Purposes of Cost

Accounting
Flow of Costs in
Job Order
Managerial Accounting
Importance of
Second Edition
Job Cost Sheet
Weygandt / Kieso / Kimmel
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead

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Purposes of Cost
Accounting Job Order Cost Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead

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2-2
 Cost Accounting
Purposes of Cost
Accounting
Flow of Costs in
An area of accounting that
Job Order
Importance of
involves:
Job Cost Sheet
Predetermined
Overhead Rate
Measuring
Entries for Jobs
Completed/Sold
Recording
Under- and
Over-applied
Overhead
Reporting

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PRODUCT COSTS
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 Why Do We Need Product Costs?
Purposes of Cost
Accounting
Flow of Costs in
To determine:
Job Order
Importance of
Job Cost Sheet
Which products to produce?
Predetermined
Overhead Rate
What price to charge?
Entries for Jobs
Completed/Sold What amounts to produce?
Under- and
Over-applied
Overhead
What evaluation to give
employees?
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 Cost Accounting System
Purposes of Cost
Accounting
Flow of Costs in
Manufacturing cost accounts
Job Order
Importance of
that are fully integrated into
Job Cost Sheet
Predetermined
the general ledger of the
Overhead Rate
Entries for Jobs
company.
Completed/Sold
Under- and
Over-applied
Perpetual inventory system used
Overhead

to provide, immediate up-to-date

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information on cost of product.
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 Two Cost Accounting Systems
Purposes of Cost
Accounting
Flow of Costs in
Job Order Cost System
Process Cost System
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead

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 Job Order System
Purposes of Cost
Accounting
Flow of Costs in
A cost accounting system
Job Order
Importance of
where costs are assigned to
Job Cost Sheet
Predetermined
each job or batch of goods.
Overhead Rate
Entries for Jobs
Completed/Sold
Custom built factory
Under- and
Over-applied
Production of movie
Overhead
Batch of menus
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Audit engagement
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 Illustration 2-1

Job Order Cost System

Two Jobs: Wedding Invitations and Menus

Black ink $ Colored Ink $

Typesetting $
Vellum stock $
Typesetting $ Yellow stock $
Yellow Stock
225 225 Envelopes Lamination$
Invitations $ $ 50 Copies $

Job #9501 Job #9502

Each job has distinguishing characteristics and related costs.

 Process Cost System
Purposes of Cost
Accounting A system of accounting used by companies
Flow of Costs in
Job Order
that manufacture
Importance of Relatively homogeneous (same or similar)
Job Cost Sheet products
Predetermined
Overhead Rate Through a series of continuous processes
Entries for Jobs or operations.
Completed/Sold
Under- and
Over-applied
Overhead

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 Illustration 2-2

Process Cost System

Compact Disc Production
1. Oil is 2. Benzene 3. The 4. ...from which
pumped. is benzene compact discs are
removed. is made made.
into pellets...

Relatively similar products are produced over a specified time period.

 Illustration 2-3

Job Order Cost Flow

Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead

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 Illustration 2-4

Job Order Cost Accounting

 Two Major Steps in Flows of Costs
Purposes of Cost
Accounting
Flow of Costs in
Accumulating the
Job Order
Importance of
manufacturing costs incurred
Job Cost Sheet
Predetermined
Raw materials inventory
Overhead Rate
Factory Labor
Entries for Jobs
Completed/Sold
Manufacturing Overhead
Under- and
Over-applied
Overhead Assigning the accumulated
costs to the work done
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 Illustration 2-5
Material Inventory Record
Purposes of Cost
Accounting
Flow of Costs in
Each individual item of raw
Job Order materials has a card or record.
Importance of
Job Cost Sheet Item: Handles Part No: AA2746
Predetermined Receipts Issues Balance
Overhead Rate Date Units Cost Total Units Cost Total Units Cost Total
Entries for Jobs 1/4 2,000 $5 $10,000 2,000 $5 $10,000
Completed/Sold
Under- and
Over-applied
Overhead
The sum of the balances of all
these records should equal raw
materials in the general ledger.
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 Summary Entry
Purposes of Cost
Accounting
Flow of Costs in
A journal entry that
Job Order
Importance of
summarizes the total from
Job Cost Sheet
Predetermined
multiple transactions.
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead

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 Accumulating Manufacturing Costs
Date Account Titles and Explanation Debit Credit
(1)
Jan. 4 Raw Materials Inventory 42,000
Accounts Payable 42,000
(Purchase of raw materials on account)

Date Account Titles and Explanation Debit Credit

(2)
Jan. 31 Factory Labor 32,000
Factory Wages Payable 27,000
Employer Payroll Taxes Payable 5,000
(To record factory labor costs)

Date Account Titles and Explanation Debit Credit

(3)
Jan. 31 Manufacturing Overhead 13,800 4,800
Utilities Payable
Prepaid Insurance 2,000
Accounts Payable - for repairs 2,600
Accumulated Depreciation 3,000
Property Taxes Payable 1,400
(To record overhead costs)
 Illustration 2-6
Job Cost Sheet
Purposes of Cost
Accounting A form used to record the costs
Flow of Costs in
Job Order chargeable to a job to determine:
Importance of
Job Cost Sheet the total and
Predetermined
Overhead Rate unit cost
Entries for Jobs
Completed/Sold
of the Job Cost Sheet
Job No. _________________________________ Quantity ________________________________
Under- and Item ___________________________________ Date Requested __________________________
Over-applied
Overhead completed For ____________________________________ Date Completed

