Accounting tools for business decision making 7 kieo ch15 alternate
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Accounting: Tools for Business Decision Making
Seventh Edition
Kimmel; Weygandt; Kieso
Chapter 15
Job Order Costing: Non-debit and Credit Approach
Prepared by
COBY HARMON
University of California, Santa Barbara
Westmont College
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Chapter Outline
Learning Objectives
LO 1 Describe cost systems and the flow of costs in a job order system.
LO 2 Use a job cost sheet to assign costs to work in process.
LO 3 Demonstrate how to determine and use the predetermined overhead rate.
LO 4 Record manufacturing and service jobs completed and sold.
LO 5 Distinguish between under-and overapplied manufacturing overhead.
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Cost Accounting Systems
LEARNING OBJECTIVE 1
Describe cost systems and the flow of costs in a job order system.
Cost Accounting
•
Involves measuring, recording, and reporting product costs
•
Accounts are fully integrated into the general ledger
•
Perpetual inventory system provides immediate, up-to-date information on cost of a product
•
Two basic types: (1) a process order cost system and (2) a job order cost system
LO 1
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Process Cost System
•
Used when a large volume of similar products are manufactured - (cereal, refining of petroleum,
production of ice cream)
•
Costs are accumulated for a time period – (week or month)
•
Costs are assigned to departments or processes for a specified period of time
LO 1
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Process Cost System
Examples
LO 1
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Job Order Cost System
•
Costs are assigned to each job or batch
•
Important feature: Each job or batch has its own distinguishing characteristics
•
Objective is to compute cost per job
•
Measures costs for each job completed – not for set time periods
LO 1
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Job Order Cost System
Two Jobs: Animated Film and Action Thriller
Each job has distinguishing characteristics and related costs.
LO 1
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Job Order Cost Flow
Flow of costs parallels physical flow of materials as they are converted into finished goods
LO 1
•
Manufacturing costs are assigned to Work in Process (WIP) Inventory account
•
Cost of completed jobs is transferred to Finished Goods Inventory account
•
When units are sold, cost is transferred to Cost of Goods Sold account
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Job Order Cost Flow
Flow of costs in job order costing
LO 1
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Accumulating Manufacturing Costs
Raw Material Costs
Wallace purchases 2,000 lithium batteries (Stock No. AA2746) at $5 per unit ($10,000) and 800 electronic modules
(Stock No. AA2850) at $40 per unit ($32,000) for a total cost of $42,000 ($10,000 + $32,000). This purchase increases
Raw Materials Inventory as shown.
Manufacturing Costs
Raw Materials Inventory
Purchased raw materials (1)
Balance
LO 1
Factory Labor
Manufacturing Overhead
+$42,000
$42,000
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Accumulating Manufacturing Costs
Factory Labor Costs
Consists of three costs:
LO 1
1.
Gross earnings of factory workers
2.
Employer payroll taxes on these earnings
3.
Fringe benefits (such as sick pay, pensions, and vacation pay) incurred by the employer
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Accumulating Manufacturing Costs
Factory Labor Costs continued
Wallace incurs $32,000 of factory labor costs. This transaction increases Factory Labor as shown.
Manufacturing Costs
Raw Materials Inventory
Purchased raw materials (1)
LO 1
Manufacturing Overhead
+$42,000
Incurred factory labor (2)
Balance
Factory Labor
+$32,000
$42,000
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$32,000
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Accumulating Manufacturing Costs
Manufacturing Overhead Costs
•
Many types of overhead costs
o
Property taxes, depreciation, insurance, and repairs related to the manufacturing process
•
Costs unrelated to manufacturing are expensed
•
Costs related to manufacturing process are accumulated in Manufacturing Overhead account
o
LO 1
Manufacturing overhead subsequently assigned to work in process
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Manufacturing Overhead Costs
Using assumed data, Wallace Company incurs the following costs that increase Manufacturing Overhead as shown.
