Notes_Chapter_03 - CHAPTER 3 Systems Design Job Order...

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CHAPTER 3: Systems Design: Job Order Costing I. COST ACCOUNTING SYSTEMS A. Cost accounting involves 0. The measuring 1. The recording, and 2. The reporting of product costs 0. Accurate product costing is critical to a company’s success B. Two basic cost accounting systems (Job Order Cost System and Process Cost System) 1. JOB ORDER COST SYSTEM 0. Costs are assigned to each job or batch 1.A job may be for a specific order of inventory May be a unit: ex. or a Batch of units: ex. 2.A key feature: 3. Measures costs for each job completed - not for set time periods; Average cost per unit computed on a per job basis. 1
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2. PROCESS COST SYSTEM 0. Used when a large volume of similar products are manufactured. Examples: 1. Cost are accumulated by department or process for a specific time period (i.e., week, month, etc.); Average cost per unit is computed on a per department basis. II. JOB ORDER COST FLOWS A. In general, the cost flow parallels the physical flow of the materials as they are converted into finished goods. 3. Manufacturing costs are assigned to Work in Process Inventory . 4. Cost of completed jobs is transferred to Finished Goods Inventory. 5. When units are sold, the cost is transferred to Cost of Goods Sold. B. Recording Direct Materials, Direct Labor and Overhead costs 4. Use a Job cost sheet to record the costs related to a specific job on a daily basis; used to determine the total and unit costs of a completed job. 2
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1. DIRECT MATERIAL COSTS (DM) o Debit Raw Materials Inventory when Purchase direct or indirect materials o Materials requisition form shows written authorization when materials are issued to (i.e., used in) production Debit Work-in-Process Inventory when direct materials are Used Indirect Materials used are treated as an overhead cost. (i.e., Debit Manufacturing Overhead Account as shown later) 2. DIRECT LABOR COSTS (DL) o Consists of gross earnings of factory workers, employer payroll taxes on such earnings, and fringe benefits incurred by the employer. o Debit Work-in-Process Inventory when direct labor is recorded (ie., whether paid or accrued) based on time tickets o Indirect labor is treated as an overhead cost. (i.e., Debit Manufacturing Overhead Account as shown later) 3
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3. MANUFACTURING OVERHEAD COSTS (OH) Assigning manufacturing overhead costs to a specific job is difficult (i.e., it is an indirect cost). Therefore, it is assigned to products using an allocation process Manufacturing overhead is a Control Account . It is
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