Direct
__________________________

Direct Manufacturing
Date Materials Labor Overhead

job.
Previous Next Cost of completed job
Slide Slide Direct materials $
Direct labor
Manufacturing overhead
End
Total cost $
Show Unit cost (total dollars quantity) $

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 Illustration 2-7

Materials Requisition Slip

Purposes of Cost
Accounting
Flow of Costs in
A document authorizing the
Job Order
Importance of
issuance of raw materials
Job Cost Sheet
Predetermined
from the store to production.
Overhead Rate
Entries for Jobs Wallace Manufacturing Company
Completed/Sold Materials Requisition Slip

Under- and Deliver to: Assembly Department Req. No. R247

Over-applied Charge to: Work in Process Job No. 101 Date 1/6/96

Overhead Quantity Description Stock No. Cost Per Unit Total

200 Handles AA2746 $5.00 $1,000

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Requested by: Received by:
End
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 Illustration 2-8
Job Cost Sheets Direct Materials
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead

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 Illustration 2-10

Time Ticket
Purposes of Cost
Accounting
Flow of Costs in
A document that indicates the
Job Order
Importance of
employee, the hours worked,
Job Cost Sheet
Predetermined
the account and the job to be
Overhead Rate
Entries for Jobs
charged, and the total labor
Completed/Sold
Under- and
cost.
Wallace Manufacturing Company
Over-applied Time Ticket
Overhead
Date: 1/6/99
Employee John Nash Employee No. 124
Charge to: Work in Process Job No. 101

Previous Next Time Hourly Total

Slide Slide Start Stop Total Hours Rate Cost
End 0800 1200 4 10.00 40.00
Show Bob Kadler M.Cher
Approved by Costed by
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 Illustration 2-11
Job Cost Sheets Direct Labor
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead

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 Illustration 2-12

Predetermined Overhead Rate

A rate based on the relationship
between estimated annual overhead
costs and expected annual
operating activity, expressed in
terms of a common activity base.

Estimated Annual
Overhead Costs Expected Annual
Operating Activity = Predetermined
Overhead Rate
 Illustration 2-13

Using Predetermined Overhead Rate

Work in Process

Predetermined is
Activity Base
X Overhead
Rate
assigned
to
Job Job Job
1 2 3
 Illustration 2-14
Job Cost Sheets
Manufacturing Overhead Applied
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead

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 Assigning Manufacturing Costs
Date Account Titles and Explanation Debit Credit
(4)
Jan. 31 Work in Process Inventory 24,000
Manufacturing Overhead 6,000
Raw Materials Inventory 30,000
(To assign materials to jobs and overhead)

Date Account Titles and Explanation Debit Credit

(5)
Jan. 31 Work in Process Inventory 28,000
Manufacturing Overhead 4,000
Factory Labor 32,000
(To assign labor to jobs and overhead)

Date Account Titles and Explanation Debit Credit

(6)
Jan. 31 Work in Process Inventory 22,400
Manufacturing Overhead 22,400
(To assign overhead to jobs)
 Jobs Completed and Sold
Date Account Titles and Explanation Debit Credit

(1)

Jan. 31 Accounts Receivable 24,000

Sales 24,000
To record sale of Job 101A

Cost of Goods Sold 18,000

Finished Goods Inventory 18,000
To record cost of Job 101A
 Illustration 2-18

Job Order Cost Accounting

Flow of Costs
Raw Materials Inventory Work in Process Inventory Finished Goods Inventory
(1) 42,000 (4) 30,000 4 (4) 24,000 (7) 39,000 7 (7) 39,000 (8) 39,000 8
Bal. 12,000 (5) 28,000
(6) 22,400
Bal. 35,400
Factory Labor
Cost of Goods Sold
(2) 32,000 (5) 32,000
5 (8) 39,000

Key to Entries:
Manufacturing Overhead
(3) 13,800 (6) 22,400 6 Accumulation Assignment
(4) 6,000 1. Purchase raw materials 4. Raw materials are used
(5) 4,000 2. Incur factory labor 5. Factory labor is used
Bal. 1,400
3. Incur manufacuring 6. Overhead is applied
overhead 7. Completed goods are
recognized
8. Cost of goods sold is
recognized
 Underapplied Overhead
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
A situation in which overhead
Job Cost Sheet
Predetermined
assigned to work in process
Overhead Rate
Entries for Jobs
is less than the overhead
Completed/Sold
Under- and
incurred.
Over-applied
Overhead

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 Overapplied Overhead
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
A situation in which overhead
Job Cost Sheet
Predetermined
assigned to work in process
Overhead Rate
Entries for Jobs
is greater than the overhead
Completed/Sold
Under- and
incurred.
Over-applied
Overhead

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 Under- or Overapplied
Purposes of Cost
Accounting Manufacturing Overhead
Flow of Costs in
Job Order
Importance of
Year-End Balance- adjust to
Job Cost Sheet
Predetermined
Cost of Goods Sold
Overhead Rate
Entries for Jobs Date Account Titles and Explanation Debit Credit
Completed/Sold (5)
Dec. 31 Manufacturing Overhead 2,500
Under- and 2,500
Over-applied Cost of Goods Sold
Overhead (To transfer overapplied overhead to cost of goods sold)

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Copyright 2001 John Wiley & Sons, Inc. All rights reserved.
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