Section Ch 03 - UGBA102B 2020 Summer - UGBA 102B Chapter 3 Handout GSI Young Yoon [email protected] Section Tuesdays and Thursdays 1:00 \u2013

Section Ch 03 - UGBA102B 2020 Summer - UGBA 102B...

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UGBA 102B Chapter 3 Handout GSI: Young Yoon [email protected] Section: Tuesdays and Thursdays 1:00 – 3:30 PM ( Registration Link ) GSI Office Hours: Tuesdays 12:00 – 1:00 PM ( Link ) 1. The flow of costs In job-order costing, a company’s product costs flow through three inventory accounts on the balance sheet and then on to COGS in the income statement. Raw materials Any material that goes into the final product. When raw materials are used in production, their costs are transferred to the work-in- process or manufacturing overhead accounts. 1
Work-in-process (WIP) Products that are only partially complete Transferred direct materials as well as direct labor cost and overhead applied is added to WIP. When the jobs are complete, their costs are transferred to finished goods. This amount is referred to as the cost of goods manufactured (COGM) Finished goods Complete units of product that have not yet been sold to the customers When the jobs are sold, their costs are transferred to cost of goods sold (COGS). Exercise 3-5 To illustrate the cost flows within a job-order costing system, we will do Exercise 3-5 together. The Polaris Company uses a job-order costing system. The following transaction occurred in October. Prepare journal entries and t-accounts. 2. The purchase of materials (a) Raw materials purchased on account $210,000 2
3. Issue of direct and indirect materials Indirect materials used in production are first added to manufacturing overhead. (b) Raw materials used in production, $190,000 ($178,000 direct materials and $12,000 indirect materials). 4. Labor cost While direct labor costs are added to work-in-process, indirect labor costs are added to manufacturing overhead. (c) Accrued direct labor cost of $90,000 and indirect labor cost of $110,000. 5. Manufacturing overhead costs All manufacturing costs other than direct materials and direct labor are classified as manufacturing overhead costs. e.g. factory depreciation, factory utilities, and equipment rent (d) Depreciation recorded on factory equipment, $40,000. (e) Other manufacturing overhead costs accrued during October. $70,000. 3
6. Applying manufacturing overhead When jobs are completed, the associated manufacturing overhead costs are assigned to work-in-process by using the predetermined overhead rate (Chapter 2). (f) The company applies manufacturing overhead cost to production using a predetermined rate of $8 per machine-hour. A total of 30,000 machine-hours were used in October. 7. Nonmanufacturing costs Nonmanufacturing costs are treated as period costs and are charged directly to the income statement. e.g. (Not part of Exercise 3-5) ABC incurred $10,000 in salary costs. Salaries Expense $10,000 Salaries Payable $10,000 8. Cost of goods manufactured (COGM) When a job has been completed, the cost of the finished output (Cost of goods manufactured) is transferred from work-in-process to finished goods.

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