Cost management accounting and control 6e by hansen mowen guan chapter 05

COST MANAGEMENT Accounting & Control Hansen▪Mowen▪Guan Chapter Product and Service Costing: Job-Order System COPYRIGHT © 2009 South-Western Publishing, a division of Cengage Learning Cengage Learning and South-Western are trademarks used herein under license Study Objectives Differentiate the cost accounting systems of service and manufacturing firms and of unique and standardized products Discuss the interrelationship of cost accumulation, cost measurement, and cost assignment Explain the difference between job-order and process costing, and identify the source documents used in job-order costing Describe the cost flows associated with job-order costing, and prepare the journal entries Explain why multiple overhead rates may be preferred to a single, plantwide rate Explain how spoilage is treated in a job-order costing system Manufacturing Firms versus Service Firms • Manufacturing involves joining together direct materials, direct labor, and overhead to produce a new product The product is tangible and can be inventoried • A service is intangible It cannot be separated from the customer and cannot be inventoried • Managers must be able to track the costs of services rendered just as precisely as they must track the costs of goods manufactured Unique versus Standardized Products and Services • Firms that produce unique products in small batches that incur different product costs must track the costs of each product or batch separately This is a… • Job-order costing system – Examples: Cabinet makers, home builders, dental and medical services Unique versus Standardized Products and Services • Some firms produce identical units of the same product The costs of each unit are also the same This is a… • Process-costing costing system – Examples: Food, cement, petroleum and chemicals Setting Up the Cost Accounting System Setting Up the Cost Accounting System • Cost Accumulation – The recognition and recording of costs – Source documents can be designed to supply information that can be used for multiple purposes Setting Up the Cost Accounting System • Cost Measurement – Classifying the costs and determining the dollar amounts for direct materials, direct labor and overhead – Methods of measurement • Actual costing: uses actual costs for direct materials, direct labor, and overhead • Normal costing: uses actual costs for direct materials and direct labor but measures overhead costs on a predetermined basis Setting Up the Cost Accounting System • Cost Assignment – Occurs after costs have been accumulated and measured – Total product costs associated with the units is divided by the number of units produced to determine unit cost Setting Up the Cost Accounting System • Unit Cost – Used in manufacturing firms to • Value inventory • Determine income • Inform decision making – Used in nonmanufacturing firms to • Determine profitability • Determine feasibility of new services 10 Statement of Cost of Goods Manufactured 25 Statement of Cost of Goods Manufactured 26 Statement of Cost of Goods Manufactured 27 Statement of Cost of Goods Manufactured 28 Statement of Cost of Goods Manufactured 29 Statement of Cost of Goods Sold 30 Summary of Manufacturing Cost Flows 31 Income Statement 32 Single versus Multiple Overhead Rates • Single (plantwide) rate $240,000 ÷ 20,000 DLHr = $12 per DL hour • Multiple (departmental) rates – Department A labor-intensive $60,000 ÷ 15,000 DLHr = $4 per DL hour – Department B machine-intensive $180,000 ÷ 15,000 MHr = $12 per M hour 33 Single versus Multiple Overhead Rates Using single overhead application rate: 34 Single versus Multiple Overhead Rates • Single (plantwide) rate $240,000 ÷ 20,000 DLHr = $12 per DL hour • Multiple (departmental) rates – Department A labor-intensive $60,000 ÷ 15,000 DLHr = $4 per DL hour – Department B machine-intensive $180,000 ÷ 15,000 MHr = $12 per M hour 35 Single versus Multiple Overhead Rates Using multiple overhead application rates: 36 Single versus Multiple Overhead Rates Using multiple overhead application rates: 37 Single versus Multiple Overhead Rates Comparison of Overhead Assigned: Job 23 Job 24 Single rate 500 DLH @ $12 = $6,000 DLH @ $12 = $12 Multiple rates 500 DLH @ $4 = $2,000 500 MH @ $12 = $6,000 38 COST MANAGEMENT Accounting & Control Hansen▪Mowen▪Guan End Chapter COPYRIGHT © 2009 South-Western Publishing, a division of Cengage Learning Cengage Learning and South-Western are trademarks used herein under license 39 ... Differentiate the cost accounting systems of service and manufacturing firms and of unique and standardized products Discuss the interrelationship of cost accumulation, cost measurement, and cost assignment... The costs of each unit are also the same This is a… • Process-costing costing system – Examples: Food, cement, petroleum and chemicals Setting Up the Cost Accounting System Setting Up the Cost Accounting. .. labor, and overhead • Normal costing: uses actual costs for direct materials and direct labor but measures overhead costs on a predetermined basis Setting Up the Cost Accounting System • Cost Assignment