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MBA_508
Management
Accounting


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Cost accounting systems:
Job-Order System
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Manufacturing Firms & Service Firms
Manufacturing involves joining together direct
materials, direct labour, and overhead to produce a
new product. The product is tangible and can be
inventoried.
A service is intangible. It cannot be separated from
the customer and cannot be inventoried.
Managers must be able to track the costs of services
rendered just as precisely as they must track the
costs of goods manufactured.
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Features of service firms
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Unique versus Standardized Products and
Services
Firms that produce unique products in small batches that
incur different product costs must track the costs of each
product or batch separately. This is called a job-order
costing system.
Examples: Cabinet makers, home builders, dental and
medical services
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Unique versus Standardized Products
and Services
Some firms produce identical units of the same product.
The costs of each unit are also the same. This is called a
process-costing costing system.
Examples: Food, cement, petroleum and chemicals
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The three functions of a cost accounting system
Relationship of Cost Accumulation, Cost Measure- ment,
and Cost Assignment
The cost accounting system must
satisfy the needs for cost
accumulation, cost measurement and
cost assignment.
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The three functions of a cost accounting system
Cost accumulation refers to the recognition and
recording of costs. Source documents can be
designed to supply information that can be used for
multiple purposes.
Cost measurement refers to classifying the costs
and determining the dollar amounts for direct
materials, direct labor and overhead.
Cost measurement methods:
Actual costing
Normal costing
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The three functions of a cost accounting system
Cost assignment occurs after costs have been
accumulated and measured. Total product costs
associated with the units is divided by the number of
units produced to determine unit cost.
Unit costs in manufacturing firms are used for:
Valuing inventory
Determining income
Decision making
Unit costs in non-manufacturing firms are used for:
Determining profitability
Determining feasibility of new services
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Components of unit cost (normal costing)
Unit cost is made up of
direct materials
direct labour
overhead
Overhead is applied using a predetermined rate based on
budgeted overhead costs and budgeted amount of driver.
Commonly used drivers include:
1. Units produced
2. Direct labour hours
3. Direct labour dollars
4. Machine hours
5. Direct materials dollars or cost
traced directly to units
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Overview of the Job-Order Costing System
Job-order industries produce a wide variety of products
or jobs that are distinct.
Costs are accumulated by job in a job-order costing
system. Each job is documented on a job-order cost
sheet.
Total manufacturing costs for the job are divided by the
number of units produced to determine unit cost.
The work-in-process inventory is the collection of all
job-order cost sheets.
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The Job-Order Cost Sheet
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Materials Requisition Form
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Time Ticket
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Assignment of overhead
Overhead is assigned to jobs using a
predetermined overhead rate. The actual amount
of the driver used as a base must be collected and
recorded.
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Summary of Direct Materials Cost Flows
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=
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Summary of Direct Labor Cost Flows
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=
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Summary of Overhead Cost Flows
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=
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Completed Job-Order Cost Sheet
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Summary of Finished Goods Cost Flows
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Statement of Cost of Goods Manufactured
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Job-Order Costing:
Specific Cost Flow
Description
Statement of Cost of Goods Manufactured
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Job-Order Costing:
Specific Cost Flow
Description
Statement of Cost of Goods Manufactured
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Job-Order Costing:
Specific Cost Flow
Description
Statement of Cost of Goods Manufactured
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Statement of Cost of Goods Manufactured
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Statement of Cost of Goods Sold
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All Signs Company Summary of Manufacturing Cost Flows
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Income Statement
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Departmental Overhead Costs and Activity
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Plantwide
overhead rate
$240,000
20,000
= $12 per direct labor hour
Department A
overhead rate
=
$60,000
15,000
= $4 per direct labor hour
Department B
overhead rate
=
$180,000
15,000
= $12 per machine hour
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Production Data for Jobs 23 and 24
Job 23 overhead: $4 500 DLH = $2,000
Job 24 overhead: $12 500 M/H = $6,000
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Department A Department B
Overhead cost $60,000 $180,000
Cost driver 15,000 DLH 15,000 MHr
Department overhead rate $4/DLH $12/MHr
Overhead applied to Job 23 $2,000
Overhead applied to Job 24 $6,000
Overhead assigned using multiple
overhead rates
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Compare to overhead assigned using a single overhead rate:
Job 23 overhead: $12 500 DLH = $6,000
Job 24 overhead: $12 1 DLH = $12
Department A Department B
Overhead cost $60,000 $180,000
Cost driver 15,000 DLH 15,000 MHr
Department overhead rate $4/DLH $12/MHr
Overhead applied to Job 23 $2,000
Overhead applied to Job 24 $6,000
Overhead assigned using multiple
overhead rates
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Recap Module 3
The production process and the cost
accounting system
Job order costing Vs Process costing
The three functions of a cost acct system:
Cost accumulation
Cost measurement
Cost assignment
Job order costing procedures
Single Vs multiple overhead rates