Slides calculate cost of goods sold

Calculate Cost of Goods Sold and Ending Overhead Balance Principles of Cost Analysis and Management © Dale R Geiger 2011 Terminal Learning Objective • • Task: Calculate Cost of Goods Sold and Ending Overhead Balance • Standard: With at least 80% accuracy Condition: You are a cost advisor technician with access to all regulations/course handouts, and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors • • • • • Calculate cost of job given predetermined overhead rate Calculate predetermined overhead rate Calculate over-/ under-applied overhead Explain causes of over-/under-applied overhead Prove ending balances in inventory accounts © Dale R Geiger 2011 If Unit Cost is misstated, how might that affect these decisions? On which products and services Do user fees cover Unit should we expend our limited Cost? resources? Are we competitive in providing Should we increase user this service? fees? © Dale R Geiger 2011 Job Order Costing • • • Provides a methodology for calculating the cost of a job Assumes that each job is unique and has identifiable direct costs Assumes that all jobs consume indirect resources in a similar manner © Dale R Geiger 2011 Job Order Costing • • • Records Direct Materials and Labor for each individual job Work in Process consists of all jobs still in process Cost of job = Direct Materials + Direct Labor + Applied Overhead © Dale R Geiger 2011 Job Order Costing • Applies Overhead on a predetermined rate •Traditional labor-based OH Rate = Estimated Overhead $ / Estimated Direct Labor $ •Assumes that indirect costs are closely correlated to Direct Labor •OH Application = Overhead Rate * Direct Labor $ © Dale R Geiger 2011 Job Order Costing Lends itself readily to service applications: • • • • Legal services Repair and maintenance services Contract services Others? © Dale R Geiger 2011 The Inventory Chain Raw Materials Beginning Purchases Work in Process Beginning Labor Materials Used Finished Goods Beginning Goods Mfd Goods Sold Overhead Ending Ending © Dale R Geiger 2011 Ending Job Order Cost Flow Finished Goods Raw Materials Materials Goods Mfd Materials Used Purchased Goods Sold Work in Process Job A Job B DL DL OH OH DM DM © Dale R Geiger 2011 Check on Learning • • What is the goal of Job Order costing? What is the equation for the cost of a job? © Dale R Geiger 2011 10 Demonstration Problem – Part Use the inventory template to: • • • • Calculate Raw Materials Purchases Calculate Cost of Goods Sold Prove the ending balances in the inventory accounts Calculate Gross Profit and Operating Income © Dale R Geiger 2011 42 Demonstration Problem – Part WIP - Summary Beg -0COGM DL OH Raw Materials Beg Purchases Finished Goods DMU 1500 Beg End ? ? COGM DMU -End COGS  End 2500 Work in Process Alpha Bravo Charlie DL OH DM © Dale R Geiger 2011 43 Demonstration Problem – Part WIP - Summary Total of materials for the three jobs equals Beg Direct Materials Used Raw Materials Beg -0- DL 14100 OH 7050 COGM Finished Goods DMU 12800 1500 Beg End Purchases 13800 COGM 12800 DMU -End COGS  End 2500 Work in Process Alpha Bravo Charlie DL 4500 6400 3200 =14100 OH 2250 3200 1600 = 7050 DM 5000 4200 3600 =12800 © Dale R Geiger 2011 44 Demonstration Problem – Part WIP - Summary Ending is 1000 more than Beginning; Inputs Beg must must be be 1000 1000 more more than than Outputs Outputs Raw Materials Beg -0- DL 14100 OH 7050 COGM Finished Goods DMU 12800 1500 Beg End Purchases 13800 COGM 12800 DMU -End COGS  End 2500 Work in Process Alpha Bravo Charlie DL 4500 6400 3200 =14100 OH 2250 3200 