New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Accounting 210 Chapter 2 Notes

by: Kristin Koelewyn

Accounting 210 Chapter 2 Notes ACCT210

Marketplace > University of Arizona > Accounting > ACCT210 > Accounting 210 Chapter 2 Notes
Kristin Koelewyn
GPA 3.4

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

Notes from week 2-3 from class.
Managerial Accounting
Heather Altman
Class Notes
25 ?




Popular in Managerial Accounting

Popular in Accounting

This 10 page Class Notes was uploaded by Kristin Koelewyn on Tuesday January 26, 2016. The Class Notes belongs to ACCT210 at University of Arizona taught by Heather Altman in Spring 2016. Since its upload, it has received 90 views. For similar materials see Managerial Accounting in Accounting at University of Arizona.


Reviews for Accounting 210 Chapter 2 Notes


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 01/26/16
Accounting 210 Chapter 2 Notes: Job Order Costing - Cost accounting involves measuring, recording, and reporting product costs. o Accounts are fully integrated into the general ledger. o Perpetual inventory system provides immediate, up-to-date information on the cost of a product. o Two basic types: (1) a process order cost system and (2) a job order cost system. - Process Cost System: o Used when a large volume of similar products are manufactured- (cereal, refining of petroleum, production of ice cream). o Costs are accumulated for a time period – (week or month). o Costs are assigned to departments or processes for a specified period of time. - Job Order Cost System: o Costs are assigned to each job or batch. o Important feature: Each job or batch has its own distinguishing characteristics. o Objective is to compute the cost per job. o Measures costs for each job completed, not for set time periods. o Example: Producing an animated film is comparable in cost to producing an action film; the costs just come from different places. - Job Order Cost Flow: o The flow of costs parallels the physical flow of the materials as they are converted into finished goods ▯ Manufacturing costs are assigned to the work in process (WIP) account. ▯ Cost of completed jobs is transferred to the finished goods inventory account. ▯ When units are sold, the cost is transferred to the cost of goods sold account. ▯ Basic overview of the flow of costs in a manufacturing setting for production of a fire truck. - Accumulating Manufacturing Costs: o Raw Materials Costs ▯ Example: Wallace Company purchases 2,000 lithium batteries (Stock No. AA2746) at $5 per unit ($10,000) and 800 electronic modules (Stock No. AA2850) at $40 per unit ($32,000) for a total cost of $42,000 ($10,000 + $32,000). The entry to record this purchase on January 4 is: Jan. 4 Dr. Raw Materials Inventory 42,000 Cr. Accounts Payable 42,000 o Factory Labor Costs ▯ Consists of three costs: 1.Gross earnings of factory workers(anyone involved in manufacturing process. 2. Employer payroll taxes on these earnings. 3. Fringe benefits (such as sick pay, pensions, and vacation pay) incurred by the employer. ▯ Example: Wallace incurs $32,000 of factory labor costs. Of that amount, $27,000 relates to wages payable and $5,000 relates to payroll taxes payable in February. The entry to record factory labor for the month is: Jan. 31 Dr. Factory Labor 32,000 Cr. Wages Payable 27,000 Cr. Payroll Taxes 5,000 o Manufacturing Overhead Costs ▯ Many types of overhead costs for example: property taxes, depreciation, insurance, and repairs related to the manufacturing process. ▯ Costs unrelated to manufacturing process are expensed. ▯ Costs related to manufacturing process are accumulated in the Manufacturing Overhead account. • Manufacturing overhead subsequently assigned to work in process. o DO IT! During the current month, KRT Company incurs the following manufacturing costs: a. Raw material purchases of $4,200 on account. (Direct Materials) b. Factory labor of $18,000. Of that amount, $15,000 relates to wages payable and $3,000 relates to payroll taxes payable. (Direct Labor) c. Factory utilities of $2,200 are payable, prepaid factory insurance of $1,800 has expired, and depreciation on the factory building is $3,500. (Manufacturing Overhead) Prepare the journal entries for each type of manufacturing cost: a) Raw material purchases of $4,200 on account. Dr. Raw Materials Inventory 4,200 Cr. Accumulated Depreciation 4,200 b) Factory labor