Accounting principles 9e willey kieso chapter 20

Chapter 20-1 Chapter 20 Job Order Costing Chapter 20-2 Accounting Principles, Ninth Edition Study Study Objectives Objectives Explain the characteristics and purposes of cost accounting Describe the flow of costs in a job order cost accounting system Explain the nature and importance of a job cost sheet Indicate how the predetermined overhead rate is determined and used Prepare entries for jobs completed and sold Distinguish between under- and overapplied manufacturing overhead Chapter 20-3 Preview Preview of of Chapter Chapter Accurate product costing is critical to a company’s success For accurate bids on new jobs For determining potential profitability of new jobs For identifying profitability of completed jobs Chapter 20-4 Job Job Order Order Cost Cost Accounting Accounting Cost Accounting Systems Job Order Cost System Process Cost System Chapter 20-5 Job Order Cost Flow Reporting Job Cost Data Accumulating Manufacturing Costs Assigning Manufacturing Costs to Work in Process Assigning Costs to Finished Goods Assigning Costs to Cost of Goods Sold Summary Cost of goods manufactured schedule Income statement presentation Under-or overapplied manufacturing overhead Cost Cost Accounting Accounting Systems Systems Cost accounting involves: Measuring, Recording, and Reporting of product costs Consists of the various manufacturing costs that are fully integrated into the general ledger system An important feature is the use of a perpetual inventory system to provide immediate, up-to-date information on the cost of a product Chapter 20-6 LO 1: Explain the characteristics and purposes of cost accounting Cost Cost Accounting Accounting Systems Systems There are two basic types of cost accounting systems Chapter 20-7 SO 1: Explain the characteristics and purposes of cost accounting Job Job Order Order Cost Cost System System Costs are assigned to each job or batch A job may be for a specific order or inventory A key feature: Each job or batch has its own distinguishing characteristics The objective: to compute the cost per job Measures costs for each job completed – not for set time periods Chapter 20-8 SO 1: Explain the characteristics and purposes of cost accounting Job Job Order Order Cost Cost System System Illustration 20-1 Chapter 20-9 SO 1: Explain the characteristics and purposes of cost accounting Process Process Cost Cost System System Used when a large volume of similar products are manufactured Cereal, Automobiles, Compact Discs, Paint Costs are accumulated for a specific time period – A week or a month Costs are assigned to departments or processes for a set period of time Chapter 20-10 SO Explain the characteristics and purposes of cost accounting Assigning Assigning Manufacturing Manufacturing Costs Costs to to Work Work in in Process Process Example: At Wallace Manufacturing, direct labor cost is the activity base Estimated annual costs: Overhead costs Direct labor costs $280,000 $350,000 The predetermined overhead rate is $280,000 ÷ $350,000 = 80% Overhead applied is $22,400 ($28,000 January direct labor costs X 80%) and recorded as follows: Chapter 20-39 SO Indicate how the predetermined overhead rate is determined and used Assigning Assigning Manufacturing Manufacturing Costs Costs to to Work Work in in Process Process Illustration 20-12 Assigning Manufacturing Overhead The sum of the manufacturing overhead columns of the job cost sheets should equal the manufacturing overhead debited (i.e., applied) to Work in Process Inventory Chapter 20-40 SO Indicate how the predetermined overhead rate is determined and used Assigning Assigning Manufacturing Manufacturing Costs Costs to to Work Work in in Process Process At the End of Each Month: The balance in the Work in Process Inventory should equal the sum of the costs shown on the job cost sheets of unfinished jobs Illustration 20-13 Chapter 20-41 SO Indicate how the predetermined overhead rate is determined and used Assigning Assigning Manufacturing Manufacturing Costs Costs to to Work Work in in Process Process Review Question The formula for computing the predetermined manufacturing overhead rate is estimated annual overhead costs divided by an expected annual operating activity, expressed as: a Direct labor cost cost b Direct labor hours c Machine hours d Any of the above Chapter 20-42 