Introduction To Managerial Accounting And Job Order Cost Systems
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Chapter 18 Introduction to Managerial Accounting and Job Order Cost Systems Accounting, 21st Edition Warren Reeve Fess PowerPoint Presentation by Douglas Cloud Professor Emeritus of Accounting Pepperdine University
© Copyright 2004 South-Western, a division of Thomson Learning. All rights reserved. Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc.
Some Some of of the the action action has has been been automated, automated, so so click click the themouse mouse when when you you see see this this lightning lightning bolt bolt in in the thelower lower right-hand right-hand corner corner of of the the screen. screen. You You can can point point and and click click anywhere anywhere on on the the screen. screen.
Objectives Objectives 1. Describe the differences between After After studying studying this this managerial and financial accounting. chapter, you should chapter, you should 2. Evaluate the organizational role of be able to: be able to: management accountants. 3. Define and illustrate materials, factory labor, and factory overhead costs. 4. Describe accounting systems used by manufacturing businesses.
Objectives Objectives 6. Describe and prepare summary journal entries for a job order cost accounting system. 7. Use job order cost information for decision making. 8. Diagram the flow of costs for a service business that uses a job order cost accounting system.
The Differences Between Managerial and Financial Accounting
Financial and Managerial Accounting Financial Accounting
Managerial Accounting
Users of Accounting Information
Shareholders Shareholders Creditors Creditors Government Government General General Public Public Management Management
Management Management
Financial Accounting Users: Characteristics:
Financial Statements
External Users and Management Objective Objective Prepared Preparedaccording according to toGAAP GAAP Prepared Preparedperiodically periodically Business Businessentity entity
Managerial Accounting Users: Characteristics:
Management Reports
Management Objective Objectiveand andsubjective subjective Prepared Preparedaccording accordingto to management managementneeds needs Prepared Preparedperiodically periodically or oras asneeded needed Business Businessentity entityor orsegment segment
Partial Organization Chart – Callaway Golf Company Chief ChiefExecutive Executive Officer Officer
Vice-President— Global Sales
Vice-President— Manufacturing
Vice-President Vice-President New NewProduct Product Development Development
Manager——Pro Tour Relations
Plant Manager-Carlsbad, CA Plant
Manager—Shaft Development
Chief Financial Officer
Controller
Manufacturing Manufacturing Cost Cost Terms Terms
COST Payroll Check
EXPENSE
ASSET
EXPENSE
The cost of materials Direct Direct that are an integral Materials Materials part of the product. Product Product Costs Costs
Direct Direct Labor Labor
The cost of labor directly involved in converting material into the product.
Manufacturing costs other Factory Factory than direct materials and Overhead Overhead direct labor.
Cost Accounting Systems Job order cost system
Provides a separate record for the cost of each quantity of product that passes through the factory.
Process cost system
System in which costs are accumulated for each of the departments or processes within the factory. *Note that the examples in this presentation use the job order cost accounting system.
The The costs costs of of converting converting the the materials materials into into finished finished products products consists consists of of direct direct labor labor and and factory factory overhead. overhead. These These two two costs costs combined combined are are often often referred referred to to as as conversion conversion costs. costs.
Flow Flow of of Manufacturing Manufacturing Costs Costs •Direct Labor •Factory Overhead
MATERIALS STOREROOM
INK
INK
Materials Inventory
PRINTING PLANT
Job 73
Work in Process Inventory
Flow Flow of of Manufacturing Manufacturing Costs Costs
WAREHOUSE
CAMPUS BOOKSTORE
Job 69 Job 70
Finished Goods Inventory
Cost of Goods Sold
Flow Flow of of Manufacturing Manufacturing Costs Costs Receiving Receiving Report Report No. No.196 196
Materials received are inspected by the Receiving Department. Once inspected, a receiving report is prepared showing the quantity received and its condition.
Flow Flow of of Manufacturing Manufacturing Costs Costs Receiving Receiving Report Report No. No.196 196
Invoice Invoice
The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment.
Flow Flow of of Manufacturing Manufacturing Costs Costs Receiving Receiving Report Report No. No.196 196
Invoice Invoice
a. Materials Accounts Payable Materials purchased during December.
10 500 00 10 500 00
Flow Flow of of Manufacturing Manufacturing Costs Costs Receiving Receiving Report Report No. No.196 196
Invoice Invoice
The Materials account is a controlling account. A separate account for each type of material is maintained in a subsidiary materials ledger.
Receiving Receiving Report Report No. No.196 196
Direct Direct Materials Materials
MATERIALS LEDGER ACCOUNT
MATERIAL: No. 23 Paper
ORDER POINT: 1,000 lbs.
