The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin CHAPTER 12 Job-Order, Process, and Hybrid Cost...

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin

CHAPTER 12

Job-Order, Process, and Hybrid Cost

Systems


12-2

Chapter Opening

Job-order cost systems capture

the unique cost of eachindividual inventory

item.

Processcost systems distributecosts evenly across the

total number of unitsproduced during

a period.


12-3

Learning Objective

LO1LO1

To distinguishbetween job-order

and processcost systems


12-4

o Accumulates costs by individual products.

o Companies use job-order cost systems when they need to know the costs of individual products or batches of products.

o Accumulates costs by individual products.

o Companies use job-order cost systems when they need to know the costs of individual products or batches of products.

Cost Systems andType of Product

Job-order cost systems may be used by:1. Walt Disney Production to determine the cost

of a particular film.2. Rust Engineering to determine the cost of an

office building constructed.3. Boeing to determine the cost of an airplane

manufactured.

Job-OrderJob-OrderCost SystemCost SystemJob-OrderJob-Order

Cost SystemCost SystemProcessProcess


Cost SystemCost System


12-5

Job-OrderJob-OrderCost SystemCost SystemJob-OrderJob-Order



Cost SystemCost System

o Allocates costs evenly to homogeneous products.

o Unit product cost is determined by dividing the total product cost by the number of units produced during the accounting period.

o Allocates costs evenly to homogeneous products.

o Unit product cost is determined by dividing the total product cost by the number of units produced during the accounting period.

Process cost systems may be used by:

1. Texaco in its oil refining operations.

2. Dow Chemical in the manufacture of chemicals.

3. General Mills in the manufacture of cereal.

Process cost systems may be used by:

1. Texaco in its oil refining operations.

2. Dow Chemical in the manufacture of chemicals.

3. General Mills in the manufacture of cereal.

Cost Systems andType of Product


12-6

Begin Begin productionproduction

Receive orders Receive orders from customersfrom customers

OrderOrdermaterialsmaterials

Cost Flows

ScheduleSchedulejobsjobs


12-7

Job-Order Cost FlowIncome

statementIncome

statement

Boat 101Materials

Labor & OH

Boat 101Materials

Labor & OHBoat 104Materials

Labor & OH

Boat 104Materials

Labor & OH

Boat 102Materials

Labor & OH

Boat 102Materials

Labor & OH

Cost ofgoodssold

Cost ofgoodssold

Boat 105Materials

Labor & OH

Boat 105Materials

Labor & OH

Boat 103Materials

Labor & OH

Boat 103Materials

Labor & OH

Productcosts

Productcosts

Work in process inventoryWork in process inventoryFinishedgoods

inventory

Finishedgoods

inventory

Cost ofgoods

availablefor sale

keptseparately

for allboats

Cost ofgoods

availablefor sale

keptseparately

for allboats

MaterialsLabor

Overhead

MaterialsLabor

Overhead


12-8

WIP WIPmixing packingWIP WIP

mixing packing

Process Cost Flow

Productcosts

Productcosts

MaterialsLabor

Overhead

MaterialsLabor

Overhead

IncomestatementIncome

statement

Cost ofgoodssold

Cost ofgoodssold

Finishedgoods

inventory

Finishedgoods

inventory

MaterialsLabor

Overhead

Transferred-in costs

MaterialsLabor

Overhead

MaterialsLabor

Overhead Cost ofgoods

availablefor sale

Cost ofgoods

availablefor sale


12-9

Hybrid Accounting Systems

A hybrid accounting system uses some features from both job-order and process cost systems.

Hybrid systems are commonly used in the manufacture of personal computers. Many

models are mass produced and sold as a package. Other

systems are custom built to the specifications of the customer. Custom built systems normally sell at a premium compared to

standard systems.

Hybrid systems are commonly used in the manufacture of personal computers. Many

models are mass produced and sold as a package. Other

systems are custom built to the specifications of the customer. Custom built systems normally sell at a premium compared to

standard systems.


12-10

Learning Objective

LO2LO2

To identifydocumentation

used in a job-order cost system


12-11Documentation in aJob-Order Cost System

The primary document for tracking the

costs associated with a given job

is thejob cost sheetjob cost sheet.


12-13

John SmythJohn Smyth

Documentation in aJob-Order Cost System


12-15

1,400 1,400 × $3.90 = $5,460× $3.90 = $5,4601,400 1,400 × $3.90 = $5,460× $3.90 = $5,460

Documentation in aJob-Order Cost System


12-16

Learning Objective

LO3LO3

To explain howevents in a

job-order costsystem affect

financial statements


12-17

Benchmore started the month of January, 2008,with the following account balances.