Manufacturing Costs
Raw Materials Inventory
Purchased raw materials (1)
Factory Labor
Manufacturing Overhead
+$42,000
Incurred factory labor (2)
+$32,000
Factory utilities (3)
+$4,800
Factory insurance (3)
+ 2,000
Factory repairs (3)
+ 2,600
Factory depreciation (3)
+ 3,000
Factory property taxes (3)
+ 1,400
Balance
LO 1
$42,000
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$32,000
$13,800
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Do It! 1: Manufacturing Costs
During the current month, Ringling Company incurs the following manufacturing costs:
a. Raw material purchases of $4,200.
b. Factory labor of $18,000. Of that amount, $15,000 relates to wages and $3,000 relates to payroll taxes.
c. Factory utilities of $2,200 are payable, prepaid factory insurance of $1,800 has expired, and depreciation
on the factory building is $3,500.
Using the format shown in Illustration 2.6, record the company’s manufacturing costs in its job order costing
system.
LO 1
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Do It! 1: Manufacturing Costs
Raw material purchases of $4,200
Record the company’s manufacturing costs.
a. Raw material purchases of $4,200.
Manufacturing Costs
Raw Materials Inventory
a.
Factory Labor
Manufacturing Overhead
+$4,200
b.
c.
c.
c.
LO 1
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Do It! 1: Manufacturing Costs
Total factory labor of $18,000
Record the company’s manufacturing costs.
b. Factory labor of $18,000. Of that amount, $15,000 relates to wages and $3,000 relates to payroll taxes.
Manufacturing Costs
Raw Materials Inventory
a.
b.
Factory Labor
Manufacturing Overhead
+$4,200
+$18,000
c.
c.
c.
LO 1
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Do It! 1: Manufacturing Costs
Manufacturing overhead incurred
Record the company’s manufacturing costs.
c. Factory utilities of $2,200 are incurred, prepaid factory insurance of $1,800 has expired, and depreciation on the factory
building is $3,500.
Manufacturing Costs
Raw Materials Inventory
a.
b.
LO 1
Factory Labor
Manufacturing Overhead
+$4,200
+$18,000
c.
+$2,200
c.
1,800
c.
3,500
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Assigning Manufacturing Costs
LEARNING OBJECTIVE 2
Use a job cost sheet to assign costs to work in process.
Assigning manufacturing costs to work in process results in the following entries.
LO 2
1.
Increases to Work in Process Inventory
2.
Decreases to
o
Raw Materials Inventory
o
Factory Labor
o
Manufacturing Overhead
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Assigning Manufacturing Costs
Job Cost Sheet
•
Used to record costs chargeable to specific jobs
•
Constitutes subsidiary ledger for work in process account
•
Each increase or decrease to Work in Process Inventory must be accompanied by a
corresponding posting to one or more job cost sheets
LO 2
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Assigning Manufacturing Costs
Example of Job Cost Sheet
LO 2
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Raw Material Costs
•
Assigned to a job when materials are issued in response to requests.
•
Materials requisition slip
LO 2
o
Written authorization for issuing raw materials
o
May be directly issued to use on a job - direct materials (charged to Work in Process Inventory)
o
May be considered indirect materials – charged to Manufacturing Overhead
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Raw Material Costs
Materials Requisition Slip
LO 2
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Raw Material Costs
Recording of direct and indirect materials
Illustration: Wallace uses $24,000 of direct materials and $6,000 of indirect materials in January as shown.
Manufacturing Costs
Raw Materials Inventory
Manufacturing
Work In Process
Overhead
Inventory
Factory Labor
Balance
$42,000
$13,800
$32,000
Direct materials (4)
− 24,000
Indirect materials (4)
− 6,000
Balance
$12,000
LO 2
+ $24,000
+ 6,000
$32,000
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$19,800
$24,000
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Raw Material Costs
Job cost sheets-posting of direct materials
LO 2
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