RECEIVED Rec. Report Unit No. Quantity Amount Price 196
1,500
ISSUED
BALANCE
Mat. Req. Amount
No.
672 $10,500
Quantity 400
Amount Date Quantity Dec. 1 1,200 $ 6,000 $ 2,000 4 800 4,000 8 800 4,000 1,500 10,500
First-in, First-in, first-out first-out
$5.00 5.00 5.00 7.00
Direct Direct Materials Materials Later, Materials Requisition Number 704 is prepared for Job No. 72 requisitioning 1,800 units of No. 23 paper. MATERIALS LEDGER ACCOUNT
MATERIAL: No. 23 Paper
ORDER POINT: 1,000 lbs.
RECEIVED Rec. Report Unit No. Quantity Amount Price 196 1,500
ISSUED
BALANCE
Mat. Req. Amount
No.
Quantity
672
400
704
1,800
$10,500
Amount Date Quantity Dec. 1 1,200 $ 6,000 $ 2,000 4 800 4,000 8 800 4,000 1,500 10,500 11,000 12 500 3,500
to Materials Requisition
$5.00 5.00 5.00 7.00 7.00
Direct Direct Materials Materials
from Materials Ledger Account
MATERIALS REQUISITIONS REQUISITION NO. 704 JOB NO. 72
Description No. 23 paper Total issued
Quantity Issued 800 1,000
Unit Price $5.00 7.00
Amount $ 4,000 7,000 $11,000
to Job Cost Sheet
Direct Direct Materials Materials
from Materials Requisition
Job 72 4,000 units of Algebra Direct materials Direct Labor Factory Overhead
b. Work in Process
$11,000
11 000 00
The receiving report and the invoice are Materials used to record the receipt of the Materials requisitioned to merchandise and to control the payment. Job 72.
11 000 00
Direct Direct Labor Labor
Job 72 Time Tickets TIME TICKET
December Job 72 (500 hours) for a total cost of $7,500
to Job Cost Sheet
No. 6311 Employee Name S. Andrews Date Dec. 26, 2006 Work Description Printing Job No. 72 Start Time 9:00
Finish Time 12:00
1:00
6:00
Total Cost
Hours Hourly Worked Rate Cost 3 $15.00 $45.00 5
15.00
75.00
$120.00
A. M. Approved by _____________________________
Direct Direct Labor Labor
from Time Tickets
Job 72 4,000 units of Algebra Direct materials Direct Labor Factory Overhead
$11,000 7,500
c. Work in Process
7 500 00
The receiving report and the invoice are Wages Payable used to record the receipt of the Factory labor used in merchandise and to control the payment. production of Job 72.
7 500 00
Factory Factory Overhead Overhead When indirect material is used or depreciation of factory equipment is recorded, a cost account (rather than an expense account) needs to be charged. All manufacturing costs except direct materials and direct labor fall into this category. d. Factory Overhead Materials Wages Payable Utilities Payable Accumulated Depreciation Factory overhead incurred.
4 600 00 500 00 2 000 00 900 00 1 200 00
Factory Factory Overhead Overhead A A firm firm can’t can’t wait wait until until the the end end of of the the fiscal fiscal year year to to price price aa product, product, so so overhead overhead must must be be estimated estimated (or (or applied) applied) using using this this formula. formula. Estimated total factory overhead costs Estimated activity base
=
Predetermined factory overhead rate
Factory Factory Overhead Overhead An An activity activity base base isis chosen chosen for for the the denominator denominator of of the the formula formula that that isis relevant relevant to to overhead overhead and and can can be be realistically realistically measured. measured. There There are are several several possibilities possibilities for for Goodwell Goodwell Printers. Printers. Activity Activity base base possibilities possibilities 1. Direct labor hours 2. Direct labor dollars 3. Machine hours 4. Direct materials
Factory Factory Overhead Overhead Goodwell Goodwell Printers Printers estimates estimates factory factory overhead overhead costs costs to to be be $50,000 $50,000 and and chooses chooses direct direct labor labor hours hours as as its its activity activity base. base.
Factory Factory Overhead Overhead Management Management estimated estimated that that 10,000 10,000 direct direct labor labor hours hours would would be be used used during during the the fiscal fiscal period. period. This This allowed allowed for for aa predetermined predetermined factory factory overhead overhead rate rate to to be be calculated. calculated. Estimated total factory overhead costs Estimated direct labor hours $50,000 10,000 direct labor hours = $5 per direct labor hours
Factory Factory Overhead Overhead Job 72 Time Tickets
Job Job 72 72 required required 500 500 direct direct labor labor hours. hours.
