Chapter 3 - Pre-Class Notes

Chapter 3 - Pre-Class Notes - 3-1 MANAGERIAL ACCOUNTING...

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Unformatted text preview: 3-1 MANAGERIAL ACCOUNTING RSM222 Systems Design: Job-Order Costing Chapter 3 3-2 Types of Product Costing Systems Process Costing Job-order Costing Many different products are produced each period. Many different products are produced each period. Products are manufactured to _________ Products are manufactured to _________ Products Products The _________ nature of each order requires tracing The _________ nature of each order requires tracing or allocating costs to each job, and maintaining cost or allocating costs to each job, and maintaining cost records for each job. records for each job. records records LO 1 3-3 Types of Product Costing Systems Process Costing Job-order Costing A company produces _________ of a single A company produces _________ of a single product. product. One unit of product is _________ from other One unit of product is _________ from other units of product. units of product. units units The _________ nature of each unit of product The _________ nature of each unit of product enables assigning the same average cost per unit. assigning the same average cost per unit. enables assigning assigning LO 1 Product Costing Systems: Job Costing vs. Product Process Costing Process Job costing Job costing A product costing system that accumulates A product costing system that accumulates and assigns costs to a specific job. and assigns costs to a specific job. Process costing Process costing A product costing system that accumulates A product costing system that accumulates costs by process or department and tthen costs by process or department and hen assigns them to a large number of identical assigns them to a large number of identical products. products. 3-4 3-5 Comparing Process and Job-Order Costing Job-Order Process Number of jobs worked Cost accumulated by Average cost computed by LO 1 3-6 Job-Order Costing – An Overview Job No. 1 Job No. 2 Job No. 3 Charge direct material and direct labour costs to each job as work is performed. LO 2 3-7 Job-Order Costing – An Overview Job No. 1 Job Job No. 2 Job No. 3 Manufacturing Overhead, including indirect materials and indirect labour, are allocated to all jobs rather than directly traced to each job. LO 2 3-8 The Job Cost Sheet PearCo Job Cost Sheet Job Number A - 143 Department B3 Item Wooden cargo crate Direct Materials Req. No. Amount Date Initiated 3-4-11 Date Completed Units Completed Direct Labour Manufacturing Overhead Ticket Hours Amount Hours Rate Amount Cost Summary Direct Materials Direct Labour Manufacturing Overhead Total Cost Unit Product Cost Units Shipped Date Number Balance LO 2 3-9 Job-Order Cost Accounting PearCo Job Cost Sheet Job Number A - 143 Department B3 Item Wooden cargo crate Date Initiated 3-4-11 Date Completed 3-5-11 Units Completed 2 Direct Materials Direct Labour Manufacturing Overhead Req. No. Amount Ticket Hours Amount Hours Rate Amount X7-6890 $ 116 36 8 $ 88 8 $ 4$ 32 Cost Summary Direct Materials Direct Labour Manufacturing Overhead Total Cost Unit Product Cost $ $ $ $ 116 88 32 236 Units Shipped Date Number Balance LO 3 3-10 Job-Order Cost Accounting PearCo Job Cost Sheet Job Number A - 143 Department B3 Item Wooden cargo crate Date Initiated 3-4-11 Date Completed 3-5-11 Units Completed 2 Direct Materials Direct Labour Manufacturing Overhead Req. No. Amount Ticket Hours Amount Hours Rate Amount X7-6890 $ 116 36 8 $ 88 8 $ 4$ 32 Cost Summary Direct Materials Direct Labour Manufacturing Overhead Total Cost Unit Product Cost $ $ $ 116 88 32 Units Shipped Date Number Balance LO 3 3-11 Why Use an Allocation Base? An allocation base, such as direct labour hours, An allocation base, such as direct labour hours, direct labour dollars, or machine hours, is used to direct labour dollars, or machine hours, is used to assign manufacturing overhead to individual jobs. assign manufacturing overhead to individual jobs. We use an allocation base because: 1. It is impossible or difficult to _________ overhead costs to particular jobs. 2. Manufacturing overhead consists of many _________ items ranging from the grease used in machines to the production manager’s salary. 3. Many types of manufacturing overhead costs are _________ even though output fluctuates during the period. LO 3 3-12 Overhead Application Rate POHR = POHR = Estimated total manufacturing overhead cost for the coming period Estimated total units in the allocation base for the coming period $640,000 160,000 direct labour hours (DLH) POHR = $ per DLH For each direct labour hour worked on a For each direct labour hour worked on a particular job, of factory overhead particular job, of factory overhead will be applied to that job. will be applied to that job. LO 3 3-13 Application of Manufacturing Overhead Based on estimates,, and Based on estimates and determined before the determined before the period begins. period begins. Overhead applied = Actual amount of the allocation Actual amount of the allocation