PART 1: ICE, AND UNIT 8: COST ACCUMULATION SYSTEMS@ PART 1 JANCIAL PLANNING, PERFORMANCE, AND ANALYTICS External Financial Statements and er |e oe unit 1 | business Process improvement Measurement, Valuation, and Disclosure: Unit 2 ivenineitn and Shei Aan ees: Unit 12 | Analysis, Forecasting, and Strategy unit 3 Measurement, Valuation, and Disclosure: Unit 13. Budgeting - Concepts and Long-Term me Methodologies unit 4 | Measurement, Valuation, and unit 14 Budgeting -- Calculations and Pro Disclosure: Liabiies Ferma Fanci Statements unt | Revenue and impairment Recognition unit+s | cost and variance Measures unite | integrated Reporting unie1g | Responsibly Accounting ane unit? | cost Management Concepts uni 47 | etal Contos ~ Corporate es uni | neal Controls = Controls ana Information Systems and Data unite | cost locaton Technigues unis | Information Unit 10 | supply Chain Management arr za se arecaco re ACCOUNTING - ROADMAP Learning cost a . © costs costs MEASUREMENT ACCMULUATION @ == kx a Perrone) Ee. Absorption v Ces Cee ecu ecu costs ALLOCATION Vv UNIT 4 >> 4.1 & 4.2 v EI v., UNIT 5 >> 5.1 &5.285.385.4 —¥ RD 10° 21-108 onvER costNe. 3co UNIT 8 - COST ACCUMULATION SYSTEMS Learnitg l= TOPIC 8.1 TOPIC 8.3 JOR ORDER ACTIVITY- COSTING BASED COSTING TOPIC 8.2 TOPIC 8.4 PROCESS LIFE-CYCLE COSTING COSTING [ORDER COSTING “CMA TOPIC 8.1 JOB ORDER COSTINGco 8.1 - JOB ORDER COSTING Leaning 6 USE OF JOB ORDER COSTING 6 STEPS IN JOB-ORDER COSTING OVER/UNDER APPLIED MANUFACTURING OVERHEAD eo SPOILAGE WMD. 0P #1 J08 oRER costING .co @ Use oF JoB ORDER COSTING Learnt products with individual characteristics (e.g., yachts, jewelry and unique vehicles). Units (jobs) should be dissimilar enough to warrant the _z —_a special record keeping. Qe Peg eno) en Eas — Direct Labor (DL) Cer) Cot! “WORD, Torcesvosonencome~“—S*~S TOPIC @1- JOB ORDER COSTINGea @ STEPs IN JOB-ORDER COSTING EXAMPLE: 4 On 1 January 2017, XYZ purchased 1,000 tons of, — raw materials used inits production operations of ca! SEES) exit Mitsubishi vehicles for $20 per ton in cash. Dr. Raw Materials $20,000 = Cr. Cash $20,000 On 20 July 2017, 750 tons of/direct materials On 15 July 2017, XYZ received a sales order were pulled out from the warehouse and sent to from one of its VIP customer to make 10 buses fit the production line to make the 10 buses (Job for 20-passengers. The sales order was priced for Order No. 15). $4,500 per bus and delivery is 25 December 2017 Dr. Work-In-Process- Job#15 $15,000 Cr. Raw Materials $15,000 Direct Mat (OM) Used No Entry anna I) Torice1—u0B onDeR cosriwe© STEPS IN JOB-ORDER COSTING (34, The time tickets used to track the direct labor on the Job#15 shows that hours spent by workers were 12,000 hours for $1 per hour. Dr. Direct Labor $12,000 Cr. Wages Payable $12,000 Dr. Work-In-Process- Job#15 $12,000 Cr. Direct Labor XYZ estimated that the total manufacturing overhead for the year 2017 is $240,000 for producing 300 vehicles. These costs include the indirect materials, indirect labors, property taxes, depreciation, etc. Total Manufacturing Overhead = $240,000 the? Vehicles Capacity +300 MOH per vehicle $800 8,000 MOH >>>p>>>>> 10 Buses = WMD. 10Pc 21-108 oRvER costIne (OM) Used $12,000 aaa Tan whe eo Direct Materials $15,000 Sonor (Ou) siz $35,000 MOH Estimated Applied) eee = Dr. Work-In-Process- Job#15 $8,000 Cr. Manufacturing Overhead (Applied) $8,000 Gay itis ay Total Manufacturing Cost = $35,000 Sales Order Quantity + 10 Buses Cost Per Unit $3,500 >>>>>>>>> Selling Price Per Unit = $4,500e STEPS IN JOB-ORDER COSTING On 20 December 2017, XYZ completed the production of 10 buses as per the sales order from the customer and transferred