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Chapter 2: Job Order Costing

by: Kimberly Portes

Chapter 2: Job Order Costing ACC 252

Marketplace > Syracuse University > ACC 252 > Chapter 2 Job Order Costing
Kimberly Portes
GPA 3.38
Intro to Managerial Accounting (ACC 252)
Prof. Zadzilka

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Week 4: Cost systems, calculating the predetermined overhead rate and the overhead rate, figuring out the manufacturing cost flow, practice problems included
Intro to Managerial Accounting (ACC 252)
Prof. Zadzilka
Class Notes
cost systems, predetermined overhead rate, manufacturing cost flow, practice problems
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This 14 page Class Notes was uploaded by Kimberly Portes on Sunday September 27, 2015. The Class Notes belongs to ACC 252 at Syracuse University taught by Prof. Zadzilka in Fall 2015. Since its upload, it has received 24 views.

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Date Created: 09/27/15
Accounting 252 Section M002 September 16 2015 Part 1C Accounting in Manufacturing Organizations Chapter 2 Job Order Costing Need for Cost Systems 0 One of the primary questions in any manufacturing organization What does my product costquot A Product Costing System 0 Many different products are produced each period 0 Products are manufactured to order 0 The unique nature of each order requires tracingallocating costs to each job and maintaining cost records for each job gt Ex Boeing Levis Strauss Walt Disney Studios 0 Absorption costing assigning all manufacturing costs xed and variable to units of a product Job Costing Order 0 Each job cost sheet summarizes the product costs for the job Peair n Jul Gust Sheet club Number 11 Date initiated Date completed 3 Units Completed Department EL it a 5 Item I Fair Eta ail Direat Materials Direat iLa hair Ma mufactmring GuiE mead Rec Nu mnunt Tiicaltel Hams maunt HDUII E Eate amount Beat Summary Units Shipped Direat Materials Date Humher Ealanee Direat La hair Manufacturing iI iiaunerl39ieaizl Total East Unit Pmduet East How is manufacturing overhead assigned to each job It s immeasurable and untraceable Allocation of Manufacturing Overhead Direct material direct labor direct costs 0 Manufacturing overhead indirect costs 0 Cost allocation the process of assigning manufacturing overhead to speci c products based on a predetermined rate Step 1 Calculate the PreDetermined Overhead Rate Predetermined Overhead Rate Total Estimated Manufacturing Overhead Total Estimated Cost Driver Tota estimated cost driver volume based measure that indicates manufacturing overhead is being incurred Cacuated by dividing a pool of dollars by measure of volume Ex labor hours machine hours Volume measure selected should have a direct relationship to the pool of dollars Step 2 Apply Overhead to Product 0 Overhead Predetermined Overhead Rate Actual Cost Driver 0 As products are produced a portion of the expected overhead is applied to each unit based on the hours required to manufacture that product Job Costing Order 0 The applied overhead included on the job cost sheet Unit Cost of a Product 0 Product Unit Cost Total Job Cost Total Units Manufactured Unit cost the cost of a single unit of product Cost Classi cations for Financial Reporting Purposes Product costs Examples of Indirect labor Factory supervisor Cleaning staff Secur y Engineers Inspectors EHS Environmental Health and Safety UUUUUU Direct A Direct labor Inventorie gt Cost of Goods Sold 7 As Manufacturin g overhead 0 Period costs Selling and gt Operating Administrativ lvoenses a As Merchandising vs Manufacturing Merchandising Baance sheet gtMerchandising inventory lncome statement gtCost of goods sold amount paid for the items sold 0 Manufacturing Baance sheet gtRaw materials inventory gtWork in progress inventory gtFinished goods FG inventory lncome statement gtCost of goods sold amount paid for items that were manufactured and sold Manufacturing Cost Flow 0 Raw materials gt Work in progress inventory gt Finished goods inventory gt Cost of goods sold Balance sheet raw materials work in progress inventory nished goods inventory Income statement cost