Debit CreditCash 73,000$ Raw Materials Inventory 7,000 Work in Process Inventory 34,000 Finished Goods Inventory 85,000 Production Supplies 300 Manufacturing Equipment 90,000 Accumulated Depreciation 32,000$ Common Stock 200,000 Retained Earnings 57,300 Total 289,300$ 289,300$

Benchmore Boat CompanyTrial Balance

As of January 1, 2008Boat 103 14,000$ Boat 104 8,000 Boat 105 12,000

34,000$

Work in Process

Boat 101 50,000$ Boat 102 35,000

85,000$

Finished Goods

Job-Order CostSystem Illustrated


12-18

Event 1Benchmore Boat Company paid $14,000

cash to purchase raw materials.

= Liab. + Equity Rev. – Exp. = Net Inc. Cash Flow

Cash +

Raw Materials Inventory

(14,000) + 14,000 = N/A + N/A N/A – N/A = N/A (14,000) OA

Assets



12-19

Event 2Benchmore used $17,000 of raw materials

in the process of making boats.



+

Work in Process Inventory

(17,000) + 17,000 = N/A + N/A N/A – N/A = N/A N/A

Assets



12-20

Event 3Benchmore paid $1,200 cash topurchase production supplies.


Cash +

Production Supplies

(1,200) + 1,200 = N/A + N/A N/A – N/A = N/A (1,200) OA

Assets



12-21

Event 4Benchmore paid $8,000 cash to production

employees who worked on Boat 103.


Cash +


(8,000) + 8,000 = N/A + N/A N/A – N/A = N/A (8,000) OA

Assets



12-22

Event 5Benchmore applied estimated manufacturingoverhead costs of $6,240 to the Boat 103 job.


Manufacturing Overhead

+


(6,240) + 6,240 = N/A + N/A N/A – N/A = N/A N/A

Assets

Predeterminedoverhead rate

Total estimatedoverhead costs

Total estimateddirect labor hours

= ÷

$15,990 ÷ 4,100 = $3.90 per direct labor hour



12-23

Event 6Benchmore transferred $36,240 of product costs for completed Boat 103 from work in process inventory

to finished goods inventory.



+

Finished Goods Inventory

(36,240) + 36,240 = N/A + N/A N/A – N/A = N/A N/A

Assets



12-24

Event 7Benchmore paid $24,500 cash for selling and

administrative expenses.

= Liab. + Equity Rev. – Exp. = Net Inc. Cash Flow(24,500) = N/A + (24,500) N/A – 24,500 = (24,500) (24,500) OAAssets



12-25

Event 8Benchmore paid $12,000 cash to production employees for work on Boats 104 and 105.


Cash +


(12,000) + 12,000 = N/A + N/A N/A – N/A = N/A (12,000) OA

Assets



12-26

Event 9Benchmore applied estimated manufacturing

overhead costs to boats 104 and 105.Job Rate Hours Applied

Boat 104 3.90$ × 1,000 = 3,900$ Boat 105 3.90 × 1,400 = 5,460

9,360$



+


(9,360) + 9,360 = N/A + N/A N/A – N/A = N/A N/A

Assets



12-27

Event 10Benchmore paid $10,100 cash for utilities

and other indirect production costs.


Cash +


(10,100) + 10,100 = N/A + N/A N/A – N/A = N/A (10,100) OA

Assets



12-28

Event 11Benchmore recognized $4,000 of actual manufacturing equipment depreciation.


Book Value of Equipment

+


(4,000) + 4,000 = N/A + N/A N/A – N/A = N/A N/A

Assets



12-29

Event 12Benchmore counted the supplies on hand at year-end and recognized actual overhead cost for the

supplies used.


Supplies +


(1,100) + 1,100 = N/A + N/A N/A – N/A = N/A N/A

Assets



12-30

Event 13Benchmore sold Boat 101 for $91,000 cash.

= Liab. + Equity Rev. – Exp. = Net Inc. Cash Flow91,000 = N/A + 91,000 91,000 – N/A = 91,000 91,000 OAAssets



12-31

Event 14Benchmore recognized cost of goods sold for Boat 101.

= Liab. + Equity Rev. – Exp. = Net Inc. Cash Flow(50,000) = N/A + (50,000) N/A – 50,000 = (50,000) N/AAssets



12-32

Event 15Benchmore closed the Manufacturing Overhead account, reducing cost of goods sold by $400.

