the title. Note that this reference is provided in the narration notes. Bottom right: Shortened the arrow to fit the space. * In job-order costing, costs are accumulated by job order and recorded on job-cost records. The cost of each unit in a particular job order is found by dividing the total cost of the job order by the number of units in the job. This cost flow was described in the previous chapter. (LO 4-1)
  • 74. Direct Material Finished Goods Cost of Goods Sold Products The work-in-process account consists of individual products in a process-cost system. Differences Between Job-Order and Process Costing Direct Labor & Overhead (Conversion) When direct labor is a relatively small amount compared to material and overhead, it is often combined with overhead. 4-* * In process costing, costs are accumulated by department, rather than by job order or batch. The cost per unit is found by dividing the total costs incurred by the units produced. (LO 4- 1)
  • 75. Learning Objective 4-2 – Prepare journal entries to record the flow of costs in a process-costing system with sequential production departments 4-* Reviewer (R) - Slide 8 Changed the word 'depts.' to read 'departments' and reduced the font size the fit within the text box. * Learning Objective 4-2. Prepare journal entries to record the flow of costs in a process-costing system with sequential production departments. Process Cost Flows 4-* * In a single production department situation, direct-material, direct-labor, and manufacturing-overhead costs are added to a Work-in-Process Inventory account. As goods are finished, costs are transferred to Finished-Goods Inventory. During the period when goods are sold, the product costs are transferred to Cost of Goods Sold. Let’s take a look at the specific journal entries involved in a two-department process. (LO 4-2) Sheet1Managerial AccountingFinancial AccountingUsers of
  • 76. InformationManagers, within the organization.Interested parties, outside the organization.RegulationNot required and unregulated, since it is intended only for management.Required and must conform to generally accepted accounting principles. Regulated by the Financial Accounting Standards Board, and, to a lesser degree, the Securities and Exchange Commission.Source of DataThe organization's basic accounting system, plus various other sources, such as rates of effective products manufactured, physical quantities of material and labor used in production, occupancy rates in hotels and hospitals, and average take-off delaysAlmost exclusively drawn from the organization's basic accounting system, which accumulates financial information.Nature of Reports and ProceduresReports often focus on subunits within the organization, such as departments, divisions, geographical regions, or product lines. Based on a combination of historical data, estimates, and projections of future events.Reports focus on the enterprise in its entirety. Based almost exclusively on historical transaction data. Sheet2One Production DepartmentWork-in-ProcessFinished GoodsInventoryInventoryCost of Goods SoldDirect materialCost of goods completedCost of goods soldDirect laborTwo Sequential Production DepartmentsApplied manufacturingand transferred toduring currentWork-in-Process InventoryWork-in-Process Inventoryoverheadfinished goodsperiodProduction Department AProduction Department BDirect materialCost of goods completed in department A andCost of goods completedDirect laborApplied manufacturingtransferred toand transferred tooverheaddepartment Bfinished goodsDirect materialDirect laborApplied manufacturingoverheadFinished Goods InventoryCost of Goods SoldCost of goods soldduring current periodOne Production DepartmentWork-in-Process InventoryFinished Goods InventoryDirect materialCost of goods completedCost of goods completedDirect laborApplied manufacturingand transferred toand transferred
  • 77. tooverheadFinished goodsfinished goodsDirect materialDirect laborApplied manufacturingoverhead Sheet3Cost of goods completed and transferred during MarchCost of goods completed and transferred during MarchCost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in- process on March 31Costs remaining in work-in-process on March 31Costs remaining in work-in-process on March 31Direct Material:Direct Material:Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,000Convserion:Convserion:Convserion:5,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total costs accounted for$ 340,700Total costs accounted for$ 340,700Total costs accounted for$ 340,700 Cost of goods completed and transferred during March 40,000 units × $7.26 per equivalent unit290,400$ Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units × $2.80 per equivalent unit28,000$ Conversion: 5,000 equivalent units × $4.46 per equivalent unit22,300 Total cost of March 31 work in process50,300 Total costs accounted for340,700$ MBD000FE9F8.xls Sheet1Cost of goods completed and transferred during March40,000 units × $7.26 per equivalent unit$ 290,400Costs
  • 78. remaining in work-in-process on March 31Direct Material:10,000 equivalent units × $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units × $4.46 per equivalent unit22,300Total cost of March 31 work in process50,300Total costs accounted for$ 340,700 &A Page &P Sheet2 &A Page &P Sheet3 &A Page &P Sheet4 &A Page &P Sheet5 &A Page &P Sheet6 &A Page &P Sheet7 &A Page &P Sheet8 &A Page &P Sheet9 &A Page &P Sheet10 &A Page &P Sheet11 &A
  • 79. Page &P Sheet12 &A Page &P Sheet13 &A Page &P Sheet14 &A Page &P Sheet15 &A Page &P Sheet16 &A Page &P Journal Entry Direct Material, Direct Labor, and Overhead Applied The journal entry for the case of two sequential departments, as illustrated in your text, will be demonstrated. In this journal entry, we see $50,000 of direct materials, $20,000 of direct labor, and $30,000 of manufacturing overhead applied to the WIP account for Department A – the first department. The overhead would have been applied using the same method as we learned about in the job order costing chapter. The numbers used in the journal entry are assumed for the purpose of showing the form of the entries. (LO 4-2)