December Job 72 (500 hours) for a total cost of $7,500
TIME TICKET
No. 6311 Employee Name B. Andrews Date Dec. 26, 2006 Work Description Printing Job No. 72 Start Time 9:00
Finish Time 12:00
1:00
6:00
Total Cost
Hours Hourly Worked Rate Cost 3 $15.00 $45.00 5
15.00
75.00
$120.00
A. M. Approved by _____________________________
Factory Factory Overhead Overhead 500 hours x $5 Job 72 4,000 units of Algebra Direct materials Direct Labor Factory Overhead Total job cost
d. Work in Process
$11,000 7,500 2,500 $21,000
2 500 00
The receiving report and the invoice are Factory Overhead used to record the receipt of the Factory overhead applied to merchandise and to control the payment. Job 72.
2 500 00
Factory Factory Overhead Overhead This This illustrations illustrations has has focused focused on on Job Job 72. 72. The The textbook textbook shows shows two two jobs jobs that that were were worked worked on on in in December. December. So, So, when when overhead overhead isis applied applied to to both both jobs, jobs, the the entry entry isis for for $4,250. $4,250. ACCOUNT NO.
Factory Overhead
Date Item Credit Dec. 1 Balance 31 FO cost incurred 31 FO cost applied
ACCOUNT
Post. Balance Ref. Debit Credit Debit 200 4,600
4,400 4,250 150
Factory Factory Overhead Overhead ACCOUNT NO.
Factory Overhead
Date Item Credit Dec. 1 Balance 31 FO cost incurred 31 FO cost applied
ACCOUNT
Post. Balance Ref. Debit Credit Debit
Factory Factory Overhead Overhead requires requires closing closing at at the the end end of of the the fiscal fiscal period. period.
200 4,600
4,400 4,250 150
Overapplied (overestimated) Underapplied (underestimated)
Disposal Disposal of of Factory Factory Overhead Overhead Balance Balance ACCOUNT NO.
Factory Overhead
Date Item Credit Dec. 1 Balance 31 FO cost incurred 31 FO cost applied
ACCOUNT
Post. Balance Ref. Debit Credit Debit 200 4,600
4,400 4,250 150
f. Cost of Goods Sold
150 00
The receiving report and the invoice are Factory Overhead used to record the receipt of the Closed underapplied factory merchandise and to control the payment. overhead to cost of goods sold.
150 00
Disposal Disposal of of Factory Factory Overhead Overhead Balance Balance ACCOUNT NO.
Factory Overhead
Date Item Credit Dec. 1 Balance 31 FO cost incurred 31 FO cost applied 31 Closing
ACCOUNT
Post. Balance Ref. Debit Credit Debit 200 4,600
4,400 4,250 150 150 —
Completion Completion of of Jobs Jobs Job 71 1,000 units of American History Balance Direct materials Direct Labor Factory Overhead Total job cost
g. Finished Goods
$ 3,000 2,000 3,500 1,750 $10,250
Job 71 was started in November and competed in December. 10 250 00
The receiving report and the invoice are Work in Process used to record the receipt of the Job 71 completed in merchandise and to control the payment. December.
10 250 00
Sale Sale of of Product Product FINISHED GOODS LEDGER ITEM: American History Manufactured Shipped Job Order Unit No. Quantity Amount Price
Balance
Ship Order Amount
No.
Quantity
Amount Date Quantity Dec. 1 2,000 $ 20,000 $10.00
Sold Sold 2,000 2,000 American American History History textbooks textbooks on on account, account, $28,000. $28,000.
Sale Sale of of Product Product FINISHED GOODS LEDGER ITEM: American History Manufactured Shipped Job Order Unit No. Quantity Amount Price
Balance
Ship Order Amount
No.
643
Quantity
Amount Date Quantity Dec. 1 2,000 $ 20,000 $10.00
2,000 $20,000
9
---
---
Sold Sold 2,000 2,000 American American History History textbooks textbooks on on account, account, $28,000. $28,000.
---
Sale Sale of of Product Product Entry to remove books from inventory. h. Cost of Goods Sold
20 000 00
The receiving report and the invoice are Finished Goods used to record the receipt of the Cost of 2,000 American merchandise and to control the payment.
20 000 00
History textbooks sold.
Entry to record sale on account. i. Accounts Receivable
28 000 00
The receiving report and the invoice are Sales used to record the receipt of the Revenue received from merchandise and to control the payment. textbooks sold.
