Ch. 4 Job Costing Pt. 2
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This 8 page Class Notes was uploaded by Shannon Panagopoulos on Monday January 4, 2016. The Class Notes belongs to ACC at DePaul University taught by Nancy Hill in Winter 2016. Since its upload, it has received 40 views.
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Date Created: 01/04/16
The Role of Technology modern information technology provides managers with quick and accurate productcost information, making it easier to manage and control jobs (ex: bar code scanner records the receipt of incoming materials; info about DML is obtained as employees log into computer terminals) Time Period Used to Compute IndirectCost Rates 2 reasons for using longer periods, such as a year, to calculate indirectcost rates 1 reason is related to the dollar amount in the numerator nd 2 reason is related to the quantity of the costallocation base in the denominator of the calculation 1. The numerator reason (Indirectcost pool) a. The shorter the period, the greater the influence of seasonal patterns on the amount of costs i. i.e. if indirect cost rates were calculated each month, costs of heating (numerator) would be charged to production only during the winter months 1. but an annual period incorporates the effects of all four seasons into a single, annual indirectcost rate levels of total indirect costs are also affected by nonseasonal erratic costs (ex repair, maintenance) pooling all indirect costs together over the course of a full year and calculating a single annual indirectcost rate helps to smooth some of the erratic bumps in costs associated with shorter periods 2, The denominator reason (quantity of the costallocation base) a. another reason for longer periods is the need to spread monthly fixed indirect costs over fluctuating levels of monthly output, hence fluctuating quantities of the costallocation base Normal Costing the difficulty of calculating actual indirectcost rates on a weekly or monthly basis means managers cannot calculate the actual costs of jobs as they are completed because of the need for immediate access to cost jobs, few companies wait to allocate overhead costs until year end when the actual MOH is finally known instead a predetermined overhead or budged indirectcost rate is calculated for each cost pool at the beginning of a fiscal year, and overhead costs area allocated to jobs as work progresses. Budgeted indirect cost rate= (budgeted annual indirect costs) / (budgeted annual quantity of the costallocation base) Normal costing= a costing system that requires: 1) traces direct cost inputs to a cost object by using the actual directcost rates times the actual directcost rates ties the actual quantities of directcost inputs 2) allocates indirect costs based on the budgeted indirect cost rate times the actual quantities of the costallocation bases *both normal costing and actual costing trace direct costs to jobs in the same way source documents identify the actual quantities and actual rates of direct maters and direct manufacturing labor as the work is being done the only difference between costing a job with actual and normal costing is that actual costing uses actual indirectcost rates, whereas normal costing uses budgeted indirectcost rates Actual Costing: Direct Costs: Actual direct cost rates X actual quantities of directcost inputs Indirect Costs: Actual indirectcost rates X actual quantities of costallocation bases Normal Costing: Direct Costs: Budgeted direct cost rates X actual quantities of directcost inputs Indirect Costs: Budgeted indirectcost rates X actual quantities of costallocation bases A Normal JobCosting System in Manufacturing: DM and DML can easily be traced to jobs. become part of Work in Process inventory (WIP) on the balance sheet b/c direct manufacturing labor transforms direct materials into another asset, MOH costs are also converted to WIP but cant be easily traced to the individual jobs MOH costs, there, are first accumulated in a manufacturing overhead account and then allocated to individual jobs as MOH costs are allocated, they become part of WIP inventory As individual jobs are completed, they are moved from WIP inventory to finished goods inventory *only when finished goods are sold is an expense, cost of goods sold, recognized in the income statement and matched against revenues earned Period costs: marketing and customer service costs do no create any assets on the BS because they are not incurred to transform materials into finished product they are expensed in the IS as they are incurred to best match revenues General Ledger a summary of the jobcost record is typically found in a subsidiary ledger (the general ledger) General ledger’s WIP account presents the total of these separate jobcost records pertaining to unfinished goods the jobcost records and WIP control account track costs from when jobs start until they are complete. *software programs process the transactions in most accounting systems * a general ledger is to be viewed as a tool to assist management in planning and control to control operations, managers rely not only on the source documents but also nonfinancial information such as the percentage of jobs requiring rework TRANSACTIONS 1. Purchase of materials (direct and indirect) on credit, $89000 Materials Control 89000 Accounts Payable Control 89000 2. Usage of DM, $81,000, and indirect materials, $4000 WIP Control 81000 MOH Control 4000 Materials Control 86000 3. Manufacturing payroll for Feb.: DL, 39000, and IL, 15000, cash WIP Control 39000 MOH Control 15000 Cash Control 54000 4. Other manufacturing overhead costs incurred during Feb: 75000, consisting of supervision and engineering salaries, 44000 paid in cash; plant utilities, repairs, and insurance, 13000 paid in cash and plant depreciation 18000 MOH Control 75000 Cash Control 57000 (44000+13000) Accumulated Depr. Control. 