  • 80. Process Cost Flows 4-* Reviewer (R) - Slide 11 Update the artwork (see Exhibit 4-1, page 139, Hilton 11e). * In the two-department case, when goods are finished in the first production department, costs accumulated in the Work-in- Process Inventory account for production department A are transferred to the Work-in-Process Inventory account for production department B. Let’s take a look at a typical entry when the costs are transferred from one department to the next. (LO 4-2) Sheet1Managerial AccountingFinancial AccountingUsers of InformationManagers, within the organization.Interested parties, outside the organization.RegulationNot required and unregulated, since it is intended only for management.Required and must conform to generally accepted accounting principles. Regulated by the Financial Accounting Standards Board, and, to a lesser degree, the Securities and Exchange Commission.Source of DataThe organization's basic accounting system, plus various other sources, such as rates of effective products manufactured, physical quantities of material and labor used in production, occupancy rates in hotels and hospitals, and average take-off delaysAlmost exclusively drawn from the organization's basic accounting system, which accumulates financial information.Nature of Reports and ProceduresReports often focus on subunits within the organization, such as departments, divisions, geographical regions, or product lines. Based on a combination of historical data, estimates, and
  • 81. projections of future events.Reports focus on the enterprise in its entirety. Based almost exclusively on historical transaction data. Sheet2One Production DepartmentWork-in-ProcessFinished GoodsInventoryInventoryCost of Goods SoldDirect materialCost of goods completedCost of goods soldDirect laborTwo Sequential Production DepartmentsApplied manufacturingand transferred toWork-in-Process InventoryWork-in-Process Inventoryoverheadfinished goodsProduction Department AProduction Department BDirect materialCost of goods completed in department A andCost of goods completedDirect laborApplied manufacturingtransferred toand transferred tooverheaddepartment Bfinished goodsDirect materialDirect laborApplied manufacturingoverheadFinished Goods InventoryCost of Goods SoldCost of goods soldduring current periodOne Production DepartmentWork-in-Process InventoryFinished Goods InventoryDirect materialCost of goods completedCost of goods completedDirect laborApplied manufacturingand transferred toand transferred tooverheadFinished goodsfinished goodsDirect materialDirect laborApplied manufacturingoverhead Sheet3Cost of goods completed and transferred during MarchCost of goods completed and transferred during MarchCost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,40040,000 units x $7.26 per equivalent unit$ 290,400Costs remaining in work-in- process on March 31Costs remaining in work-in-process on March 31Costs remaining in work-in-process on March 31Direct Material:Direct Material:Direct Material:10,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,00010,000 equivalent units x $2.80 per equivalent unit$ 28,000Convserion:Convserion:Convserion:5,000 equivalent units x $4.46 per equivalent unit22,3005,000 equivalent units x
  • 82. $4.46 per equivalent unit22,3005,000 equivalent units x $4.46 per equivalent unit22,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total cost of March 31 work-in- process50,300Total costs accounted for$ 340,700Total costs accounted for$ 340,700Total costs accounted for$ 340,700 Cost of goods completed and transferred during March 40,000 units × $7.26 per equivalent unit290,400$ Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units × $2.80 per equivalent unit28,000$ Conversion: 5,000 equivalent units × $4.46 per equivalent unit22,300 Total cost of March 31 work in process50,300 Total costs accounted for340,700$ MBD000FE9F8.xls Sheet1Cost of goods completed and transferred during March40,000 units × $7.26 per equivalent unit$ 290,400Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units × $2.80 per equivalent unit$ 28,000Conversion:5,000 equivalent units × $4.46 per equivalent unit22,300Total cost of March 31 work in process50,300Total costs accounted for$ 340,700 &A Page &P Sheet2 &A Page &P Sheet3 &A Page &P Sheet4 &A Page &P
  • 83. Sheet5 &A Page &P Sheet6 &A Page &P Sheet7 &A Page &P Sheet8 &A Page &P Sheet9 &A Page &P Sheet10 &A Page &P Sheet11 &A Page &P Sheet12 &A Page &P Sheet13 &A Page &P Sheet14 &A Page &P Sheet15 &A Page &P Sheet16 &A Page &P
  • 84. Journal Entry Dept. B – Transferred In Costs When production in Department A completes its work on some units of the product, those units are transferred to production department B. The costs assigned to these goods are transferred from the Work-In-Process Inventory account for department A to the Work-In-Process Inventory Account for Department B. In Department B, the costs assigned to those partially completed products are called transferred-in costs. (LO 4-2) Journal Entry Dept. B – Direct materials, Direct Labor, and Manufacturing Overhead Direct material and direct labor are used in production department B, and manufacturing overhead is applied using a predetermined rate. These costs are accumulated in Department B and recorded as shown. (LO 4-2) Journal Entry Goods Completed
  • 85. As goods are completed in Department B, the cost of those goods are transferred out of Work-In-Process and into Finished Goods Inventory. (LO 4-2) Journal Entry Goods Sold The costs of the goods completed stay in the Finished-Goods Inventory account until the units are sold, at which point the costs are transferred OUT of Finished-Goods Inventory and INTO Cost of Goods Sold. At this point, the cost has finally been transferred to the Income Statement. The costs have no more future value. (Note: Just as in Job-Order Costing, the revenue earned from the units sold would also typically be recorded when the goods are sold.) (LO 4-2) Learning Objective 4-3 – Prepare a table of equivalent units under weighted-average process costing. 4-* * Learning Objective 4-3. Prepare a table of equivalent units under weighted-average process costing. Equivalent Units: A Key Concept Costs are accumulated for a period of time for products in work- in-process inventory.