28 000 00
Transfer Transfer to to Finished Finished Goods Goods FINISHED GOODS LEDGER ITEM: American History Manufactured Shipped Job Order Unit No. Quantity Amount Price 71 1,000
Balance
Ship Order Amount
No.
643 $10,250
Quantity
Amount Date Quantity Dec. 1 2,000 $ 20,000 $10.00 2,000 $20,000 9 ------31 1,000 10,250 10.25
Job 71 is transferred to finished goods.
Examples Examples of of Period Period Costs Costs SELLING EXPENSES Advertising expenses Sales salaries expenses Commission expenses
Examples Examples of of Period Period Costs Costs ADMINISTRATIVE EXPENSES Office salaries expenses Office supplies expenses Depreciation expense— office buildings and office equipment
Goodwell Printers Income Statement For the Month Ended December 31, 2006 Sales $28,000 Cost of goods sold 20,150 Gross profit $ 7,850 Selling and admin. expenses: Sales salaries expense $2,000 Office salaries expense 1,500 Total selling and admin. expenses 3,500 Income from operations $ 4,350
Overview of Job Order Costing Costs & Expenses Product Costs Materials Materials Purchases Purchases Direct Direct Labor Labor Factory Factory Overhead Overhead
Balance Sheet Materials Materials Inventory Inventory Work Workin in Process Process Inventory Inventory Finished Finished Goods Goods Inventory Inventory
Cost of goods manufactured
Overview of Job Order Costing Costs & Expenses Product Costs Materials Materials Purchases Purchases Direct Direct Labor Labor Factory Factory Overhead Overhead Period Costs Selling Sellingand and Administrative Administrative
Balance Sheet Materials Materials Inventory Inventory Work Workin in Process Process Inventory Inventory Finished Finished Goods Goods Inventory Inventory
Period Periodcosts costsflow flow directly directlyto tothe the income incomestatement statement Income Statement Cost Costofof Goods GoodsSold Sold Selling Sellingand and Administrative Administrative
Flow of Manufacturing Costs Materials Materials Purchased
DM
Work in Process
Finished Goods
DM
Cost of Goods Sold Wages Payable
Factory Overhead
Total Wages
DM
Direct materials used in production
Flow of Manufacturing Costs Materials Materials Purchased
DM
Work in Process
Finished Goods
DM
IM
Cost of Goods Sold Wages Payable Total Wages
IM
Factory Overhead IM
Indirect materials used in production
Flow of Manufacturing Costs Materials Materials Purchased
Work in Process
DM
DM
IM
DL
Finished Goods
Cost of Goods Sold Wages Payable Total Wages
DL
DL
Factory Overhead IM
Direct labor used in production
Flow of Manufacturing Costs Materials Materials Purchased
Work in Process
DM
DM
IM
DL
Finished Goods
Cost of Goods Sold Wages Payable Total Wages
IL
Factory Overhead
DL
IM
IL
IL
Indirect labor used in production
Flow of Manufacturing Costs Materials Materials Purchased
Work in Process
DM
DM
IM
DL
Finished Goods
Cost of Goods Sold Wages Payable Total Wages
Factory Overhead
DL
IM
IL
IL OFOH
OFOH
Other factory overhead costs incurred during production
Flow of Manufacturing Costs Materials Materials Purchased
Work in Process
DM
DM
IM
DL FOHA
Wages Payable Total Wages
Cost of Goods Sold
Factory Overhead
DL
IM
IL
IL OFOH
FOHA
Finished Goods
FOHA
Based on predetermined overhead rate
Factory overhead applied to work in process
Flow of Manufacturing Costs Materials Materials Purchased
Work in Process
DM
DM
IM
DL
COGM
FOHA
Wages Payable Total Wages
Finished Goods COGM
Cost of Goods Sold
Factory Overhead
DL
IM
IL
IL
FOHA
OFOH
COGM
Cost of goods manufactured and transferred to finished goods
Flow of Manufacturing Costs Materials Materials Purchased
Work in Process
DM
DM
IM
DL
COGM
FOHA
Wages Payable Total Wages
IM
IL
IL
FOHA
OFOH
SOLD
COGM
SOLD
Cost of Goods Sold
Factory Overhead
DL
Finished Goods
Finished goods sold
SOLD
Job Job Order Order Systems Systems for for Professional Professional Service Service Businesses Businesses Wages Payable Direct labor Indirect labor
Supplies Purchased xxx Used
Work in Process xxx xxx
Cost of Services
Completed jobs
xxx Other costs
xxx
Overhead xxx Applied xxx xxx xxx
Chapter 18 The The End End
© Copyright 2004 South-Western, a division of Thomson Learning. All rights reserved. Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc.
