Chapter 2 notes
Chapter 2 notes Acc 221
Popular in Managerial Accounting
Popular in Accounting
This 4 page Class Notes was uploaded by Estella Notetaker on Monday February 1, 2016. The Class Notes belongs to Acc 221 at University of Rochester taught by Kim J in Fall 2016. Since its upload, it has received 17 views. For similar materials see Managerial Accounting in Accounting at University of Rochester.
Reviews for 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: 02/01/16
ACC 221 Ch.2 Notes- Job order costing Cost accounting systems Cost accounting involves 3 broad product costing actions - Measuring - Recording - Reporting From accumulated data, companies determine both the total cost and the unit cost of each product The accuracy of the product cost information is critical to company success Product cost information helps determine which product to produce, the amount to produce, and what price to charge Vital for effective evaluation of employee performance Job order cost system - Objective: to compute the cost per job - Measures costs for each job completed- not for set time periods - Key feature: each job or batch has its own distinguishing characteristics Job Order cost flows The flow of costs- direct materials, direct labor, manufacturing overhead- parallels the physical flow of the materials as they are converted into finished goods 2 major steps in job order cost system 1) accumulate costs o 1. Purchase raw materials at this point, the cost of materials not assigned to specific jobs or orders 2) incur factory labor o consists of: gross earnings of factory workers employer payroll taxes on such earnings fringe benefits incurred by the employer 3) incur manufacturing overhead o daily as incurred or periodically through adjusting entries Assigning Manufacturing costs to WIP An essential accounting record in assigning costs to jobs is a job cost sheet - Subsidiary ledger for the work in process control account - Used to record costs of a specific job - Each entry to WIP must have posting to 1 or more job cost sheets - Used to determine total and unit costs of a completed job Assigning raw materials cost - Assigned to a job when materials are issued - May use any of the inventory costing methods (FIFO, LIFO, Average cost) in costing the requisitions to the job cost sheets - May be directly issued to use on a job or may be considered indirect materials (charged to manufacturing overhead) Assigning factory labor cost - Assigned to jobs on the basis of time ticket, which are prepared when the labor is performed o Indicate employee, hours worked, and job charged o Sent to payroll to be sorted, totaled, and journalized - Work in process is debited for direct labor costs - Manufacturing overhead is debited for indirect labor costs - Factory labor is left with a zero balance ** the sum of the direct labor columns of the job cost sheets should equal the direct labor debited to work in process inventory. Assigning manufacturing overhead - Manufacturing overhead relates to production operations- as a whole- can’t be assigned to specific jobs based on actual costs incurred (e.g. depreciation) - Must be assigned to work in process and to specific jobs on an estimated basis through the use of a predetermined overhead rate Predetermined overhead rate - Based on relationship between estimated and expected annual operating costs - Estimates are made at the beginning of each year - Expressed in terms of an activity base(e.g. direct labor cost, direct labor hours, machine hours) - Managers can use any activity that is an equitable base for applying overhead costs to jobs - May use a single company predetermined rate, but large firms tend to use different rates for different departments - Trend is to use machine hours as the activity base (rather than labor) because of increased automation in manufacturing - Assigned to WIP during the period to get timely info about the cost of a completed job Assigning costs to finished goods **recognize finished goods - When a job is completed, the costs are summarized and the job cost sheet is completed **recognize cost of goods sold - Companies recognize cost of goods when each sale occurs Advantages/Disadvantages of job order costing Advantages Disadvantages Precise assignment of costs to Requires significant data entry = products time + $$ Facilitates determination of Accuracy is largely driven by the profitability for specific projects accuracy of the overhead allocation process Provides useful information for estimating costs for future (similar) jobs Reporting job cost data The cost of goods manufactured schedule now shows manufacturing overhead applied rather than actual overhead costs Prepared directly from WIP account- applied overhead is added to direct materials and direct labor to determine total manufacturing costs Under-applied and over-applied overhead - Recall: manufacturing overhead is debited when costs are incurred, and credited when costs are assigned to jobs - Overhead assignment is based on estimated rates Under applied overhead - Debit balance in MOH at period-end (after assignment) - Overhead assigned to WIP < overhead incurred - Credit balance in MOH at period-end (after assignment) - Overhead assigned to WIP > overhead incurred Any year end balance manufacturing overhead is eliminated by an adjusting entry to cost of goods sold before financial statements are prepared - Under-applied overhead is debited to CGS - Over-applied overhead is credited to CGS
Are you sure you want to buy this material for
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'