of goods sold gt Raw materials any materials that go into the nal product gt Work in progress units of product that are only partially complete and will require further work before they re ready for sale gt Finished goods completed products that haven t been sold to customers yet gt Amount transferred from work in progress to nished goods cost of goods manufactured Raw Materials Inventory Beginning balance Purchases of raw material materials used in production Ending balance Work in Progress Inventory Beginning balance Direct materials used Direct labor required Manufacturing overhead Completed production cost of goods manufactured Ending balance Finished Goods Inventory Beginning Balance Completed production Inventory sold Ending balance Manufacturing Overhead Control Actual manufacturing overhead vs Applied Manufacturing Overhead Manufacturing Allocation Process 1 Calculate the predetermined overhead rate Happens before production begins for the year 2 Apply overhead to products Happens as production occurs during the week 3 Compare actual overhead with applied Happens after production ends for the year Step 3 Compare Actual Overhead with Applied lf actual gt applied overhead costs under applied o If actual lt applied overhead costs over applied 0 During accounting period actual manufacturing expenses are recoded in separate accounts Those totals compared with total manufacturing overhead that was included in the cost of balance Any difference recorded as an adjustment to cost of goods sold on the income statement Summary of Manufactured Allocation Process At the beginning of the period TOtal 39mine Cljotal EstimatEd ead gimated Manufacturing nc nriuor During the 1 Predetermine facturing Actual Cost Iead Driver 8 d Overhead At the end of the period Dalo Total Applied Manufacturing Overhead Cost Total Actual Dver Manufacturing Overhead Cost ed Practice Problems from class Page 102 E2 1 0 Compute the predetermined overhead rate Basis direct labor hours Beginning of year estimated 20000 direct labor hours would be needed Also estimated 94000 xed manufacturing overhead expenses amp variable manufacturing overhead of 200 per direct labor hour Actual manufacturing overhead 123000 Actual total direct labor 21000 hours Predetermined Overhead Rate Total Estimated Manufacturing Overhead Total Estimated Cost Driver Total Estimated Manufacturing Overhead xed manufacturing overhead expenses variable manufacturing overhead direct labor hours Total estimated cost driver in this case direct labor hours Total Estimated Manufacturing Overhead 94000 220000 hours 13400 13400 Predetermined Overhead Rate 670 per direct laborhour 20000 hours Page 102 E2 3 1 What is the total manufacturing cost UH 2 If the job consists of 40 units then what is the average cost per unit Predetermined overhead rate 14 per direct labor hour Direct labor wage rate is 12 per hour Direct materials 230 Direct labor 108 Overhead Rate predetermined overhead rate actual cost driver Actual cost driver Direct labor 108 9 Direct labor wage rate 12 Overhead Rate 14 9 126 Total Manufacturing Cost direct materials direct labor manufacturing Overhead 230 108 126 464 Average Cost Per Unit 464 1160 per unit 40 units Page 103 E2 5 1 Post the transactions 2 Determine the Cost of Goods Sold for the period Juvin recorded the following transactions for the completed month The company has no beginning inventories Transactions a Raw material purchased for cash 94000 b Raw materials were requisitioned they were taken out of Raw Materials and became Works in Progress for use in production 89000 a 78000 direct materials b the remainder indirect materials 89000 78000 11000 c Total labor wages of 132000 were incurred and paid a 112000 direct labor b the remainder indirect labor 132000 112000 20000 d Additional manufacturing overhead costs of 143000 were incurred and paid e Manufacturing overhead costs of 152000 were applied to jobs using company s predetermined overhead rate f All of the jobs in progress at the end were completed they were taken out of WIP and became nished goods and shipped they were transferred to Cost of Goods Sold to customers g All underapplied or overapplied overhead