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Unformatted text preview: Chapter 12
Job-Order, Process, and Hybrid Cost Systems Cost Systems
Job-order Costs Systems Accumulate costs by individual products This is used when all the products made are not the same. This is also used when mgmt needs to know the cost of individual products Job-Order Cost Systems
JobOrder Cost System Process Cost System Job-order cost systems may be used by: 1. Walt Disney Production to determine o Accumulates costs by individual products.the cost of a particular film. o Companies use job-orderdetermine the cost ofthe need 2. Rust Engineering to cost systems when an office to know the costs of individual products or batches of building constructed. products. 3. Boeing to determine the cost of an airplane manufactured. Cost Systems
Process Cost Systems Allocate costs evenly to homogeneous products This system is used to account for continuous mass production of uniform products. Job-Order Cost Systems
JobOrder Cost System Process Cost System Process cost systems may be used by: o Allocates costs evenly to homogeneous products. 1. Texaco in its oil refining operations. o Unit product cost is determined by dividing the total 2. Dow Chemical number of units produced product cost by thein the manufacture of chemicals. during the accounting period. 3. General Mills in the manufacture of cereal. Cost Systems What if a company makes homogenous products along with a few "special" order products? Use a Hybrid System It is a combination of Process Costing and Job-order Costing Hybrid Accounting Systems
A hybrid accounting system uses some features from both joborder 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. Job-Order Cost Flow Inventory follows the same flow we learned in Ch 11, but there is a subsidiary inventory account for each job. Raw Materials WIP Finished Goods Job-Order Cost Flow
For example, Green company began production of 3 distinct products. Under WIP, there are 3 smaller accounts to keep the cost of the 3 products separate. Raw Materials
LUMBER PAINT WIP
WIP PRODUCT 1 WIP PRODUCT 2 WIP PRODUCT 3 Finished Goods
COMPLETED PRODUCTS 1, 2, & 3 Job-Order Cost Flow
Product costs Work in process inventory
Product X Materials Labor Overhea d Finished goods inventory
Cost of goods available for sale kept separately for Product X Product Y Product Z Income statement Materials Labor Overhead Product Y Materials Labor Overhead Cost of goods sold Product Z Materials Labor Overhea d Documentation in a Job-Order Cost System
Job Cost Sheet Job Number Boat 104 Customer: Arturo Martinez Direct Materials Req. No. Cost 24585 7,100 24600 5,600 24609 6,100 Direct Labor Manufacturing Overhead Ticket Hours Cost Rate Hours Cost 367 1,400 9,100 3.90 1,400 5,460 360 1,600 10,400 3.90 1,600 6,240 Cost 18,800 19,500 11,700 50,000 Date Initiated 3-4-06 Date Completed 5-18-06 Cost Summary Direct Materials Direct Labor Manufacturing Overhead Total Cost Process Cost Flow Product costs flow from Raw Materials to WIP to Finished Goods The primary difference between the two systems centers on accounting for the WIP inventory. Process cost systems accumulate product costs by departments or process centers. Each department has its own WIP. Process Cost Flow The end products of one department become the raw materials of the next department. Think about a product that has to be assembled. The costs transferred from one department to the next are transferred-in costs. Transferred-in costs are combined with additional materials, labor, and OH. Process Cost Flows
Product costs WIP WIP Depart 1 Depart 2
Materials Labor Overhead Transferred in costs Finished goods inventory Income statement Materials Labor Overhead Materials Labor Overhead Cost of goods available for sale Cost of goods sold Process Cost System
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. Equivalent Units What about the units left in WIP that are partially finished? Does it seem fair to allocate a product that is 50% complete the same amount of costs as a unit that had been completed? NO Equivalent Units For example, Green Company began producing 5,000 units. At the end of the period 4,000 units are completed. 1,000 units are 70% complete. The cost per unit is $12. How much should be allocated to the 1,000 partially completed units? Equivalent Units 1,000 units * 70% = 700 equivalent units 700 units * $12 = $8,400 Cost remaining in WIP at EOY 4000 units * $12 = $48,000 Cost transferred to finished goods at EOY Equivalent Units Brown Company began work on 5,000 units. They incurred the following costs: Materials - $12,000 Labor - $18,000 Overhead - $10,000 At the end of the year, 4,000 units were completed and the remaining 1,000 units were 60% complete Equivalent Units How much is transferred out of WIP to Finished Goods at the EOY? Equivalent Units 4,000 * 100% = 4,000 1,000 * 60% = 600 Total equivalent units = 4,600 4,000 / 4,600 * $40,000 = $34,783 Equivalent Units
# of whole units that COULD HAVE been completed with direct materials, direct labor, and manufacturing overhead used during the period. ...
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This note was uploaded on 04/22/2008 for the course ACCT 2302 taught by Professor All during the Spring '08 term at Texas Tech.
- Spring '08