= Liab. + Equity Rev. – Exp. = Net Inc. Cash Flow400 = N/A + 400 N/A – (400) = 400 N/A

Assets



12-33

Debit CreditCash 94,200$ Raw Materials Inventory 4,000 Work in Process Inventory 50,360 Finished Goods Inventory 71,240 Production Supplies 400 Manufacturing Equipment 90,000 Accumulated Depreciation 36,000$ Common Stock 200,000 Retained Earnings 57,300 Revenue 91,000 Cost of Goods Sold 49,600 Selling and Administrative Expense 24,500 Total 384,300$ 384,300$

Benchmore Boat CompanyTrial Balance

As of December 31, 2008



12-34

Learning Objective

LO4LO4

To explain howevents in a processcost system affect

financial statements


12-35Process Cost System Illustrated

Janis Juice Company uses three distinct processes to produce cans of apple juice. Raw materials (whole

apples) enter the Extraction Department where juice concentrate is extracted from whole fruit. The juice

extract passes to the Mixing Department where Janis adds water, sugar, food coloring, and preservatives. The juice mixture then moves to the Packaging Department

where it is canned and boxed for shipment.

Janis Juice Company uses three distinct processes to produce cans of apple juice. Raw materials (whole

apples) enter the Extraction Department where juice concentrate is extracted from whole fruit. The juice

extract passes to the Mixing Department where Janis adds water, sugar, food coloring, and preservatives. The juice mixture then moves to the Packaging Department

where it is canned and boxed for shipment.


12-36

The company’s trial balance as of January 1, 2008, is shown below:

Debit CreditCash 320,000$ Raw Materials - Fruit 7,800 Raw Materials - Additives 3,100 Raw Materials - Containers 9,500 Work in Process - Extraction 22,360 Work in Process - Mixing 7,960 Work in Process - Packaging 21,130 Finished Goods Inventory 20,700 Common Stock 180,000$ Retained Earnings 232,550 Total 412,550$ 412,550$

Janis Juice CompanyTrial Balance

As of January 1, 2008

Process Cost System Illustrated


12-37

Event 1Janis paid $84,000 cash to purchase raw materials.


Cash +


(84,000) + 84,000 = N/A + N/A N/A – N/A = N/A (84,000) OA

Assets



12-38

Event 2Janis processed $26,720 of whole fruit to

produce juice extract.



+

WIP Extraction

(26,720) + 26,720 = N/A + N/A N/A – N/A = N/A N/A

Assets



12-39

Event 3Janis paid $38,000 cash to production employees

who worked in the Extraction Department.


Cash +

WIP Extraction

(38,000) + 38,000 = N/A + N/A N/A – N/A = N/A (38,000) OA

Assets



12-40

Event 4Janis applied estimated manufacturing overhead

costs to the Extraction Department work in process inventory.



+

WIP Extraction

(30,400) + 30,400 = N/A + N/A N/A – N/A = N/A N/A

Assets

PredeterminedPredeterminedoverhead rateoverhead rate

Total estimatedTotal estimatedoverhead costsoverhead costs

Total estimatedTotal estimateddirect labor dollarsdirect labor dollars== ÷÷

$96,000 $96,000 ÷ $120,000 = $0.80 per direct labor dollar÷ $120,000 = $0.80 per direct labor dollar



12-41

Learning Objective

LO5LO5

To calculateequivalent units and

prepare a cost ofproduction report


12-42

Equivalent Units

Equivalent units are partially complete and are part of work in process inventory. Partially completed products are

expressed in terms of a smaller number of fully completed units.


12-43

Equivalent Units

Two half completed products are equivalent to one completed product.

Two half completed products are equivalent to one completed product.

So, 10,000 units 60% completeare equivalent to 6,000 complete units.

So, 10,000 units 60% completeare equivalent to 6,000 complete units.

+ = 1


12-44

Percent Actual Complete Equivalent

Units completed and transferred 500,000 100% 500,000 Ending inventory 85,000 40% 34,000

Total 585,000 534,000

A Janis engineer estimated the 85,000 units in ending work in process inventory were 40 percent complete. Janis computes the total equivalent units processed

in the extraction department as follows:

Equivalent Units


12-45

Event 5Janis finished processing some of the whole fruit and

transferred the related cost from the Extraction Department work in process inventory account to the

Mixing Department work in process inventory account.

Cost perequivalent unit

=Total processing cost

Number of equivalent whole units

= $0.22 per equivalent unit$117,480534,000



12-46

Event 5Janis used the cost per equivalent unit to allocate the total cost

incurred in the extraction department between the amount transferred to the mixing department and the amount in the extraction

department’s ending work in process inventory as follows:


WIP Extraction

+

WIP Mixing

(110,000) + 110,000 = N/A + N/A N/A – N/A = N/A N/A

Assets

Equivalent Units

Cost per Unit

Cost to be Allocated

Transferred-out costs 500,000 × 0.22$ = 110,000$ Ending inventory 34,000 × 0.22 = 7,480 Total 117,480$



12-47

The allocation of costs between unitstransferred and ending inventory can be

summarized in a cost of production report.