of $18,000. Of that amount, $15,000 relates to wages payable and $3,000 relates to payroll taxes payable. Dr. Factory Labor 18,000 Cr. Wages Payable 15,000 Cr. Payroll Taxes Payable 3,000 c) Factory utilities of $2,200 are payable, prepaid factory insurance of $1,800 has expired, and depreciation on the factory building is $3,500. Dr. Manufacturing Overhead 7,500 Cr. Utilities Payable 2,200 Cr. Prepaid Insurance 1,800 Cr. Accumulated Depreciation 3,500 o Assigning manufacturing costs to work in process results in the following entries ▯ Debits made to work in process inventory. ▯ Credits made to raw materials inventory, factory labor, and manufacturing overhead. - Job Cost Sheet: o Used to record costs chargeable to specific jobs. o Constitutes the subsidiary ledger for the work in process account. o Each entry to Work in Process Inventory must be accompanied by a corresponding posting to one or more job cost sheets. ▯ Example of Job Cost Sheet: - Raw Material Costs: o Assigned to a job when materials are issued in response to requests. o Materials requisition slip: ▯ Written authorization for issuing raw materials. ▯ May be directly issued to use on a job - direct materials (charged to Work in Process Inventory). ▯ May be considered indirect materials – charged to Manufacturing Overhead. • Example of Materials Requisition Slip: o Example: Wallace uses $24,000 of direct materials and $6,000 of indirect materials in January, the entry is: Jan. 31 Dr. Work in Process 24,000 Dr. Manufacturing Overhead 6,000 Cr. Raw Materials Inventory 30,000 o The sum of the direct materials columns of the job cost sheets should equal the direct materials debited to Work in Process Inventory account. - Factory Labor Costs: o Assigned to jobs on the basis of time tickets. o Time tickets are prepared when the work is performed. o Time tickets indicate: employee, hours worked, account and job charged, and total labor cost. ▯ Example of Time Ticket: o Example: The time tickets are later sent to the payroll department, which applies the employee’s hourly wage rate and computes the total labor cost. If the $32,000 total factory labor cost consists of $28,000 of direct labor and $4,000 of indirect labor, the entry is: Jan. 31 Dr. Work in Process 28,000 Dr. Manufacturing Overhead 4,000 Cr. Factory Labor 32,000 o The sum of the direct labor columns of the job cost sheets should equal the direct labor debited to Work in Process Inventory. o DO IT! Danielle Company is working on two job orders. The job cost sheets show the following: Direct materials—Job 120 $6,000; Job 121 $3,600= $9,600 Direct labor—Job 120 $4,000; Job 121 $2,000= $6,000 Manufacturing overhead—Job 120 $5,000; Job 121 $2,500=$7,500 Prepare the three summary entries to record the assignment of costs to Work in Process from the data on the job cost sheets. 1.) Dr. Work in Process $9,600 Cr. Raw Materials Inventory $9,600 2.) Dr. Work in Process $6,000 Cr. Factory labor $6,000 3.) Dr. Work in Process $7,500 Cr. Manufacturing Overhead $7,500 - Manufacturing Overhead Costs: o Relates to production operations as a whole. o Cannot be assigned to specific jobs based on actual costs incurred. o Companies assign to work in process and to specific jobs on an estimated basis through the use of a predetermined overhead rate. - Predetermined Overhead Rate: o Based on the relationship between estimated annual overhead costs and expected annual operating activity. o Expressed in terms of an activity base such as: ▯ Direct labor costs ▯ Direct labor hours ▯ Machine hours ▯ Any other measure that will provide an equitable basis for applying overhead costs to jobs. o Established at the beginning of the year. o Small companies often use a single, company-wide predetermined rate. o Large companies often use a different rate for each department and each department may have a different activity base. o Formula for computing the predetermined rate overhead rate is: o Manufacturing overhead costs are assigned to Work in Process during the period to get timely information about the cost of a completed job. o Example: Wallace Company uses direct labor cost as the activity base. Assuming that the company expects annual overhead costs to be $280,000 and direct labor costs for the year to be $350,000, compute the overhead rate. ▯ This means that for every dollar of direct labor, Wallace will assign 80 cents of manufacturing overhead to a