18000 5. Allocation of manufacturing overhead jobs, 80000 WIP Control 80000 MOH allocated 80000 *Under normal costing, manufacturing overhead allocated/manufacturing overhead applied= the amount of MOH costs allocated to individual jobs based on the budgeted rate multiplied by the actual quantity used of the allocation base MOH allocated contains all manufacturing overhead costs; they are assigned to jobs using a costallocation base, b/c they can’t be easily traced 6. Completion and transfer of individual jobs to finished goods, 188000 Finished Goods Inventory 188800 WIP Control 188800 7. Cost of goods sold, 180,000 COGS 180000 Finished Goods Control 180000 8. Marketing costs for Feb, 45000 and customer service costs of 15000, paid cash Marketing Expense 45000 Customer Service Expense 15000 Cash Control 60000 9. Sales revenue, all on credit, 270000 Accounts Receivable Control 270000 Revenues 270000 Subsidiary ledgers The sum of all entries in underlying subsidiary ledgers equals the total amount in the corresponding GL control accounts Material Records by Type of Materials the subsidiary ledger for materials (ex: Materials Records) keeps a continuous record of quantity received, quantity issued to jobs, and inventory balances for each type of material many companies use source documents supporting the receipt and issue of materials, scan them into a computer, and software programs automatically update the Materials Record and make all the necessary accounting entries in the subsidiary and GLs As direct materials are used, they are recorded as issued in the Materials Record DM are also charged to individual job records, which are subsidiary accounts for the WIP control account in the GL Indirect materials are charged to the Manufacturing Department overhead records , which comprise the subsidiary ledger for MOH control. The manufacturing department overhead records accumulate actual costs in individual overhead categories by each indirectcostpool *The cost of these indirect materials is allocated to individual job records as a part of MOH Labor Records by Employee labor time records are used to trace direct manufacturing labor to individual jobs to accumulate the indirect manufacturing labor in Manufacturing Department records. Manufacturing Department Overhead Records by Month the Manufacturing Department records that make up the subsidiary ledger for MOH control shows details of different categories of overhead costs such as indirect materials, indirect manufacturing labor, supervision, and engineering, utilities, and plant depreciation the source documents for these entries include involves and special schedules from the responsible accounting officer WIP Inventory Records by Jobs the jobcost record for each individual job in the subsidiary ledger will be debited by the cost of direct materials and direct manufacturing labor used by individual jobs the jobcost record will also be debited for the manufacturing overhead allocated for the actual direct manufacturing labor hours used in that job Finished Goods Inventory Records by Job Total cost of all jobs transferred into finished goods in a period Less total cost of all jobs sold and invoiced Other Subsidiary Records (advertising costs, marketing, customer service) Nonmanufacturing Costs and Job Costing To identify marketing and customer service costs of individual jobs a company can use the same approach to job costing in the context of manufacturing o Can trace the direct marketing costs and customer service costs to jobs Assume marketing and customer service have the same allocation base *can calculate a budgeted indirectcost rate by: (budgeted indirect marketing costs + budgeted indirect customer service costs) / (budgeted revenues) Budgeted Indirect Costs and EndofAccounting Year Adjustments using budgeted indirectcost rates and normal costing instead of actual costing has the advantage that indirect costs can be assigned to individual jobs on an ongoing and timely basis (rather than only at the end of the fiscal year when actual costs are known) Underallocated indirect costs are also called Underapplied or underabsorbed indirect costs Overallocated indirect costs are also called overapplied or overabsorbed indirect costs There are 2 indirectcost accounts in the general ledger that have to do with the MOH 1. MOH Control= the record of the actual costs in all the individual overhead categories (indirect materials, indirect manufacturing labor, supervision, engineering, utilities, & plant depreciation) 2. MOH Allocated= the record of the MOH allocated to individual jobs on the basis of the budgeted rate multiplied by the actual direct manufacturing labor hours 3 Main Approached to accounting for underallocated MOH #1. AllocationRate Approach, 2. Proration Approach, 3. Writeoff to COGS Approach 1. Adjusted allocationrate approach restates all overhead entries in the gl and subsidiary ledger using actual cost rates rather than budget cost rates. st 1 , the actual MOH rate is compared at the end of the fiscal year 2 , MOH costs allocated to every job during the year are recomputed using the actual MOH rate vs budgeted MOH rate rd 3 , endofyear closing entries are made 2. Proration approach spreads underallocated overhead or overallocated overhead amount ending WIP inventory, finished goods inventory, and COGS materials inventory is not included because no MOH costs have been allocated to it 3. WriteOff to COGS Approach The total under or over applied MOH is included in this year’s COGS Ex: COGS 135000 MOH Allocated 1080000 MOH Control 1215000
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