The allocation of costs between unitstransferred and ending inventory can be

summarized in a cost of production report.

See next slidefor Janis’ cost of

production report for theExtraction Department



12-48

Extraction Department

Cost ofProduction

Report


12-49

Event 6Janis mixed (used) $24,400 of additives with the

extract transferred from the Extraction Department.


Raw Materials Additives

+

WIP Mixing

(24,400) + 24,400 = N/A + N/A N/A – N/A = N/A N/A

Assets



12-50


who worked in the Mixing Department.


Cash +

WIP Mixing

(48,000) + 48,000 = N/A + N/A N/A – N/A = N/A (48,000) OA

Assets



12-51

Event 8Janis applied estimated manufacturing overhead costs

to the Mixing Department work in process inventory.



+

WIP Mixing

(38,400) + 38,400 = N/A + N/A N/A – N/A = N/A N/A

Assets

$48,000 × $0.80 = $38,400



12-52

Event 9Janis finished mixing some of the juice extract with additives and transferred the related cost from the

Mixing Department Work in Process Inventory account to the Packaging Department Work in

Process Inventory account.

Equivalent Units

Cost per Unit

Cost to be Allocated

Transferred-ou t costs 510,000 × 0.43$ = 219,300$ Ending inventory 22,000 × 0.43 = 9,460

228,760$


WIP Mixing

+

WIP Packaging

(219,300) + 219,300 = N/A + N/A N/A – N/A = N/A N/A

Assets



12-53

Event 10Janis added containers and other packaging

materials costing $32,000 to work in process in the Packaging Department.


Raw Materials Containers

+

WIP Packaging

(32,000) + 32,000 = N/A + N/A N/A – N/A = N/A N/A

Assets



12-54


who worked in the Packaging Department.


Cash +

WIP Packaging

(43,000) + 43,000 = N/A + N/A N/A – N/A = N/A (43,000) OA

Assets



12-55

Event 12Janis applied estimated manufacturing overhead

costs to the Packaging Department work in process inventory.


WIP Packaging

+


34,400 + (34,400) = N/A + N/A N/A – N/A = N/A N/A

Assets

$43,000 $43,000 × $0.80 = $34,400× $0.80 = $34,400



12-56

Event 13Janis finished packaging some of the juice and transferred the related cost from the Packaging

Department work in process inventory account to the finished goods inventory account.

Equivalent

Units Cost

per Unit Cost to be Allocated

Transferred-out costs 480,000 × 0.69$ = 331,200$ Ending inventory 27,000 × 0.69 = 18,630

349,830$


WIP Packaging

+

Finished Goods

(331,200) + 331,200 = N/A + N/A N/A – N/A = N/A N/A

Assets



12-57

Event 14Janis paid $106,330 cash for actual overhead costs.


Cash +


(106,330) + 106,330 = N/A + N/A N/A – N/A = N/A (106,330) OA

Assets



12-58

Event 15Janis sold 490,000 cans of juice for $1 per can.

= Liab. + Equity Rev. – Exp. = Net Inc. Cash Flow490,000 = N/A + 490,000 490,000 – N/A = 490,000 490,000 OAAssets



12-59

Event 16Janis recognized cost of goods sold for the 490,000

cans of juice sold.

= Liab. + Equity Rev. – Exp. = Net Inc. Cash Flow(338,100) = N/A + (338,100) N/A – 338,100 = (338,100) N/A

Assets

490,000 × $0.69 = $338,100



12-60

Event 17Janis paid $78,200 cash for selling and

administrative expenses.

= Liab. + Equity Rev. – Exp. = Net Inc. Cash Flow(78,200) = N/A + (78,200) N/A – 78,200 = (78,200) (78,200) OAAssets



12-61

Event 18Janis closed the Manufacturing Overhead account and increased the Cost of Goods Sold account by $3,130.

= Liab. + Equity Rev. – Exp. = Net Inc. Cash Flow(3,130) = N/A + (3,130) N/A – 3,130 = (3,130) N/AAssets



12-62

The ending trial balance for JanisJuice Company is shown below:

Debit CreditCash 412,470$ Raw Materials - Fruit 6,080 Raw Materials - Additives 8,700 Raw Materials - Containers 6,500 Work in Process - Extraction 7,480 Work in Process - Mixing 9,460 Work in Process - Packaging 18,630 Finished Goods Inventory 13,800 Common Stock 180,000$ Retained Earnings 232,550 Sales Revenue 490,000 Cost of Goods Sold 341,230 Selling and Administrative Expense 78,200 Total 902,550$ 902,550$

Janis Juice CompanyTrial Balance

As of December 31, 2008



12-63

End of Chapter 12

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin CHAPTER 12 Job-Order, Process, and Hybrid Cost...

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