the finished goods into the fleet warehouse. Dr. Finished Goods $35,000 Cr. Work-In-Process- Job#15 $35,000 On 25 December 2017, XYZ delivers the buses to the customer along with the invoice. Dr. Accounts Receivables $45,000 Cr. Sales (Revenue) $45,000 Dr. Cost of Goods Sold $35,000 Cr. Finished Goods —_— $35,000 Diroct Materials, bys Bex (OM) Used sien Direct Labor (ou) cee MOH Estimated (Applied) see, Goo ke $36,000 Goods ES Sold of Finished | ¢55 099 RED, Tor 01-100 onvEn cosTwe 0Pam emit = i ae = OG wbat “SESE | axis @ customer a © STEPs IN JOB-ORDER COSTING Purchase of Raw Matorials_| $20,000 Cost OF Goons SOLD ‘Sold of Finished ce $35,000 Workin-Process, siz (Job#15) tinny Pete cern “ono t Bn Work:n-Process (Job#15) eee Ce oin Used | $15,000 Direct Labor rcs $12,000 MOH Estimated | 65 599 (Applied) WARD, Tore 01-100 onvER cosTwe aco 8 OVER/UNDER APPLIED MANUFACTURING OVERHEAD Learning $25,000 During 2017 ~ Customers! Sales Orders baw DORD Dae Deeg een Lo) eed $15,000 Peed eal) $25,000 $20,000 Cron) eC) ‘Applied ed = = = | Bl ery eet (Actual) Ps eared rn MOH Under Applied ‘$100 $25,100 “Immaterial” WMD. 0Pc #1-J08 oRvER costIne Cre |co 8 OVER/UNDER APPLIED MANUFACTURING OVERHEAD Learning $25,000 During 2017 ~ Customers! Sales Orders baw DORD Dae Deeg ceca} eed $25,000 $15,000 Deed eal) $25,000 ed = a a $10,000 (ms ws rn MOH Over Appiied | $24,800 ‘$200 “immateriai” Ce er) $20,000 Cory Ce) ‘Applied errr Cee etc] (Actual)e OVER/UNDER APPLIED MANUFACTURING OVERHEAD wants Atthe end of the period, the overhead control and applied accounts are netted |. Ifthe result is a credit, overhead was overapplied for the period. I Ifthe result is a debit, overhead was underapplied. Ss 1) Ifthe variance is immaterial, it can be closed directly to cost of goods sama $25,000 During 2017 - Customers’ Sales Orders = Ded ceca} DOOD = a] a] eed $15,000 (eeacor Peed eal) $25,000 ed Creo) eC) ‘Applied perry Cee enc] (Actual) Pres eatery MOH Over Applied “Immaterial” Sa WMD. 0P!c #1 J08 oRvER costINe ”co 8 OVER/UNDER APPLIED MANUFACTURING OVERHEAD Learning 2) If the variance is material, it should be allocated based on the relative values of work-in-process, finished goods, and cost of goods sold. $25,000 During 2017 - Customers’ Salos Order Ss = oe Se ee os a ee Peg cnc} rete $15,000 Total Manufacturing Costs $25,000 Diroct Labor (DL) ‘$60,000 ‘$20,000 Cerrone) ee) Applied $25,000 Cone | Cet) Cree Rica) (Actual) Dw MOH Undor Appliod ‘$5,000 “Material” WMD. r0Pc #1-J08 oRvER costINe 2co 8 OVER/UNDER APPLIED MANUFACTURING OVERHEAD Learning 2) If the variance is material, it should be allocated based on the relative values of work-in-process, finished goods, and cost of goods sold. $25,000 During 2017 - Customers’ Sales Order Ss = oe Se ee eS a ee Pet onl o) ete $15,000 Total Manufacturing Costs $25,000 Diroct Labor (DL) ‘$60,000 $20,000 Cerrone) Ce) Cece $25,000 Concer nd Cee) Cree nica] (Actual) Dw MOH Undor Appliod ‘$5,000 “Material” WMD. 0Pc #1 J08 oRvER costIne 2co 8 OVER/UNDER APPLIED MANUFACTURING OVERHEAD Learning 2) If the variance is material, it should be allocated based on the relative values of work-in-process, finished goods, and cost of goods sold. $25,000 During 2017 - Customers? Sales Order = = a Se ee os a ee Peg ono} ete $15,000 Total Manufacturing Costs $25,000 Direct Labor (DL) ‘$60,000 $20,000 Cerrone) ee) Applied $25,000 Cone ny Or) ae! os ww Overhead Control = ae ae cen — z= a MOH Undor Appliod ‘$5,000 “Material” WMD. r0Pc #1-J08 oRvER cosrINe 2co 8 OVER/UNDER APPLIED MANUFACTURING OVERHEAD Learning 2) If the variance is material, it should be allocated based on the relative values of work-in-process, finished