Some Some of of the the action action has has been been automated, automated, so so click click the themouse mouse when when you you see see this this lightning lightning bolt bolt in in the thelower lower right-hand right-hand corner corner of of the the screen. screen. You You can can point point and and click click anywhere anywhere on on the the screen. screen.
Objectives Objectives 1. Describe the differences between After After studying studying this this managerial and financial accounting. chapter, you should chapter, you should 2. Evaluate the organizational role of be able to: be able to: management accountants. 3. Define and illustrate materials, factory labor, and factory overhead costs. 4. Describe accounting systems used by manufacturing businesses.
Objectives Objectives 6. Describe and prepare summary journal entries for a job order cost accounting system. 7. Use job order cost information for decision making. 8. Diagram the flow of costs for a service business that uses a job order cost accounting system.
The Differences Between Managerial and Financial Accounting
Financial and Managerial Accounting Financial Accounting
Managerial Accounting
Users of Accounting Information
Shareholders Shareholders Creditors Creditors Government Government General General Public Public Management Management
Management Management
Financial Accounting Users: Characteristics:
Financial Statements
External Users and Management Objective Objective Prepared Preparedaccording according to toGAAP GAAP Prepared Preparedperiodically periodically Business Businessentity entity
Managerial Accounting Users: Characteristics:
Management Reports
Management Objective Objectiveand andsubjective subjective Prepared Preparedaccording accordingto to management managementneeds needs Prepared Preparedperiodically periodically or oras asneeded needed Business Businessentity entityor orsegment segment
Partial Organization Chart – Callaway Golf Company Chief ChiefExecutive Executive Officer Officer
Vice-President— Global Sales
Vice-President— Manufacturing
Vice-President Vice-President New NewProduct Product Development Development
Manager——Pro Tour Relations
Plant Manager-Carlsbad, CA Plant
Manager—Shaft Development
Chief Financial Officer
Controller
Manufacturing Manufacturing Cost Cost Terms Terms
COST Payroll Check
EXPENSE
ASSET
EXPENSE
The cost of materials Direct Direct that are an integral Materials Materials part of the product. Product Product Costs Costs
Direct Direct Labor Labor
The cost of labor directly involved in converting material into the product.
Manufacturing costs other Factory Factory than direct materials and Overhead Overhead direct labor.
Cost Accounting Systems Job order cost system
Provides a separate record for the cost of each quantity of product that passes through the factory.
Process cost system
System in which costs are accumulated for each of the departments or processes within the factory. *Note that the examples in this presentation use the job order cost accounting system.
The The costs costs of of converting converting the the materials materials into into finished finished products products consists consists of of direct direct labor labor and and factory factory overhead. overhead. These These two two costs costs combined combined are are often often referred referred to to as as conversion conversion costs. costs.
Flow Flow of of Manufacturing Manufacturing Costs Costs •Direct Labor •Factory Overhead
MATERIALS STOREROOM
INK
INK
Materials Inventory
PRINTING PLANT
Job 73
Work in Process Inventory
Flow Flow of of Manufacturing Manufacturing Costs Costs
WAREHOUSE
CAMPUS BOOKSTORE
Job 69 Job 70
Finished Goods Inventory
Cost of Goods Sold
Flow Flow of of Manufacturing Manufacturing Costs Costs Receiving Receiving Report Report No. No.196 196
Materials received are inspected by the Receiving Department. Once inspected, a receiving report is prepared showing the quantity received and its condition.
Flow Flow of of Manufacturing Manufacturing Costs Costs Receiving Receiving Report Report No. No.196 196
Invoice Invoice
The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment.
Flow Flow of of Manufacturing Manufacturing Costs Costs Receiving Receiving Report Report No. No.196 196
Invoice Invoice
a. Materials Accounts Payable Materials purchased during December.
10 500 00 10 500 00
Flow Flow of of Manufacturing Manufacturing Costs Costs Receiving Receiving Report Report No. No.196 196
Invoice Invoice
The Materials account is a controlling account. A separate account for each type of material is maintained in a subsidiary materials ledger.
Receiving Receiving Report Report No. No.196 196
Direct Direct Materials Materials
MATERIALS LEDGER ACCOUNT
MATERIAL: No. 23 Paper
ORDER POINT: 1,000 lbs.
RECEIVED Rec. Report Unit No. Quantity Amount Price 196
1,500
ISSUED
BALANCE
Mat. Req. Amount
No.
