Purposes of Cost

Accounting
Flow of Costs in J
ob Order
Managerial Accounting
Importance of Jo Second Edition
b Cost Sheet
Predetermined O
Weygandt / Kieso / Kimmel
verhead Rate
Entries for Jobs
Completed/Sold

Under- and Over

-applied Overhea
d

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S
EL
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2-1
 Job Order Cost Accounting
Purposes of Cost
Accounting
Flow of Costs in J
ob Order
Importance of Jo
b Cost Sheet
Predetermined O
verhead Rate
Entries for Jobs
Completed/Sold

Under- and Over

-applied Overhea
d

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End
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2-2
 Cost Accounting
Purposes of Cost
Accounting
Flow of Costs in J
An area of accounting that
ob Order
Importance of Jo
involves:
b Cost Sheet
Predetermined O  Measuring
verhead Rate
Entries for Jobs
Completed/Sold
 Recording
Under- and Over
 Reporting
-applied Overhea
d

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Next
Slide PRODUCT COSTS
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2-3
 Why Do We Need Product Costs?
Purposes of Cost
Accounting
Flow of Costs in J
To determine:
ob Order
Importance of Jo  Which products to produce?
b Cost Sheet
Predetermined O
verhead Rate
 What price to charge?
Entries for Jobs
Completed/Sold  What amounts to produce?
Under- and Over  What evaluation to give
-applied Overhea
d
employees?

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2-4
 Cost Accounting System
Purposes of Cost
Accounting
Flow of Costs in J Manufacturing cost accounts
ob Order
Importance of Jo
b Cost Sheet
that are fully integrated into
Predetermined O
verhead Rate
the general ledger of the
Entries for Jobs
Completed/Sold
company.
Under- and Over
-applied Overhea Perpetual inventory syst
d

to provide, immediate up
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information on cost of pr
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2-5
 Two Cost Accounting Systems
Purposes of Cost
Accounting
Flow of Costs in J
• Job Order Cost System
ob Order
Importance of Jo
b Cost Sheet
• Process Cost System
Predetermined O
verhead Rate
Entries for Jobs
Completed/Sold

Under- and Over

-applied Overhea
d

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End
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2-6
 Job Order System
Purposes of Cost
Accounting
Flow of Costs in J A cost accounting system
ob Order
Importance of Jo
b Cost Sheet
where costs are assigned to
Predetermined O
verhead Rate
each job or batch of goods.
Entries for Jobs
Completed/Sold • Custom built factory
Under- and Over
-applied Overhea
• Production of movie
d
• Batch of menus
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• Audit engagement
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2-7
 Illustration 2-1

Job Order Cost System

Two Jobs: Wedding Invitations and Menus

Black ink $ Colored Ink $

Typesetting $
Vellum stock $
Typesetting $ Yellow stock $
Yellow Stock
225 225 Envelopes Lamination$
Invitations $ $ 50 Copies $

Job #9501 Job #9502

Each job has distinguishing characteristics and related costs.

 Process Cost System
Purposes of Cost
Accounting A system of accounting used by companies
Flow of Costs in J
ob Order
that manufacture
Importance of Jo  Relatively homogeneous (same or similar)
b Cost Sheet
products
Predetermined O
verhead Rate  Through a series of continuous processes
Entries for Jobs
Completed/Sold
or operations.

Under- and Over

-applied Overhea
d

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2-9
 Illustration 2-2

Process Cost System

Compact Disc Production
1. Oil is 2. Benzene 3. The 4. ...from which
pumped. is

compact discs are

benzene

removed.

Relatively similar products are produced over a specified time period.

made.
 Illustration 2-3

Job Order Cost Flow

Purposes of Cost
Accounting
Flow of Costs in J
ob Order
Importance of Jo
b Cost Sheet
Predetermined O
verhead Rate
Entries for Jobs
Completed/Sold

Under- and Over

-applied Overhea
d

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End
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2 - 11
 Illustration 2-4