for the period was closed out to Cost of Goods Sold Raw Materials Inventory Beginning Balance 0 b 89000 a 94000 Ending Balance 5000 94000 89000 Works in Progress Inventory Beginning Balance 0 f Cost of Goods Manufactured 342000 78000 112000 152000 b Direct Materials 78000 c Direct Labor 112000 e Manufacturing Overhead 152000 Ending Balance 0 Manufacturing Overhead Actual Manufacturing Applied Manufacturing Overhead Overhead b Indirect Materials 11000 e Manufacturing Overhead 152000 c Indirect Labor 20000 d Manufacturing Overhead 143000 Ending Balances 174000 I 152000 174000 gt 152000 gt Underapplied Excess 22000 174000 152000 Adjustments 22000 To make up for the extra amount of overhead the COGS must be adjusted by the amount overshot Ending Balance 0 Finished Goods Inventory Beginning Balance 0 f Goods Shipped 342000 f Goods Completed 342000 Ending Balance 0 Cost of Goods Sold f Goods Shipped 342000 Adjustments 22000 Ending Balance Page 104 E2 9 1 Prepare the journal entries for the transactions listed 2 Prepare TAccounts WIP inventory has a beginning balance of 42000 Transactions a Raw materials purchased on account 210000 b Raw materials issued to production 190000 a 178000 direct materials b 12000 indirect materials c Direct labor cost incurred but not yet paid 90000 Indirect labor cost incurred 110000 d Depreciation recorded on factory equipment 40000 e Other manufacturing costs incurred during October 70000 credit Accounts Payable f The company applies manufacturing overhead cost to production on the basis of 8 per machine hour a A total of 30000 machine hours were recorded g Production orders costing 520000 according to theirjob cost sheets were completed during October and transferred to nished goods h Production orders that had cost 480000 to complete according to their job cost sheets were shipped to customers during the month a Those goods were sold on account at 25 above cost TAccounts Raw Materials Inventory Beginning Balance 0 b 190000 a 210000 I Ending Balance 20000 I Works in Progress Inventory Beginning Balance 0 g Cost of Goods Manufactured 520000 b Direct Materials 178000 c Direct Labor 90000 f Manufacturing Overhead 240000 Ending Balance 30000 Manufacturing Overhead Actual Manufacturing Applied Manufacturing Overhead Overhead b Indirect Materials 12000 f Manufacturing Overhead 240000 8 per machine hour 30000 total machine hours c Indirect Labor 110000 d Depreciation on Factory Equipment 40000 e Manufacturing Overhead 70000 Ending Balances 232000 I 240000 232000 lt 240000 gt Overapplied De cient 8000 Adjustments 8000 To make up for the amount of overhead not accounted for the COGS must be adjusted Ending Balance 0 Finished Goods Inventory Beginning Balance 0 h Goods Shipped 480000 g Goods Completed 520000 Ending Balance 40000 Cost of Goods Sold h Goods Shipped 480000 Adjustments 8000 Ending Balance journal Entries Date Account I Debit Credit a Raw Materials Inventory 210000 Accounts Payable 210000 b Works in Progress Inventory 178000 Manufacturing Overhead 12000 Raw Material Inventory 190000 c Works in Progress Inventory 90000 Manufacturing Overhead 110000 Wages Payable 20000 0 Manufacturing Overhead 40000 Depreciation on Factory Equipment 40000 e Manufacturing Overhead 70000 Accounts Payable 70000 1 Works in Progress Inventory 240000 Manufacturing Overhead 240000 9 Works in Progress Inventory 520000 Finished Goods Inventory 520000 h Cost of Goods Sold 480000 Finished Goods Inventory 480000 Accounts Receivable 600000 Sales Revenue 480000 125 600000 the terms quotsalesquot and revenue are interchangeable they both mean the same thing lt s multiplied by 125 because the goods were sold at 25 above cost or 11 Adjustmen Manufacturing 8000 ts Overhead Cost of Goods Sold 8000 the manufacturing overhead not accounted for must be taken out of Cost of Goods Sold to make up the costs basically when manufacturing overhead is overapplied the difference must be taken out of COGS and when it is underapplied the difference must be added to COGS Income Statement Sales COGS 600000 472000 28000 Gross Pro t Gross Pro t Operating Expenses period costs net incomenet loss


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