672 $10,500
Quantity 400
Amount Date Quantity Dec. 1 1,200 $ 6,000 $ 2,000 4 800 4,000 8 800 4,000 1,500 10,500
First-in, First-in, first-out first-out
$5.00 5.00 5.00 7.00
Direct Direct Materials Materials Later, Materials Requisition Number 704 is prepared for Job No. 72 requisitioning 1,800 units of No. 23 paper. MATERIALS LEDGER ACCOUNT
MATERIAL: No. 23 Paper
ORDER POINT: 1,000 lbs.
RECEIVED Rec. Report Unit No. Quantity Amount Price 196 1,500
ISSUED
BALANCE
Mat. Req. Amount
No.
Quantity
672
400
704
1,800
$10,500
Amount Date Quantity Dec. 1 1,200 $ 6,000 $ 2,000 4 800 4,000 8 800 4,000 1,500 10,500 11,000 12 500 3,500
to Materials Requisition
$5.00 5.00 5.00 7.00 7.00
Direct Direct Materials Materials
from Materials Ledger Account
MATERIALS REQUISITIONS REQUISITION NO. 704 JOB NO. 72
Description No. 23 paper Total issued
Quantity Issued 800 1,000
Unit Price $5.00 7.00
Amount $ 4,000 7,000 $11,000
to Job Cost Sheet
Direct Direct Materials Materials
from Materials Requisition
Job 72 4,000 units of Algebra Direct materials Direct Labor Factory Overhead
b. Work in Process
$11,000
11 000 00
The receiving report and the invoice are Materials used to record the receipt of the Materials requisitioned to merchandise and to control the payment. Job 72.
11 000 00
Direct Direct Labor Labor
Job 72 Time Tickets TIME TICKET
December Job 72 (500 hours) for a total cost of $7,500
to Job Cost Sheet
No. 6311 Employee Name S. Andrews Date Dec. 26, 2006 Work Description Printing Job No. 72 Start Time 9:00
Finish Time 12:00
1:00
6:00
Total Cost
Hours Hourly Worked Rate Cost 3 $15.00 $45.00 5
15.00
75.00
$120.00
A. M. Approved by _____________________________
Direct Direct Labor Labor
from Time Tickets
Job 72 4,000 units of Algebra Direct materials Direct Labor Factory Overhead
$11,000 7,500
c. Work in Process
7 500 00
The receiving report and the invoice are Wages Payable used to record the receipt of the Factory labor used in merchandise and to control the payment. production of Job 72.
7 500 00
Factory Factory Overhead Overhead When indirect material is used or depreciation of factory equipment is recorded, a cost account (rather than an expense account) needs to be charged. All manufacturing costs except direct materials and direct labor fall into this category. d. Factory Overhead Materials Wages Payable Utilities Payable Accumulated Depreciation Factory overhead incurred.
4 600 00 500 00 2 000 00 900 00 1 200 00
Factory Factory Overhead Overhead A A firm firm can’t can’t wait wait until until the the end end of of the the fiscal fiscal year year to to price price aa product, product, so so overhead overhead must must be be estimated estimated (or (or applied) applied) using using this this formula. formula. Estimated total factory overhead costs Estimated activity base
=
Predetermined factory overhead rate
Factory Factory Overhead Overhead An An activity activity base base isis chosen chosen for for the the denominator denominator of of the the formula formula that that isis relevant relevant to to overhead overhead and and can can be be realistically realistically measured. measured. There There are are several several possibilities possibilities for for Goodwell Goodwell Printers. Printers. Activity Activity base base possibilities possibilities 1. Direct labor hours 2. Direct labor dollars 3. Machine hours 4. Direct materials
Factory Factory Overhead Overhead Goodwell Goodwell Printers Printers estimates estimates factory factory overhead overhead costs costs to to be be $50,000 $50,000 and and chooses chooses direct direct labor labor hours hours as as its its activity activity base. base.
Factory Factory Overhead Overhead Management Management estimated estimated that that 10,000 10,000 direct direct labor labor hours hours would would be be used used during during the the fiscal fiscal period. period. This This allowed allowed for for aa predetermined predetermined factory factory overhead overhead rate rate to to be be calculated. calculated. Estimated total factory overhead costs Estimated direct labor hours $50,000 10,000 direct labor hours = $5 per direct labor hours
Factory Factory Overhead Overhead Job 72 Time Tickets
Job Job 72 72 required required 500 500 direct direct labor labor hours. hours.