SO Indicate how the predetermined overhead rate is determined and used Assigning Assigning Costs Costs to to Finished Finished Goods Goods Illustration 20-14 When a job is completed, the costs are summarized and the job cost sheet is completed Chapter 20-43 SO Prepare entries for jobs completed and sold Assigning Assigning Costs Costs to to Finished Finished Goods Goods The entry for Wallace Manufacturing to transfer its total cost to Finished Goods Inventory is Units remain in Finished Goods Inventory until sold Chapter 20-44 SO Prepare entries for jobs completed and sold Assigning Assigning Costs Costs to to Cost Cost of of Goods Goods Sold Sold Cost of goods sold is recognized when a sale occurs Example: On January 31 Wallace Manufacturing sells Job No 101, costing $39,000, for $50,000 Chapter 20-45 SO Prepare entries for jobs completed and sold Assigning Assigning Costs Costs to to Cost Cost of of Goods Goods Sold Sold Review Question In M Company, Job No 26 is completed at a cost of $4,500 and later sold for $7,000 cash A correct entry is: Chapter 20-46 a Debit Finished Goods Inventory $7,000 and credit Work in Process Inventory $7,000 $7,000 b Debit Cost of Goods Sold $7,000 and credit Finished Goods Inventory $7,000 c Debit Finished Goods Inventory $4,500 and credit Work in Process Inventory $4,500 d Debit Accounts Receivable $7,000 and credit Sales $7,000 SO Prepare entries for jobs completed and sold Summary Summary of of Job Job Order Order Cost Cost Flows Flows Illustration 20-16 Chapter 20-47 SO Prepare entries for jobs completed and sold Summary Summary of of Job Job Order Order Cost Cost Flows Flows Illustration 20-17 Chapter 20-48 SO Prepare entries for jobs completed and sold Reporting Reporting Job Job Cost Cost Data Data The cost of goods manufactured schedule now shows manufacturing overhead applied rather than actual overhead costs Applied overhead is added to direct materials and direct labor to determine total manufacturing costs Illustration 20-18 Chapter 20-49 SO Prepare entries for jobs completed and sold UnderUnder- or or Overapplied Overapplied Manufacturing Manufacturing Overhead Overhead A debit balance in manufacturing overhead means that overhead is underapplied Overhead assigned to work in process is less than overhead incurred Illustration 20-20 A credit balance in manufacturing overhead means that overhead is overapplied Overhead assigned to work in process is greater than overhead incurred Chapter 20-50 SO Distinguish between under- and overapplied manufacturing overhead UnderUnder- or or Overapplied Overapplied Manufacturing Manufacturing Overhead Overhead Any year end balance in manufacturing overhead is eliminated by adjusting cost of goods sold Underapplied overhead is debited to CGS Overapplied overhead is credited to CGS Example: Wallace Manufacturing Company has a $2,500 credit balance in Manufacturing Overhead at December 31 The adjusting entry for the overapplied overhead is: Chapter 20-51 SO Distinguish between under- and overapplied manufacturing overhead UnderUnder- or or Overapplied Overapplied Manufacturing Manufacturing Overhead Overhead Review Question Manufacturing overhead is underapplied if: a Actual overhead is less than applied applied b Actual overhead is greater than applied c The predetermined rate equals the actual rate d Actual overhead equals applied overhead Chapter 20-52 SO Distinguish between under- and overapplied manufacturing overhead Copyright Copyright “Copyright © 2009 John Wiley & Sons, Inc All rights reserved Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc The purchaser may make back-up copies for his/her own use only and not for distribution or resale The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.” Chapter 20-53 ... product Chapter 20- 6 LO 1: Explain the characteristics and purposes of cost accounting Cost Cost Accounting Accounting Systems Systems There are two basic types of cost accounting systems Chapter 20- 7... profitability of completed jobs Chapter 20- 4 Job Job Order Order Cost Cost Accounting Accounting Cost Accounting Systems Job Order Cost System Process Cost System Chapter 20- 5 Job Order Cost Flow Reporting.. .Chapter 20 Job Order Costing Chapter 20- 2 Accounting Principles, Ninth Edition Study Study Objectives Objectives Explain the characteristics and purposes of cost accounting Describe