  • 86. Products in work-in-process inventory at the beginning and end of the period are only partially complete. Equivalent units is a concept expressing these partially completed products as a smaller number of fully completed products. The term equivalent units is used in process costing to refer to the amount of manufacturing activity that has been applied to a batch of physical units. (LO 4-3) * Equivalent Units Example Two half completed products are equivalent to one completed product. So, 10,000 units that are 70% complete are equivalent to 7,000 complete units. 4-*
  • 87.
  • 88.
  • 89. l + = * For example, two units which are 50 percent complete are equivalent to one unit that is 100 percent complete. Likewise, 10,000 units that are 70 percent complete is 7,000 equivalent units. (LO3) For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30% complete. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 Equivalent Units Question 1 4-* * Jones started 15,000 units and transferred 10,000 units to finished goods. The remaining 5,000 units were 30 percent complete. How many equivalent units did Jones have for the period? (LO 4-3)
  • 90. For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 10,000 units + (5,000 units × .30) = 11,500 equivalent units Equivalent Units Question 1 4-* * The 5,000 units that are 30 percent complete are equivalent to 1,500 units. Add that to the 10,000 units that are 100 percent complete for a total of 11,500 equivalent units. (LO 4-3) Jones incurred $27,600 in production costs for the 11,500 equivalent units. What was Jones’s cost per equivalent unit for the period? a. $1.84 b. $2.40 c. $2.76 d. $2.90 Equivalent Units Question 2 4-*
  • 91. * The production costs incurred for the period were $27,600. What is the cost per equivalent unit? (LO 4-3) Jones incurred $27,600 in production costs for the 11,500 equivalent units. What was Jones’s cost per equivalent unit for the period? a. $1.84 b. $2.76 c. $2.40 d. $2.90 Equivalent Units Question 2 4-* $27,600 ÷ 11,500 equivalent units = $2.40 per equivalent unit * The production costs are divided by the number of equivalent units to arrive at the cost per equivalent unit. (LO 4-3) Calculating and Using Equivalent Units of Production To calculate the direct materials and conversion costs per equivalent unit for the period: Materials cost per equivalent
  • 92. unit = Materials cost for the period Materials equivalent units for the period Conversion cost per equivalent unit = Conversion cost for the period Conversion equivalent units for the period 4-* * Direct material is usually placed into production at beginning of the production process. In contrast, direct labor and manufacturing overhead, called conversion costs, usually are incurred uniformly throughout the process. When an accounting period ends, the partially completed goods that remain in process generally are at different stages of completion with respect to material and conversion activity. The most important feature of process costing is that the costs of direct material and conversion are assigned to equivalent units rather than to physical units. (LO 4-3) Departmental Production Report 4-* Production
  • 93. Report Analysis of physical flow of units. Calculation of equivalent units. Computation of unit costs. Analysis of total costs. * The key document in a typical process-costing system is the departmental production report, prepared for each production department at the end of each accounting period. The departmental production report summarizes the flow of production quantities through the department, and it shows the amount of production cost transferred out of the department’s Work-in-Process Inventory account during the period. There are four steps used in preparing a departmental production report:
  • 94. 1. Analysis of physical flow of units. 2. Calculation of equivalent units. 3. Computation of unit costs. 4. Analysis of total costs. (LO 4-3) Equivalent Units of Production – Weighted-Average Method The weighted-average method . . .Makes no distinction between work done in the prior period and work done in the current period.Blends together units and costs from the prior period and the current period. 4-* The FIFO method is a more complex method and is rarely used in practice. * The method of process costing that we will focus on in this chapter is called the weighted-average method. This method is almost always used in practice by companies using process costing. There is another process-costing method called the first-in, first-out, or FIFO, method. (LO 4-3) Production Report ExampleMVP Sports Equipment Company makes baseball gloves in two departments, Cutting and Stitching. MVP uses the weighted-average process costing.Material is added at the beginning of the Cutting