Survey of accounting 6e chapter 10

Accounting Systems for
Manufacturing Businesses

Chapter
10

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Learning Objectives
After studying this chapter, you should be able to:
•

Describe the differences between financial and managerial accounting.

•

Distinguish the activities of a manufacturing business from those of a
merchandising or service business.

•

Define and illustrate materials, factory labor, and factory overhead
costs.

•

Describe cost accounting systems used by manufacturing businesses.

•

Describe and illustrate a job order cost accounting system.

•

Use job order cost information for decision making.

•

Describe the flow of costs for a service business that uses a job order
cost accounting system.

•

Describe just-in-time manufacturing practices.

•

Describe and illustrate the use of activity-based costing in a service
business.

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Learning
Objective 1
Describe the differences between
financial and managerial
accounting

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Managerial Accounting
• Focuses on recording and reporting information
for use by a _________________.
• It helps the _________ to make _______such
as:
• __________________________
• __________________________
• __________________________

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Financial and Managerial Accounting
Exhibit 1: Financial and Managerial Accounting Differences

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Learning
Objective 2
Distinguish the activities of a
manufacturing business from
those of a merchandising or
service business

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Nature of Manufacturing
Businesses
• Service firms earn revenue from providing
_________
• Merchandising firms earn revenue from selling
_________ __________________
• Manufacturing firms-

• Earn revenue from _____________ and
________ finished goods
• Have three inventories: __________,
______________, and
___________________
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Learning
Objective 3
Define and illustrate materials,
factory labor, and factory
overhead costs

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Illustrative Example
• Costs can provide an immediate benefit or a benefit
that is deferred to future periods

Exhibit 2: Guitar Making Operations of Quixote Guitars

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Direct Material Cost
• Include the cost of material ________to the product
• It forms a significant portion of the ______ _____ of the
product
• For Quixote Guitars: cost of the wood used in producing
each guitar will be the direct material cost.
• The cost of materials that are not an integral part of the
finished product are called ______ _____________

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Direct Labor Cost
• The cost of ________________ who are directly
involved in converting materials into the manufactured
product.
• For Quixote Guitars: ________________ who operate
the saws/cutting machines and assemble the guitars.
• Labor costs that do not enter directly into the
manufacture of a product are called _______________

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Factory Overhead Cost
• Costs other than ______ ______ cost and ______

______ cost incurred in the manufacturing process.
• For Quixote Guitars: machine depreciation, factory
supplies, factory insurance, lighting the factory, and
many others

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Analysis and Reporting Terms:
Prime and Conversion Costs
• Prime Costs: _____
____________
Exhibit 3:

________

________

• Conversion Costs:
_______________
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Financial Reporting Terms:
Product Costs and Period Costs
• Product Costs:
_____________
___________

• Period Costs:

__________________________

Exhibit 4: Examples of Product Costs and Period Costs—Quixote Guitars

________

________

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Learning
Objective 4
Describe cost accounting
systems used by manufacturing
businesses

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Cost Accounting Systems
• Objective: accumulate ____________
• Used to establish _______, _____________, and
__________________
• Two main types:
• _____ ______ cost systems
• ___________ cost systems

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Job Order vs. Process Cost
Systems
• Job Order
• Costs are accumulated by job.
• Used for custom products or companies with a large
variety of products.
• Service firms often use job order systems.

• Process
• Costs are accumulated by department or process.
• Used for products that are not distinguishable from
each other during a continuous production process.

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Learning
Objective 5
Describe and illustrate a job
order cost accounting system

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Job Order Cost System for
Quixote Guitars
Exhibit 6: Flow of Manufacturing Costs

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Materials
• Accounting for the purchase of materials on
credit

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Materials Cost Flows
Exhibit 7: Materials Information and Cost Flows

Materials information
and cost flows for the
wood received and
issued to production
by Quixote Guitars

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Requisitioning Materials
• Flow of materials from the storeroom to
production.

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Direct Labor Cost Flows
Exhibit 8: Labor Information and Cost Flows

Labor information
and cost flows
(time tickets) for
Quixote Guitars

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Factory Labor
• Two primary objectives of time tickets:
• Determine the correct amount to pay each employee
for each pay period.
• Properly allocate factory labor costs to factory
overhead and individual job orders.

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Factory Overhead Cost
• Includes all manufacturing costs other than
_____________________ and
_____________________
• Comes from various sources, including
_____________, ______________ ,
______________, and ______________

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