Job Order Cost Accounting

 Two Major Steps in Flows of Costs
Purposes of Cost
Accounting
Flow of Costs in J
• Accumulating the
ob Order
Importance of Jo manufacturing costs incurred
b Cost Sheet
Predetermined O – Raw materials inventory
verhead Rate
Entries for Jobs – Factory Labor
Completed/Sold
– Manufacturing Overhead
Under- and Over
-applied Overhea
d • Assigning the accumulated
costs to the work done
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 Illustration 2-5
Material Inventory Record
Purposes of Cost
Accounting
Flow of Costs in J
Each individual item of raw
ob Order
Importance of Jo
materials has a card or record.
b Cost Sheet
Item: Handles Part No: AA2746
Predetermined O
verhead Rate Receipts Issues Balance
Date Units Cost Total Units Cost Total Units Cost Total
Entries for Jobs
Completed/Sold 1/4 2,000 $5 $10,000 2,000 $5 $10,000

Under- and Over

-applied Overhea The sum of the balances of all these records
d
should equal raw materials in the general
ledger.
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 Summary Entry
Purposes of Cost

A journal entry that

Accounting
Flow of Costs in J
ob Order
Importance of Jo summarizes the total from
b Cost Sheet
Predetermined O
verhead Rate
multiple transactions.
Entries for Jobs
Completed/Sold

Under- and Over

-applied Overhea
d

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2 - 15
 Accumulating Manufacturing Costs
Date Account Titles and Explanation Debit Credit
(1)
Jan. 4 Raw Materials Inventory 42,000
Accounts Payable 42,000
(Purchase of raw materials on account)

Date Account Titles and Explanation Debit Credit

(2)
Jan. 31 Factory Labor 32,000
Factory Wages Payable 27,000
Employer Payroll Taxes Payable 5,000
(To record factory labor costs)

Date Account Titles and Explanation Debit Credit

(3)
Jan. 31 Manufacturing Overhead 13,800 4,800
Utilities Payable
Prepaid Insurance 2,000
Accounts Payable - for repairs 2,600
Accumulated Depreciation 3,000
Property Taxes Payable 1,400
(To record overhead costs)
 Illustration 2-6
Job Cost Sheet
Purposes of Cost
Accounting A form used to record the costs
Flow of Costs in J
ob Order chargeable to a job to determine:
Importance of Jo
b Cost Sheet
• the total and
Predetermined O
verhead Rate
Entries for Jobs
• unit cost
Completed/Sold
of the Job Cost Sheet
Job No. _________________________________ Quantity ________________________________
Under- and Over Item ___________________________________ Date Requested __________________________
-applied Overhea
completed
For ____________________________________ Date Completed
__________________________
d
Direct Direct Manufacturing
Date Materials Labor Overhead

job.
Previous Next Cost of completed job
Slide Slide Direct materials $
Direct labor
Manufacturing overhead
End Total cost $
Show Unit cost (total dollars ÷ quantity) $

2 - 17
 Illustration 2-7

Materials Requisition Slip

Purposes of Cost
Accounting
Flow of Costs in J
A document authorizing the
ob Order
Importance of Jo
issuance of raw materials
from the store to production.
b Cost Sheet
Predetermined O
verhead Rate
Entries for Jobs
Completed/Sold Wallace Manufacturing Company
Materials Requisition Slip

Under- and Over Deliver to: Assembly Department Req. No. R247
-applied Overhea Charge to: Work in Process – Job No. 101 Date 1/6/96
d
Quantity Description Stock No. Cost Per Unit Total
200 Handles AA2746 $5.00 $1,000

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Requested by: Received by:
End
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2 - 18
 Illustration 2-8

Job Cost Sheets – Direct Materials

Purposes of Cost
Accounting
Flow of Costs in J
ob Order
Importance of Jo
b Cost Sheet
Predetermined O
verhead Rate
Entries for Jobs
Completed/Sold

Under- and Over

-applied Overhea
d

Previous Next
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End
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2 - 19
 Illustration 2-10

Time Ticket
Purposes of Cost
Accounting
Flow of Costs in J A document that indicates the
ob Order
Importance of Jo
b Cost Sheet
employee, the hours worked,
Predetermined O
verhead Rate
the account and the job to be
Entries for Jobs
Completed/Sold
charged, and the total labor
Under- and Over
cost.
-applied Overhea
d

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End
Show Bob Kadler M.Cher

2 - 20
 Illustration 2-11

Job Cost Sheets – Direct Labor

Purposes of Cost
Accounting
Flow of Costs in J
ob Order
Importance of Jo
b Cost Sheet
Predetermined O
verhead Rate
Entries for Jobs
Completed/Sold

Under- and Over

-applied Overhea
d

Previous Next
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End
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 Illustration 2-12

Predetermined Overhead Rate

A rate based on the relationship
between estimated annual overhead
costs and expected annual
operating activity, expressed in
terms of a common activity base.