December Job 72 (500 hours) for a total cost of $7,500
TIME TICKET
No. 6311 Employee Name B. Andrews Date Dec. 26, 2006 Work Description Printing Job No. 72 Start Time 9:00
Finish Time 12:00
1:00
6:00
Total Cost
Hours Hourly Worked Rate Cost 3 $15.00 $45.00 5
15.00
75.00
$120.00
A. M. Approved by _____________________________
Factory Factory Overhead Overhead 500 hours x $5 Job 72 4,000 units of Algebra Direct materials Direct Labor Factory Overhead Total job cost
d. Work in Process
$11,000 7,500 2,500 $21,000
2 500 00
The receiving report and the invoice are Factory Overhead used to record the receipt of the Factory overhead applied to merchandise and to control the payment. Job 72.
2 500 00
Factory Factory Overhead Overhead This This illustrations illustrations has has focused focused on on Job Job 72. 72. The The textbook textbook shows shows two two jobs jobs that that were were worked worked on on in in December. December. So, So, when when overhead overhead isis applied applied to to both both jobs, jobs, the the entry entry isis for for $4,250. $4,250. ACCOUNT NO.
Factory Overhead
Date Item Credit Dec. 1 Balance 31 FO cost incurred 31 FO cost applied
ACCOUNT
Post. Balance Ref. Debit Credit Debit 200 4,600
4,400 4,250 150
Factory Factory Overhead Overhead ACCOUNT NO.
Factory Overhead
Date Item Credit Dec. 1 Balance 31 FO cost incurred 31 FO cost applied
ACCOUNT
Post. Balance Ref. Debit Credit Debit
Factory Factory Overhead Overhead requires requires closing closing at at the the end end of of the the fiscal fiscal period. period.
200 4,600
4,400 4,250 150
Overapplied (overestimated) Underapplied (underestimated)
Disposal Disposal of of Factory Factory Overhead Overhead Balance Balance ACCOUNT NO.
Factory Overhead
Date Item Credit Dec. 1 Balance 31 FO cost incurred 31 FO cost applied
ACCOUNT
Post. Balance Ref. Debit Credit Debit 200 4,600
4,400 4,250 150
f. Cost of Goods Sold
150 00
The receiving report and the invoice are Factory Overhead used to record the receipt of the Closed underapplied factory merchandise and to control the payment. overhead to cost of goods sold.
150 00
Disposal Disposal of of Factory Factory Overhead Overhead Balance Balance ACCOUNT NO.
Factory Overhead
Date Item Credit Dec. 1 Balance 31 FO cost incurred 31 FO cost applied 31 Closing
ACCOUNT
Post. Balance Ref. Debit Credit Debit 200 4,600
4,400 4,250 150 150 —
Completion Completion of of Jobs Jobs Job 71 1,000 units of American History Balance Direct materials Direct Labor Factory Overhead Total job cost
g. Finished Goods
$ 3,000 2,000 3,500 1,750 $10,250
Job 71 was started in November and competed in December. 10 250 00
The receiving report and the invoice are Work in Process used to record the receipt of the Job 71 completed in merchandise and to control the payment. December.
10 250 00
Sale Sale of of Product Product FINISHED GOODS LEDGER ITEM: American History Manufactured Shipped Job Order Unit No. Quantity Amount Price
Balance
Ship Order Amount
No.
Quantity
Amount Date Quantity Dec. 1 2,000 $ 20,000 $10.00
Sold Sold 2,000 2,000 American American History History textbooks textbooks on on account, account, $28,000. $28,000.
Sale Sale of of Product Product FINISHED GOODS LEDGER ITEM: American History Manufactured Shipped Job Order Unit No. Quantity Amount Price
Balance
Ship Order Amount
No.
643
Quantity
Amount Date Quantity Dec. 1 2,000 $ 20,000 $10.00
2,000 $20,000
9
---
---
Sold Sold 2,000 2,000 American American History History textbooks textbooks on on account, account, $28,000. $28,000.
---
Sale Sale of of Product Product Entry to remove books from inventory. h. Cost of Goods Sold
20 000 00
The receiving report and the invoice are Finished Goods used to record the receipt of the Cost of 2,000 American merchandise and to control the payment.
20 000 00
History textbooks sold.
Entry to record sale on account. i. Accounts Receivable
28 000 00
The receiving report and the invoice are Sales used to record the receipt of the Revenue received from merchandise and to control the payment. textbooks sold.
28 000 00
Transfer Transfer to to Finished Finished Goods Goods FINISHED GOODS LEDGER ITEM: American History Manufactured Shipped Job Order Unit No. Quantity Amount Price 71 1,000
Balance
Ship Order Amount
No.