goods, and cost of goods sold. $25,000 During 2017 - Customers’ Sales Order = = oe S ee os a ee Peg ecco} re $15,000 Total Manufacturing Costs 625000 Perera) ‘$60,000 $27,083 ‘$20,000 Cerrone) Ce) Cece $25,000 Cone nd overhead Control = a ee cere) = = MOH Undor Appliod ‘$5,000 uMaterial” WMD. 0Pc #1 J08 oRER costIne 2co 8 OVER/UNDER APPLIED MANUFACTURING OVERHEAD Learning 2) If the variance is material, it should be allocated based on the relative values of work-in-process, finished goods, and cost of goods sold. $25,000 During 2017 - Customers’ Sales Order Pe cco} $15,000 Total Manufacturing Costs 625000 Perret) ‘$60,000 $27,083 Cerrone) Ce) Cece $25,000 Cone | ae SS = (Actual) a ee MOH Under Appliod $5,000 “Material” '$5,000 x ($25,000 / $60,000)= $2,083, WMD r0PK 21-108 oRER costIne 2co 8 OVER/UNDER APPLIED MANUFACTURING OVERHEAD Learning 2) If the variance is material, it should be allocated based on the relative values of work-in-process, finished goods, and cost of goods sold. $25,000 During 2017 - Customers’ Sales Order Peg ono} $15,000 Total Manufacturing Costs 625000 Perret) ‘$60,000 $27,083 ‘$20,000 Detect) $27,084 Ce) $25,000 ec Cet) Cee nica (Actual) MOH Undor Appliod ‘$5,000 “Material” '$5,000 x ($25,000 / $60,000)= $2,083 WMD. r0PK #1-J08 oRDER cosrIne 2© spoace Output that does not meet the quality standards for salability is considered spoilage. oe 41) NORMAL SPOILAGE Normal Spoilage is the spoilage that occurs under normal __ operating conditions. It is essentially uncontrollable in the short run (product cost). i) If the normal spoilage is worthless (Immaterial and can't be sold), it ‘must be discarded and no entry Is made. i) If the normal spoilage can be sold, ‘the entry is Spoiled inventory: Dr. Spolled inventory (at fair market value) Cr. Work.in-process TOPI 81 JOB ORDER COSTING eduction Li 1,000 units Direct Labors Direct Materials AS ‘$12,000 Immaterial and can’t be sold Cost = 10 x ($15,000 + $12,000 + $13,000) y 1,000 Units Cost = $400 Dr. Normal Spoiled Inventory $400 (Cr. Work:In Process $400 ‘Selling Price = $400 Dr. Cash $400 r. Normal Spoiled Inventory $400© spPoiLace 2) ABNORMAL SPOILAGE Is the spoilage over and above the amount expected in the ordinary course of production. The accounting treatment is to highlight abnormal spoilage as a period cost so that management can address the deficiency that caused it. i) Ifthe abnormal spoilage is worthless ‘and must be discarded, a loss is recognized: r. Loss from abnormal spollage Cr. Work-inprocess i) If the abnormal spoilage can be Dr. Spoiled inventory (at falr market value) Dr. Loss from abnormal spoilage Cr. Work.in-process TOPIC 81 JOB ORDER COSTING co Production Li ~- 1,000 units Learning MoH Direct Labors Direct Materials Saae $15,000, N 150 units ‘Abnormal Spoilage Cost = 150 Unite x ($15,000 + $12,000 + $13,000) 4,000 Units, Cost = $6,000 Dr. Abnormal Spoiled Inventory $6,000 ‘cr. Work-In Process 56,000 ———, Can't be sold Can be sold for $4,000 Dr. Loss from abnormal spoilage (1S) Dr. Cash $4,000 ‘$6,000 Dr. Less trom abnormal spoilage (1.5) ‘$2,000 Cr. Abnormal Spoiled Inventory ‘$6,000 r, Abnormal Spoiled Inventory ‘$6,000wt. ‘Your Way to CMA Is one of tho Leaming-Go educational platform projects and its provide tree of charge to the CMA Arab candidates.co @ CHECK YOUR KNOWLEDGE (1/3) Learning Lucy Sportswear manufactures a specialty line of T-shirts using a job-order costing system. During March, the following costs were incurred in completing job ICU2: direct materials, $13,700; direct labor, $4,800; administrative, $1,400; and selling, $5,600. Overhead was applied at the rate of $25 per machine hour, and job ICU2 required 800 