In this chapter, the learning objectives are: Explain process operations and the way they differ from job order operations, define and compute equivalent units and explain their use in process cost accounting, define and prepare a process cost summary and describe its purposes.
Chapter 20-1 CHAPTER 20 JOB ORDER COST ACCOUNTING Accounting Principles, Eighth Edition Chapter 20-2 Study Objectives Study 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 Chapter 20-3 Study Objectives Study Objectives Chapter 20-4 Prepare entries for jobs completed and sold Distinguish between under and over applied manufacturing overhead Preview of Chapter Preview of 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 20-5 Job Order Cost Accounting Job Order Cost Accounting Cost Cost Accounting Accounting Systems Systems Job Order Cost System Process Cost System Chapter 20-6 Job JobOrder Order Cost Cost Flow Flow Accumulating Manufacturing Costs Assigning Manufacturing Costs to Work in Process Assigning Costs to Finished Goods Assigning Costs to Cost of Goods Sold Summary Reporting ReportingJob Job Cost CostData Data Cost of goods manufactured schedule Income statement presentation Under-or overapplied manufacturing overhead Cost Accounting Systems Cost Accounting Systems Cost accounting involves: Measuring, Recording, and Recording, 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, uptodate information on the cost of a product Chapter 20-7 LO 1: Explain the characteristics and purposes of cost accounting Cost Accounting Systems Cost Accounting Systems There are two basic types of cost accounting systems Chapter 20-8 LO 1: Explain the characteristics and purposes of cost accounting Job Order Cost System Job Order Cost 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 20-9 LO 1: Explain the characteristics and purposes of cost accounting Job Order Cost System Job Order Cost System Chapter 20-10 LO 1: Explain the characteristics and purposes of cost accounting Assigning Manufacturing Costs to Work In Process Assigning Manufacturing Costs to Work In Process 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 20-44 LO 4 Indicate how the predetermined overhead rate is determined and used Assigning Manufacturing Costs to Work In Process Assigning Manufacturing Costs to Work In 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 Chapter 20-45 LO 4 Indicate how the predetermined overhead rate is determined and used Assigning Manufacturing Overhead Assigning Manufacturing Overhead to Work in Process to Work in 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 Direct labor cost b. Direct labor hours c. Machine hours d. Any of the above. Chapter 20-46 LO 4 Indicate how the predetermined overhead rate is determined and used Assigning Costs to Finished Goods Assigning Costs to Finished Goods When a job is completed, the costs are summarized and the job cost sheet is completed Chapter 20-47 LO 5 Prepare entries for jobs completed and sold Assigning Costs to Finished Goods Assigning Costs to Finished 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 20-48 LO 5 Prepare entries for jobs completed and sold Assigning Costs to Cost of Goods Sold Assigning Costs to Cost of Goods 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 20-49 LO 5 Prepare entries for jobs completed and sold Summary of Job Order Cost Flows Summary of Job Order Cost Flows Chapter 20-50 LO 5 Prepare entries for jobs completed and sold Summary of Job Order Cost Flows Summary of Job Order Cost Flows Chapter 20-51 LO 5 Prepare entries for jobs completed and sold Reporting Job Cost Data Reporting Job Cost 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 Chapter 20-52 LO 5 Prepare entries for jobs completed and sold Entries to Report Job Cost Data Entries to Report Job Cost Data 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 20-53 a Debit Finished Goods Inventory $7,000 and credit Work in Process Inventory $7,000 Inventory $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. LO 5 Prepare entries for jobs completed and sold Under or Overapplied Manufacturing Overhead Under or Overapplied Manufacturing Overhead A debit balance in manufacturing overhead means that overhead is underapplied Overhead assigned to work in process is less than overhead incurred A credit balance in manufacturing overhead means that overhead is overapplied Overhead assigned to work in process is greater than overhead incurred Chapter 20-54 LO 6 Distinguish between under and overapplied manufacturing overhead Under or Overapplied Manufacturing Overhead Under or Overapplied Manufacturing 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 20-55 LO 6 Distinguish between under and overapplied manufacturing overhead Under or Overapplied Manufacturing Overhead Under or Overapplied Manufacturing Overhead Review Question Manufacturing overhead is underapplied if: a Actual overhead is less than applied Actual overhead is less than applied b. Actual overhead is greater than applied. c. The predetermined rate equals the actual rate d. Actual overhead equals applied overhead. Chapter 20-56 LO 6 Distinguish between under and overapplied manufacturing overhead Chapter Review – Brief Exercise 206 Chapter Review – Brief Exercise 206 Marquis Company estimates that annual manufacturing overhead costs will be $600,000. Estimated annual operating activity bases are: direct labor cost $500,000; direct labor hours 50,000; and machine hours 100,000 Compute the predetermined overhead rate for each activity base Base Calculation DL Cost $600,000 ÷ $500,000 = 120% DL Hours $600,000 ÷ 50,000 = $12/DL hour MachineHrs $600,000ữ100,000=$6/Machhour Chapter 20-57 LO2Identifythe3broadfunctionsofmanagement Copyright Copyright Copyrightâ2008JohnWiley&Sons,Inc.Allrightsreserved.Reproductionor translationofthisworkbeyondthatpermittedinSection117ofthe1976United 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 backup 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 20-58 ... LO 2 Describe the flow of costs in a? ?job? ?order? ?cost? ?accounting? ?system Job? ?Order? ?Cost Flows Overview Job? ?Order? ?Cost Flows Overview Chapter 20-15 LO 2 Describe the flow of costs in a? ?job? ?order? ?cost? ?accounting? ?system Job? ?Order? ?Cost System Job? ?Order? ?Cost System... For accurate bids on new jobs For determining potential profitability of new jobs For identifying profitability of completed jobs Chapter 20-5 Job? ?Order? ?Cost? ?Accounting Job? ?Order? ?Cost? ?Accounting Cost Cost Accounting. .. The objective: to compute the cost per? ?job Measures costs for each? ?job? ?completed? ?–? ?not for set time periods Chapter 20-9 LO 1: Explain the characteristics and purposes of cost? ?accounting Job? ?Order? ?Cost System Job? ?Order? ?Cost System