643 $10,250
Quantity
Amount Date Quantity Dec. 1 2,000 $ 20,000 $10.00 2,000 $20,000 9 ------31 1,000 10,250 10.25
Job 71 is transferred to finished goods.
Examples Examples of of Period Period Costs Costs SELLING EXPENSES Advertising expenses Sales salaries expenses Commission expenses
Examples Examples of of Period Period Costs Costs ADMINISTRATIVE EXPENSES Office salaries expenses Office supplies expenses Depreciation expense— office buildings and office equipment
Goodwell Printers Income Statement For the Month Ended December 31, 2006 Sales $28,000 Cost of goods sold 20,150 Gross profit $ 7,850 Selling and admin. expenses: Sales salaries expense $2,000 Office salaries expense 1,500 Total selling and admin. expenses 3,500 Income from operations $ 4,350
Overview of Job Order Costing Costs & Expenses Product Costs Materials Materials Purchases Purchases Direct Direct Labor Labor Factory Factory Overhead Overhead
Balance Sheet Materials Materials Inventory Inventory Work Workin in Process Process Inventory Inventory Finished Finished Goods Goods Inventory Inventory
Cost of goods manufactured
Overview of Job Order Costing Costs & Expenses Product Costs Materials Materials Purchases Purchases Direct Direct Labor Labor Factory Factory Overhead Overhead Period Costs Selling Sellingand and Administrative Administrative
Balance Sheet Materials Materials Inventory Inventory Work Workin in Process Process Inventory Inventory Finished Finished Goods Goods Inventory Inventory
Period Periodcosts costsflow flow directly directlyto tothe the income incomestatement statement Income Statement Cost Costofof Goods GoodsSold Sold Selling Sellingand and Administrative Administrative
Flow of Manufacturing Costs Materials Materials Purchased
DM
Work in Process
Finished Goods
DM
Cost of Goods Sold Wages Payable
Factory Overhead
Total Wages
DM
Direct materials used in production
Flow of Manufacturing Costs Materials Materials Purchased
DM
Work in Process
Finished Goods
DM
IM
Cost of Goods Sold Wages Payable Total Wages
IM
Factory Overhead IM
Indirect materials used in production
Flow of Manufacturing Costs Materials Materials Purchased
Work in Process
DM
DM
IM
DL
Finished Goods
Cost of Goods Sold Wages Payable Total Wages
DL
DL
Factory Overhead IM
Direct labor used in production
Flow of Manufacturing Costs Materials Materials Purchased
Work in Process
DM
DM
IM
DL
Finished Goods
Cost of Goods Sold Wages Payable Total Wages
IL
Factory Overhead
DL
IM
IL
IL
Indirect labor used in production
Flow of Manufacturing Costs Materials Materials Purchased
Work in Process
DM
DM
IM
DL
Finished Goods
Cost of Goods Sold Wages Payable Total Wages
Factory Overhead
DL
IM
IL
IL OFOH
OFOH
Other factory overhead costs incurred during production
Flow of Manufacturing Costs Materials Materials Purchased
Work in Process
DM
DM
IM
DL FOHA
Wages Payable Total Wages
Cost of Goods Sold
Factory Overhead
DL
IM
IL
IL OFOH
FOHA
Finished Goods
FOHA
Based on predetermined overhead rate
Factory overhead applied to work in process
Flow of Manufacturing Costs Materials Materials Purchased
Work in Process
DM
DM
IM
DL
COGM
FOHA
Wages Payable Total Wages
Finished Goods COGM
Cost of Goods Sold
Factory Overhead
DL
IM
IL
IL
FOHA
OFOH
COGM
Cost of goods manufactured and transferred to finished goods
Flow of Manufacturing Costs Materials Materials Purchased
Work in Process
DM
DM
IM
DL
COGM
FOHA
Wages Payable Total Wages
IM
IL
IL
FOHA
OFOH
SOLD
COGM
SOLD
Cost of Goods Sold
Factory Overhead
DL
Finished Goods
Finished goods sold
SOLD
Job Job Order Order Systems Systems for for Professional Professional Service Service Businesses Businesses Wages Payable Direct labor Indirect labor
Supplies Purchased xxx Used
Work in Process xxx xxx
Cost of Services
Completed jobs
xxx Other costs
xxx
Overhead xxx Applied xxx xxx xxx
Chapter 18 The The End End
Related Documents
Job Order Cost System
June 2020 9
Managerial Accounting
May 2020 8
Managerial Accounting
June 2020 7