Chapter 2 Lecture Notes

Chapter 2 Lecture Notes - Chapter 2 Systems Design...

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Chapter 2 Systems Design: Job-Order Costing A. There are two basic costing systems commonly used in manufacturing: 1. Process costing is used in situations where a single homogeneous product such as bricks is produced for long periods of time. 2. Job-order costing is used in situation where many different products or services are produced each period. a. Examples of job-order costing would be special order printing, custom furniture or a consulting company with a variety of consulting jobs. b. Examples of jobs would be a batch of fifty custom sofas for the furniture manufacture or a particular consulting job for the consulting company. B. Job-order costing is concerned with the proper allocation direct materials, direct labor and manufacturing overhead to a particular job or jobs using a job cost sheet. 1. Direct Materials – when raw materials are purchased their costs are recorded in the Raw Materials Inventory (i.e. asset account) as follows: Raw Materials X,XXX A/P or Cash X,XXX To record the purchase of raw materials. a. Raw materials are withdrawn form the raw materials inventory using a materials requisition form . These forms usually list all of the required to complete a specific job. The journal entry to withdraw raw materials from the storeroom for use in production is as follows: Work in Process Inventory (direct materials) X,XXX Manufacturing Overhead (indirect materials) X,XXX Raw Materials Inv. X,XXX To record transfer of raw materials to Work in Process and Manufacturing Overhead. 1
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Note: Materials which can be traced directly to the job are classified as direct materials and are debited to WIP Inventory. Any materials which can’t be traced directly to a particular job are treated as indirect materials and are debited to a special control account called Manufacturing Overhead . b. Job cost sheet is the control sheet used to track all production costs assigned to a particular job. The first item usually assigned to a job cost sheet are raw materials. Exhibit 2-2 Sample Job Cost Sheet 2
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2. Direct Labor Employees fill out time tickets (i.e. time sheets) which allocates the workers time among the various job. a. The journal entry to record labor costs is as follows: Work in Process Inv. (direct labor) X,XXX Manufacturing OH (indirect labor) X,XXX X,XXX Note: labor time which is spent on specific jobs is termed direct labor while labor time related to supportive tasks (i.e. supervision, maintenance, janitorial, etc.) is termed indirect labor . 3. Manufacturing Overhead – in Chapter #1, we learned that manufacturing overhead is considered an indirect cost which must be allocated to units of production. The allocation of manufacturing overhead is made by using a predetermined overhead rate. a.
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Chapter 2 Lecture Notes - Chapter 2 Systems Design...

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