27-1 1-1 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
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27-1 1-1 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
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Transcript of 27-1 1-1 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
27-11-1McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
27-2
Job OrderCost Accounting
Job OrderCost Accounting
Section 1: Cost Accounting
Chapter
27
Section Objectives
1. Explain how a job order cost accounting system operates.
27-3
A job order cost accounting system is used by businesses that produce special orders or produce more than one product in batches.
A process cost accounting system is used when standard products are manufactured using a continuous process.
A standard cost accounting system, in which standard costs of production are measured, can be used with a job order or a process cost system.
Types of Cost Accounting Systems
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Raw MaterialsInventory
Work in Process Inventory
Finished Goods Inventory Cost of Goods Sold
Purchases Issued Materials
Labor
Overhead
Transferred out
Transferred in
Transferred out
Transferred in
WagesPayable
Charged to Work in Process
Manufacturing Overhead
Indirect Materials
Indirect Labor
Other
Applied to Work in Process
Procurement Production Warehousing Selling
Flow of Costs through a Job Order Cost Accounting System
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The perpetual inventory system tracks
inventories on hand at all times.
The following accounts are involved in a
perpetual inventory system: Raw Materials Inventory
Wages Payable
Manufacturing Overhead
Work in Process Inventory
Finished Goods Inventory
Cost of Goods Sold
Perpetual Inventory System
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Computing the Balance of the Work in Process Inventory
Beginning inventory of work in process xx
Ending inventory of work in process xx
Reflects the cost of partially completed units
Deduct cost of goods completed xx
Add direct materials, direct labor, and manufacturing overhead charged to production xx xx
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Computing the Balance ofFinished Goods Inventory
Beginning inventory of finished goods xx
Ending inventory of finished goods xx
Represents the cost of finished goods on hand
Deduct cost of goods sold xx
Add cost of goods manufactured xx xx
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Just-in-Time Inventory Systems Used by companies who wish to eliminate raw
materials inventory.
Raw materials ordered to arrive just in time to be placed into production.
Costs of arriving materials placed immediately into Work in Process Inventory.
Reduces amount of capital tied up in inventory.
Reduces inventory storage space.
Reduces costs for storeroom personnel, insurance, and recordkeeping.
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Job OrderCost Accounting
Job OrderCost Accounting
Section 2: Job Order Cost
Accounting System
Chapter
27
Section Objectives
2. Journalize the purchase and issuance of direct and indirect materials.
3. Maintain perpetual inventory records.4. Record labor costs incurred and charge labor into production.5. Compute overhead rates and apply overhead to jobs.6. Compute overapplied or underapplied overhead and report it in
the financial statements.
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When pricing the raw materials inventory, three common methods are used:
FIFO LIFO Average Cost
Each method reflects a different valuation of raw materials inventory.
Each company determines its own pricing policy.
Cost Basis
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Labor Costs
Workers complete a separate time ticket for each job.
The total charged to all cost sheets must agree with direct labor debited to Work in Process Inventory.
All labor time tickets are sorted by job, summarized at end of the payroll period, and entered on job order cost sheets.
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Recording Labor Costs
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Includes all manufacturing costs except direct materials and direct labor.
Examples:
Indirect materials
Indirect labor
Depreciation
Insurance
Utilities
Rent
Manufacturing Overhead
Compute overhead rates and apply overhead to jobsObjective 5
27-14
Overhead costs are applied to specific jobs based on an overhead application rate.
Several different bases can be used to develop the overhead application rate. Some of more common bases for allocating overhead are:
Based on direct labor costs.
Based on direct labor hours
Based on machine hours.
Applying Overhead to Jobs
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At month-end, compare the total credits in Manufacturing Overhead Applied to the total debits in Manufacturing Overhead.
If credits in Manufacturing Overhead Applied are less than debits in Manufacturing Overhead, overhead has been underapplied.
If debits in Manufacturing Overhead are less than credits in Manufacturing Overhead Applied, overhead has been overapplied.
Compute overapplied or underapplied overhead and report it in the financial statementsObjective 6
Determining Overapplied or Underapplied Overhead
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Job OrderCost Accounting
Job OrderCost Accounting
Section 3: Accounting for
Job Orders
Chapter
27
Section Objectives
7. Maintain job order cost sheets.
8. Record the cost of jobs completed and the cost of goods sold under a perpetual inventory system.
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Each job started in production has its own job order cost sheet.
The cost sheets constitute the subsidiary ledger for the Work in Process account. The job cost sheet totals should equal the general ledger account balance.
The cost sheet shows: Direct materials Direct labor Overhead
Maintain job order cost sheetsObjective 7
Job Order Cost Sheet
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Apply overhead using predetermined rate
Total the costs when the job is completed
Job Order Cost SheetJob Order Cost Sheet
Enter materials used
Enter labor costs
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Cost of Goods Sold (Perpetual Inventory)Cost of Goods Sold (Perpetual Inventory)
Instead of showing overapplied or underapplied overhead on the income statement, the accountant might prefer to show actual manufacturing costs on the statement of cost of goods manufactured.
