ACC 202 Chapter 3
ACC 202 Chapter 3 ACC 202
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This 3 page Class Notes was uploaded by Marissa Sarlls on Sunday January 10, 2016. The Class Notes belongs to ACC 202 at University of Kentucky taught by Jana Wilhelm in Spring 2016. Since its upload, it has received 19 views. For similar materials see Managerial Accounting (202, Wilhelm) in Accounting at University of Kentucky.
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Date Created: 01/10/16
Chapter 3: Job-Order Costing An Overview Absorption costing—a costing method that includes all manufacturing costs—DM, DL, and both variable and fixed mnfg OH—in the cost of a product o Units are said to full absorb mnfg costs Job-order costing—unique products; a costing system used in situations where many different products, jobs, or services are produced each period o Ex: one factory making different styles of jeans o Used extensively in service industries o Costs are traced and allocated to jobs and then the costs of the job are divided by the number of units in the job to arrive at an average cost per unit Measuring DM costs Bill of materials—a document that lists the type and quantity of each type of direct material needed to complete a unit of product o Then production order o Then materials requisition form—a document that specifies the type and quantity of materials to be drawn from the storeroom and identifies the job that will be charged for the cost of materials Used to control the flow of materials into production and also for making entries into the accounting records Job cost sheet—records the materials, labor, and mnfg OH costs charged to that job Measuring DL costs Labor charges that cannot be easily traced directly to any job are treated as part of mnfg OH, aka indirect labor, that includes tasks such as maintenance, supervision, and cleanup Time ticket—an hour-by-hour summary of the employee’s activities throughout the day Predetermined OH rates Mnfg OH is an indirect cost with variable and fixed costs, but tends to be relatively constant Allocation base—a measure such as DLH or MH that is used to assign overhead costs to products and services Predetermine OH rate—a rate used to charge mnfg OH cost to jobs that is established in advance for each period. It is computed by dividing the estimated total mnfg OH cost for the period by the estimated total amount of the allocation base for the period o PredeterminedOHrate= Estimated totalmnfgOHcost Estimated totalamountof theallocaitonbase o It is computed before the period begins o Y=a+bX Y is the estimated total mnfg OH cost a is the estimated total fixed mnfg OH cost b is the estimated variable mnfg OH cost per unit of allocation base X is the estimated total amount of allocation base Applying Mnfg OH Overhead application—the process of assigning overhead cost to job cost sheets and to the Work in Process account o OHapplied¿a particular jobPredet .OHrat)×(Amountof alloc.baseincurred) Note: this is not the actual amount of OH caused by the job. Actual OH costs are not assigned to jobs—if that could be done, the costs would be direct costs, not overhead Normal cost system—a costing system in which overhead costs are applied to a job by multiplying a predetermined OH rate by the actual amount of the allocation base incurred by the job Predetermined rate needed because there are seasonal fluctuations and other factors Cost driver—a factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes OH costs Job-Order Costing—the Flow of Costs Product costs flow through inventories on the balance sheet & onto COGS in income statement Raw materials purchases are recorded in the Raw Materials inventory account. When used in production, their costs are transferred to the Work in Process inventory account as DM Work in process—Unit of product that are only partially complete and will require further work before they are ready for sale to the customer o DL costs are added directly to WIP o Mnfg OH costs are applied to WIP by multiplying the Predet. OH rate by the actual quantity of the allocation base consumed Finished goods—units of product that have been completed but not yet sold to customers o Cost of goods manufactured—the manufacturing cost associated with the goods that were finished during the period As goods are sold, their costs are transferred from FG to COGS and then costs are recorded as expenses but until then, they are inventory accounts on the balance sheet Period costs don’t flow through inventories…they are recorded as expenses on the income statement as incurred Exhibit 3-5 on pg. 94 Purchase and Issue of Materials Raw Materials is an asset account so when purchased, they are initially recorded as an asset o Debit RM, credit Accounts Payable **Ex. P. 94-97: During April, $52,000 in RM were requisitioned from the storeroom for use in production. These RM included $50,000 of direct and $2,000 of indirect materials WIP………………………..$50,000 Mnfg OH…………………$2,000 RM……………………………$52,000 All Mnfg OH costs are debited to the mnfg OH account as they are incurred Mnfg OH as a clearing account When a job is completed, OH cost is applied to the job using the predetermined OH rate, and WIP is debited and Mnfg OH is credited Actual OH costs are not charged to jobs; actual OH costs do not appear on the job cost sheet nor do they appear in the WIP account. Only the applied OH cost, based on the predetermined OH rate, appears on the job cost sheet and in the WIP account Non-Mnfg Costs These should be treated as period costs and charged directly to income statements Debit expenses to increase, credit Accounts Payable to increase COGM It is represented by the sum of all costs transferred out of WIP and into FG COGM=Tot.MnfgCosts+BeginWIP Inventory−EndWIP Inventory COGS When sold, costs are transferred from FG to COGS Most of the time, only a portion of the units involved in a particular job will be immediately sold **Pg. 99-101 UnadjustedCOGS=BeginFG Inventory+COGM−End FG Inventory Over/Under Applied OverUnder AppliedOH=ActualTot.MnfgOH Cost−Tot.MnfgOH Applied + over to actual Mnfg OH, - under
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