based upon the actual level of based upon the actual level of activity. activity. LO 3 3-14 The Purchase and Issue of Raw Materials Raw Materials Inventory Work in Process Inventory (Job Cost Sheet) Mfg. Overhead Actual Applied LO 4 3-15 The Recording of Labour Costs Salaries and Wages Payable Work in Process Inventory (Job Cost Sheet) Mfg. Overhead Actual Applied LO 4 3-16 Recording Actual Manufacturing Overhead Salaries and Wages Payable Work in Process Inventory (Job Cost Sheet) Mfg. Overhead Actual Applied LO 4 3-17 Applying Manufacturing Overhead Salaries and Wages Payable Work in Process Inventory (Job Cost Sheet) Mfg. Overhead Actual Applied If actual and applied If actual and applied manufacturing overhead manufacturing overhead are not equal, a year-end are not equal, a year-end adjustment is required. adjustment is required. LO 5 3-18 Transferring Completed Units Work in Process Inventory (Job Cost Sheet) Finished Goods Inventory LO 6 3-19 Transferring Units Sold Work in Process Inventory (Job Cost Sheet) Finished Goods Inventory Cost of Goods Sold LO 6 3-20 Accounting for Non-Manufacturing Cost Non-manufacturing costs are not assigned to individual jobs; rather they are expensed in the period incurred. Examples: Examples: LO 5 3-21 Complications of Overhead Application The difference between the overhead cost applied to Work in Process and the actual overhead costs of a period is referred to as either underapplied or overapplied overhead. Underapplied overhead exists when the amount of overhead applied to jobs during the period using the predetermined overhead rate is _________ the total _________ amount of overhead actually incurred during the period. Overapplied overhead exists when the amount of overhead applied to jobs during the period using the predetermined overhead rate is _________ the total amount of overhead actually incurred during the period. incurred LO 7 3-22 Overhead Application Example PearCo’s actual overhead ffor the year was PearCo’s actual overhead or the year was actual actual $650,000 with a total of 170,000 direct labour $650,000 with a total of 170,000 direct labour $650,000 170,000 $650,000 170,000 hours worked on jobs. hours worked on jobs. hours hours How much total overhead was applied to How much total overhead was applied to How How PearCo’s jobs during the year? Use PearCo’s PearCo’s jobs during the year? Use PearCo’s predetermined overhead rate of $4.00 per predetermined overhead rate of $4.00 per direct labour hour. direct labour hour. Overhead Applied During the Period Applied Overhead = POHR × Actual Direct Labour Hours Applied Overhead = LO 7 Disposition of Under- or Overapplied Overhead 3-23 PearCo’s Method PearCo’s Method $ ______ may be allocated to these accounts. $ ______ may be closed directly to cost of goods sold. OR Work in Work in Process Process Finished Finished Goods Goods Cost of Cost of Goods Sold Goods Sold Cost of Cost of Goods Sold Goods Sold LO 7 Disposition of Under- or Overapplied Overhead PearCo’s Cost of Goods Sold 3-24 PearCo’s Mfg. Overhead Unadjusted Balance Adjusted Balance $0 LO 7 Allocating Under- or Overapplied Overhead Between Accounts 3-25 Assume the overhead applied in ending Work in Process Inventory, ending Finished Goods Inventory, and Cost of Goods Sold is shown below: LO 7 Allocating Under- or Overapplied Overhead Between Accounts Work in process Finished Goods Cost of Goods Sold Total Amount $ 68,000 204,000 408,000 $ 680,000 Percent of Total 10% 30% 60% 100% 3-26 Allocation of $30,000 GENERAL JOURNAL Date Description Post. Ref. Debit Credit Manufacturing Overhead Work in Process Inventory Finished Goods Inventory Cost of Goods Sold LO 7 3-27 Overapplied and Underapplied Manufacturing Overhead - Summary PearCo’s Method Alternative 2 Cost of Goods Sold Work in Process Finished Goods Cost of Goods Sold Cost of Goods Sold If Manufacturing Overhead is . . . Alternative 1 Close to Cost of Goods Sold Work in Process Finished Goods Cost of Goods Sold Allocation UNDERAPPLIED (Applied OH is less than actual OH) OVERAPPLIED (Applied OH is greater than actual OH) LO 7 3-28 Multiple Predetermined Overhead Rates To this point, we have assumed that there is a To single predetermined overhead rate called a plantwide overhead rate. plantwide Large companies Large often use multiple predetermined overhead rates. overhead May be more May complex but . . . complex May be more accurate May because it reflects differences across departments. departments LO 7 3-29 The Use of Information Technology Technology plays an important part in many job-order cost systems. When combined with Electronic Data Interchange (EDI) or a webbased programming language called Extensible Markup Language (XML), bar coding eliminates the inefficiencies and inaccuracies associated with manual clerical processes. LO 7 ...
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This note was uploaded on 04/03/2012 for the course RSM 222 taught by Professor D.cianflone during the Spring '10 term at University of Toronto.

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