job. o Example: Wallace applies manufacturing overhead to work in process when it assigns direct labor costs. Calculate the amount of applied overhead assuming direct labor costs were $28,000. $28,000 x 80% = $22,400 Jan. 31 Dr. Work in Process $22,400 Cr. Manufacturing Overhead $22,400 o The sum of the manufacturing overhead columns of the job cost sheets should equal the manufacturing overhead debited (i.e., applied) to Work in Process Inventory. o At the end of each month: The balance in the Work in Process Inventory should equal the sum of the costs shown on the job cost sheets of unfinished jobs. - DO IT! Stanley Company produces specialized safety devices. For the year, manufacturing overhead costs are expected to be $160,000. Expected machine usage is 40,000 hours. The company assigns overhead based on machine hours. Job No. 302 used 2,000 machine hours. Compute the predetermined overhead rate, determine the amount of overhead to allocate to Job No. 302., AND prepare the entry to assign overhead to Job No. 302 on March 31. - Assigning Costs to Finished Goods: o When a job is completed, Wallace Company summarizes the costs and completes the lower portion of the applicable job cost sheet. o Example: When a job is completed, Wallace makes an entry to transfer its total cost to finished goods inventory. Jan 31. Dr. Finished Goods Inventory 39,000 Cr. Work in Process 39,000 o Example: On January 31 Wallace Manufacturing sells on account Job 101. The job cost $39,000, and it sold for $50,000. Entries to record the sale and recognize cost of goods sold are: Jan. 31. Dr. Accounts Receivable $50,000 Cr. Sales Revenue $50,000 Dr. COGS $39,000 Cr. Finished Goods Inventory $39,000 - Summary of Job Order Cost Flows - Job Order Costing for Service Companies: o While service companies do not have inventory, the techniques of job order costing are still quite useful in many service-industry environments. o Consider, for example, the Mayo Clinic (health care), PricewaterhouseCoopers (accounting), and Goldman Sachs (investment banking). o These companies need to keep track of the cost of jobs performed for specific customers to evaluate the profitability of medical treatments, audits, or investment banking engagements. ▯ Advantages: • More precise in assignment of costs to projects than process costing. • Provides more useful information for determining the profitability of particular projects and for estimating costs when preparing bids on future jobs. ▯ Disadvantages: • Requires a significant amount of data entry. o DO IT! During the current month, Onyx Corporation completed Job 109 and Job 112. Job 109 cost $19,000 and Job 112 costs $27,000. Job 112 was sold on account for $42,000. Journalize the entries for the completion of the two jobs and the sale of Job 112. - Distinguishing between under and over applied manufacturing overhead: o Shows manufacturing overhead applied rather than actual overhead costs. o Applied overhead is added to direct materials and direct labor to determine total manufacturing costs o A debit balance in manufacturing overhead means that overhead is under-applied. o A credit balance in manufacturing overhead means that overhead is over-applied. o Any Year-End Balance in manufacturing overhead is eliminated by adjusting cost of goods sold. ▯ Under-applied overhead is debited to COGS ▯ Over-applied overhead is credited to COGS o Example: Wallace has a $2,500 credit balance in Manufacturing Overhead at December 31. The adjusting entry for the over-applied overhead is: Jan. 31 Dr. Manufacturing Overhead $2,500 Cr. COGS $2,500 o DO IT! For Karr Company, the predetermined overhead rate is 140% of direct labor cost. During the month, Karr incurred $90,000 of factory labor costs, of which $80,000 is direct labor and $10,000 is indirect labor. Actual overhead incurred was $119,000. Compute the amount of manufacturing overhead applied during the month. Determine the amount of under- or over-applied manufacturing overhead.


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."

Amaris Trozzo George Washington University

"I made $350 in just two days after posting my first study guide."

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."


"Their 'Elite Notetakers' are making over $1,200/month in sales by creating high quality content that helps their classmates in a time of need."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.