Estimated Annual
Overhead Costs ÷ Expected Annual
Operating Activity = Predetermined
Overhead Rate
 Illustration 2-13

Using Predetermined Overhead Rate

Work in Process

Predetermined is
Activity Base
X Overhead
Rate
assigned
to
Job Job Job
1 2 3
 Illustration 2-14
Job Cost Sheets –
Manufacturing Overhead Applied
Purposes of Cost
Accounting
Flow of Costs in J
ob Order
Importance of Jo
b Cost Sheet
Predetermined O
verhead Rate
Entries for Jobs
Completed/Sold

Under- and Over

-applied Overhea
d

Previous Next
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 Assigning Manufacturing Costs
Date Account Titles and Explanation Debit Credit
(4)
Jan. 31 Work in Process Inventory 24,000
Manufacturing Overhead 6,000
Raw Materials Inventory 30,000
(To assign materials to jobs and overhead)

Date Account Titles and Explanation Debit Credit

(5)
Jan. 31 Work in Process Inventory 28,000
Manufacturing Overhead 4,000
Factory Labor 32,000
(To assign labor to jobs and overhead)

Date Account Titles and Explanation Debit Credit

(6)
Jan. 31 Work in Process Inventory 22,400
Manufacturing Overhead 22,400
(To assign overhead to jobs)
 Jobs Completed and Sold
Date Account Titles and Explanation Debit Credit

(1)

Jan. 31 Accounts Receivable 24,000

Sales 24,000
To record sale of Job 101A

Cost of Goods Sold 18,000

Finished Goods Inventory 18,000
To record cost of Job 101A
 Illustration 2-18

Job Order Cost Accounting

Flow of Costs
R a w M a t e r ia ls In v e n t o r y W o r k in P r o c e s s In v e n to r y F in is h e d G o o d s In v e n to r y
(1 ) 4 2 ,0 0 0 (4 ) 3 0 ,0 0 0 4 (4 ) 2 4 ,0 0 0 (7 ) 3 9 ,0 0 0 7 (7 ) 3 9 ,0 0 0 (8 ) 3 9 ,0 0 0 8
B a l. 1 2 ,0 0 0 (5 ) 2 8 ,0 0 0
(6 ) 2 2 ,4 0 0
B a l. 3 5 ,4 0 0
Factory Labor
C o s t o f G o o d s S o ld
(2) 32,000 (5) 32,000
5 (8 ) 3 9 ,0 0 0

Key to Entries:
M a n u fa c tu r in g O v e r h e a d
(3 ) 1 3 ,8 0 0 (6 ) 2 2 ,4 0 0 6 Accum ulation Assignm ent
(4 ) 6 ,0 0 0 1. Purchase raw m aterials 4. R aw m aterials are used
(5 ) 4 ,0 0 0 2. Incur factory labor 5. Factory labor is used
B a l. 1 ,4 0 0
3. Incur m anufacuring 6. O verhead is applied
overhead 7. C om pleted goods are
recognized
8. C ost of goods sold is
recognized
 Underapplied Overhead
Purposes of Cost
Accounting
Flow of Costs in J
ob Order
Importance of Jo
A situation in which overhead
b Cost Sheet
Predetermined O
assigned to work in process
verhead Rate
Entries for Jobs is less than the overhead
Completed/Sold
incurred.
Under- and Over
-applied Overhea
d

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 Overapplied Overhead
Purposes of Cost
Accounting
Flow of Costs in J
ob Order
Importance of Jo
A situation in which overhead
b Cost Sheet
Predetermined O
assigned to work in process
verhead Rate
Entries for Jobs is greater than the overhead
Completed/Sold
incurred.
Under- and Over
-applied Overhea
d

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 Under- or Overapplied
Manufacturing Overhead
Purposes of Cost
Accounting
Flow of Costs in J
ob Order
Importance of Jo
Year-End Balance- adjust to
b Cost Sheet
Predetermined O
Cost of Goods Sold
verhead Rate
Entries for Jobs Date Account Titles and Explanation Debit Credit
Completed/Sold
(5)
Dec. 31 Manufacturing Overhead 2,500
Under- and Over Cost of Goods Sold 2,500
-applied Overhea
d (To transfer overapplied overhead to cost of goods sold)

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