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EMBA 5403 Costing Systems
EMBA 5403 Costing Systems
EMBA 5403
Fall 2010
Available costing systems
Absorption costing
Actual Costing
Normal Costing
Standard Costing
Variable costing
Actual Costing
Normal Costing
Standard Costing
Cost of Goods
Sold
Finished Goods
Inventory
Fall 2010 Mugan
Valuation 5/37
Product Costing Procedures
in Organizations
Process Job-order
Costing Costing
Process Job-order
Costing Costing
The
Job
Direct
labor
Fall 2010 Mugan 8/37
Job-Order Costing
Direct
Raw materials material Part of the
could be used as s job cost
direct or indirect and
product cost.
labor
Materials
Requisition and
Time tickets
An employee’s
time may be either Manufacturing
Indirect
direct or indirect. Overhead
materials
Control
and labor
Account
Fall 2010 Mugan 9/37
Job-Order Costing
Indirect
wages
Labor
Material Indirect
usage Materials
Fall 2010 Mugan 10/37
Job-Order Cost Sheet
XYZ Job-Order Cost Sheet
Job Number A - 143 Date Initiated 17 September 2008
Date Completed 17-Nov-08
Department A4 Units Completed 2
Item Steel water tank
Direct Materials Direct Labor Manufacturing Overhead
Req. No. Amount Ticket Hours Amount Hours Rate Amount
MR 1041 TL 1200 20 8 TL 160 8 TL 6 TL 48
Labor Labor
Overhead
Applied
Mfg. Overhead
Actual Applied If actual and applied
Indirect Overhead manufacturing overhead
Materials Applied to are not equal, a year-end
Indirect Work in Mugan adjustment is required.
Fall 2010 12/37
Labor Process
Job-Order System Cost Flows
Work-in-Process
(Job Cost Sheet) Finished Goods
Direct
Materials Cost of
Cost of
Cost of
Goods Goods Goods
Direct
Mfd. Mfd. Sold
Labor
Overhead
Applied
Cost of Goods Sold
Cost of
Goods
Fall 2010 Sold Mugan 13/37
Allocation Process
Define the cost objects.
Accumulate indirect costs in cost pools.
Choose an allocation base.
Estimate an application rate.
Allocate indirect costs based on use of
the allocation base
Overabsorbed overhead
Applied Actual
Overhead > Overhead
Costs Costs
Underabsorbed overhead
Applied Actual
Overhead < Overhead
Costs Costs
SOLUTION
Applied Overhead = POHR × Actual Direct Labor Hours
Applied Overhead = TL 6.00 per DLH × 100,000 DLH = TL 600,000
Fall 2010 Mugan 16/37
Accounting for Over- and
Underabsorbed Overhead
Three basic approaches
Prorate among work-in-process,
finished goods, and cost of goods
sold.
Adjust cost of goods sold.
Recalculate the application rate and
apply to all the jobs during the
period.
Alternative 1 Alternative 2
If Manufacturing Close to Cost
Overhead is . . . of Goods Sold Allocation
If overhead
costs are Single Overhead
accumulated in Cost Pool
a single cost
pool and Application
Rate
allocated using
a single
allocation base.
Products
Fall 2010
ProductsMugan 22/37
Process Costing
Identical units of product are
produced
in a continuous flow through a series
of manufacturing steps or processes.
+ =
So, 8,000 units 70 percent complete
are equivalent to 5,600 complete units.
Fall 2010 Mugan 25/37
Equivalent Units Question
For the current period, Ames 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
Ames have for the period?
a. 10,000
b. 11,500
c. 13,500
d. 15,000
Fall 2010 Mugan 26/37
Equivalent Units Question
For the current period, Ames 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
Ames have for the period?
a. 10,000
10,000 units + (5,000 units × .30)
b. 11,500 = 11,500 equivalent units
c. 13,500
d. 15,000
Fall 2010 Mugan 27/37
Calculating and Using
Equivalent Units of Production
Cost per
Costs for the period
equivalent = Equivalent units for the period
unit
a. $0 and $27,600
b. $7,600 and $20,000
c. $3,600 and $24,000
d. $12,000 and $15,600
Fall 2010 Mugan 32/37
Equivalent Units
% of work
done this Equivalent
units period units
Work to complete
250 70% 175
beginning work-in-process
Work on units started and
900 100% 900
completed
Work on ending work-in-
Since 30% of the work
300 was done
40% on 120
processthese units in May, the remaining 70% of
Total equivalent units 1,195
the work is done in June.
% of work
done this Equivalent
units period units
Work to complete
250 70% 175
beginning work-in-process
Work on units started and
900 100% 900
completed
Work on ending work-in-
300 40% 120
process
Since 1,200 units were started during June, and 300 of
Total equivalent
those units
units are 1,195
still in work-in-process on June 30,
900 units were started and completed during June.
Fall 2010 Mugan 36/37
Equivalent Units - Example
% of work
done this Equivalent
units period units
Work to complete
250 70% 175
beginning work-in-process
Work on units started and
900 100% 900
completed
Work on ending work-in-
300 40% 120
process
Total equivalent units 1,195