UGBA 102B Chapter 3 HandoutGSI: 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 costsIn 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 amountis 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 3-5To 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 $210,0002
3. Issue of direct and indirect materialsIndirect 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 costWhile 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 costsAll 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 factoryequipment, $40,000.(e) Other manufacturing overhead costs accrued during October. $70,000.3
6. Applying manufacturing overheadWhen 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 predeterminedrate of $8 per machine-hour. A total of 30,000 machine-hours were used in October.7. Nonmanufacturing costsNonmanufacturing 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 $10,000Salaries Payable $10,0008. 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.