machine hours. If job ICU2 resulted in 7,000 good shirts, the cost of goods sold per unit would be A. $6.50 B. $6.30 C. $5.70 D. $5.50 WMD. oP #1-J08 oRER costINe ”@ CHECK YOUR KNOWLEDGE (1/3) co Leamningl Lucy Sportswear manufactures a specialty line of T-shirts using a job-order costing system. During March, the following costs were incurred in completing job ICU2: direct materials, $13,700; direct labor, $4,800; administrative, $1,400; and selling, $5,600. Overhead was applied at the rate of $25 per machine hour, and job ICU2 required 800 machine hou shirts, the cost of goods sold per unit would be A. $6.50 B. $6.30 Direct Materials Direct Labor C. $5.70 , Overhead 800 Machin Hours x $25/h 5.50 Total Cost to Produce 7,000 units Cost Per Unit WMD. r0Pc #1 J08 oRvER costINe If job ICU2 resulted in 7,000 good 413,700 44,800 438,500 2.7 units 45.5co @ CHECK YOUR KNOWLEDGE (2/3) Learning Kepler Optics makes lenses for telescopes. Because Kepler will only sell lenses of the highest quality, the normal spoilage during a reporting period is 1,000 units. At the beginning of the current reporting period, Kepler had 2,200 units in inventory, and during the period, production was started and completed on 4,000 units. Units in inventory at the end of the current reporting period were 1,500, and the units transferred out were 3,000. During this period, the abnormal spoilage for Kepler's lens production was A. 700 units. B. 1,000 units. C. 1,700 units. D. 3,200 units. WARD, Tore 01-100 onvEn cosTwe =co @ CHECK YOUR KNOWLEDGE (2/3) earnit l= Kepler Optics makes lenses for telescopes. Because Kepler ; ‘ will only sell lenses of the highest quality, the normal Beginning inventory none spoilage during a reporting period is 1,000 units. At the (+) Units Produced ___—-4,000 Available for Sal 6,200 beginning of the current reporting period, Kepler had 2,200 vonipgiiel med ae (-) Transferred Out (3.000) units in inventory, and during the period, production was (-) Ending Inventory (2,500) started and completed on 4,000 units. Units in inventory at Total spoilage for period 1,700 the end of the current reporting period were 1,500, and the OL units transferred out were 3,000. During this period, the Normal Spoilage Abnormal Spoilage 1,000 Units 700 Units abnormal spoilage for Kepler's lens production was (Q) 700 units. . B. 1,000 units. 2 C. 1,700 units. D. 3,200 units. . Normal Spoilage 1,000 units Beginning Inventory 2,200 units Units produced in this period 4,000 units Ending Inventory 4,500 units Transferred out (sold) 3,000 units (RED, Tore 01-100 onvEn cosTwe =@ CHECK YOUR KNOWLEDGE (3/3) co = Learning Trout Company manufactures a single product. During the manufacturing process, a small number of units do not pass final inspection and are destroyed. What is the appropriate accounting treatment for the cost of these units? The cost should be A Added to the cost of good units produced. . Ignored as immaterial. . Expensed as incurred. . Added to the cost of warranties. WARD, Tor 01-100 onvEn costweco @ CHECK YOUR KNOWLEDGE (3/3) Learning Normal Spoilage Trout Company manufactures a single product. During the manufacturing process, a small number of units do not pass final inspection and are destroyed. What is the appropriate accounting treatment for the cost of these units? The cost should be Added to the cost of good units produced. Product Cost B. Ignored as immaterial. No Action >> Product Cost x Expensed as incurred. SX Added to the cost of warranties. if we can sell It Dr. Normal Spoiled Inventory $400 (Gr. Work-In Process $400 Selling Price = $400 Dr. Cash $400 Gr. Normal Spoiled Inventory $400 WMD. r0Pc #1-J08 oRER costINe »