1600 = 7050 DM 5000 4200 3600 =12800 © Dale R Geiger 2011 45 Demonstration Problem – Part WIP - Summary Total of labor for the three jobs equals Direct Beg Labor Raw Materials Beg -0- DL 14100 OH 7050 COGM Finished Goods DMU 12800 1500 Beg End Purchases 13800 COGM 12800 DMU -End COGS  End 2500 Work in Process Alpha Bravo Charlie DL 4500 6400 3200 =14100 OH 2250 3200 1600 = 7050 DM 5000 4200 3600 =12800 © Dale R Geiger 2011 46 Demonstration Problem – Part WIP - Summary Total of Overhead applied to for the three jobs Beg equals Overhead Applied Raw Materials Beg -0- DL 14100 OH 7050 COGM Finished Goods DMU 12800 1500 Beg End Purchases 13800 COGM 12800 DMU -End COGS  End 2500 Work in Process Alpha Bravo Charlie DL 4500 6400 3200 =14100 OH 2250 3200 1600 = 7050 DM 5000 4200 3600 =12800 © Dale R Geiger 2011 47 Demonstration Problem – Part WIP - Summary Beg Raw Materials Beg Alpha and Bravo are completed COGM equals total of Alpha and Bravo -0- DL 14100 OH 7050 25550 COGM Finished Goods DMU 12800 1500 Beg End Purchases 13800 COGM 25550 12800 DMU COGS  -End 25550 End 2500 Work in Process Alpha Bravo Charlie DL 4500 6400 3200 =14100 OH 2250 3200 1600 = 7050 DM 5000 4200 3600 =12800 11750 13800 © Dale R Geiger 2011 48 Demonstration Problem – Part WIP - Summary Beg Raw Materials Beg All jobs are sold when completed COGS equals total of Alpha and Bravo -0- DL 14100 OH 7050 25550 COGM Finished Goods DMU 12800 1500 Beg End Purchases 13800 COGM 25550 12800 DMU 25550 COGS  -End -0- End 2500 -0- Work in Process Alpha Bravo Charlie DL 4500 6400 3200 =14100 OH 2250 3200 1600 = 7050 DM 5000 4200 3600 =12800 11750 13800 © Dale R Geiger 2011 49 Demonstration Problem – Part WIP - Summary Beg Raw Materials Beg -0- DL 14100 OH 7050 25550 COGM Finished Goods DMU 12800 1500 Beg End 8400 Purchases 13800 COGM 25550 12800 DMU 25550 COGS  -End -0- End 2500 -0- Work in Process Alpha DL 4500 Ending Balance in WIP is equal to the cost of OH 2250 Charlie DM 5000 11750 Bravo Charlie 6400 3200 =14100 3200 1600 = 7050 4200 3600 =12800 13800 © Dale R Geiger 2011 8400 50 Demonstration Problem – Part • Is overhead over- or under-applied? Statement of Activities Overhead Utilities • Revenue: 1700 User Fees $28,105 2100 Less: COGS 25,550 7050 Applied Gross Profit 2,555 Less: Admin cost 2,800 Supplies Actual3300 > Applied, so under-applied Ind labor -End 50 Net loss © Dale R Geiger 2011 $ 355 51 Practical Exercise © Dale R Geiger 2011 52 Job Order Costing Spreadsheet Enter estimated overhead and estimated direct labor to calculate pre-determined overhead rate Enter total direct labor for the period to automatically calculate overhead applied © Dale R Geiger 2011 53 Job Order Costing Spreadsheet Itemize actual overhead incurred Over or under-applied overhead is calculated automatically © Dale R Geiger 2011 54 Screenshots Enter data for each job and the Inventory accounts will update automatically © Dale R Geiger 2011 55 Practical Exercise © Dale R Geiger 2011 56 ... Finished Goods Beginning Goods Mfd Goods Sold Overhead Ending Ending © Dale R Geiger 2011 Ending Job Order Cost Flow Finished Goods Raw Materials Materials Goods Mfd Materials Used Purchased Goods Sold. .. Order Cost Flow Total cost of Work in Process equals cost of materials, labor and overhead for Job A plus cost of materials, labor and overhead for Job B Finished Goods Raw Materials Materials Goods. .. materials used equals cost of materials for Job A plus cost of materials for Job B Finished Goods Raw Materials Materials Goods Mfd DMU 4000 Purchased Work in Process = Goods Sold 13,000 Job A Job