Transcript ACCT 1105 Lesson 7 – Chapter 19 Job Order Cost Accounting

ACCT 1105
Lesson 7 – Chapter 19
Job Order Cost Accounting
Learning Objectives
See Lesson 19 for a summarized list of
Learning Objectives
ACCT 1105
Lesson 7 – Chapter 19
Job Order Cost Accounting
To ensure that interactive
components function, view this
presentation as a slide show.
Objective 1
Define cost accounting system
Records manufacturing activities using
a perpetual inventory system which
continuously updates records for costs
of materials, goods in process, and
finished goods inventories; also
provides information about
manufacturing costs per unit of product
Objective 2
Describe Job Order Manufacturing
A manufacturing system in which
products are individually designed to
meet the needs of a specific customer
Objective 3
Identify the two defining
characteristics of a job order cost
system
Custom Products
Low Volume of Production
Check Your Understanding
For each of the following products, indicate
whether it is most likely produced in a job
order or process manufacturing system.
Baseball caps for the a local little league
team. Job order
Paper towels Process
A flower arrangement sent to a patient at
the local hospital Job order
An oil portrait of the town mayor Job order
Hanes t-shirts Process
Objective 4
Distinguish between a job and a
job lot
Job-the production activities for a
customized product
Job Lot-the production activities for a
group of customized products
Objective 5
List the events in job order
manufacturing
Customer Order
Estimate Costs and Negotiate Sales
Price
Prepare Work Schedule
Order Raw Materials
Apply Materials, Labor, and Overhead to
Goods
Objective 6
Define the following documents
and explain how they interact in a
job order cost accounting system
Objective 6 (continued)
Materials Ledger Card-perpetual records
that are updated each time units are
purchased and each time units are
issued for use in production
Materials Ledger Card
Road Warriors Materials Ledger Card
Item
Alarm sys. wiring
Maximum Qty.
5 units
Stock No.
M-347
Minimum Qty. 1 unit
Location
Bin137
Reorder Qty. 2 units
Received
Issued
Balance
Rec.
Unit Total Req.
Unit Total
Unit Total
Date Rep. Units Cost Cost No. Units Cost Cost Units Cost Cost
1
$225 $225
3/4/05 C7117 2
$225 $450
3
$225 $675
3/7/05
R4705 1 $225 $225
2
$225 $450
Objective 6 (continued)
Materials Requisition - Source document
production managers use to request the
type and amount of materials needed for
the production of a specific job
Materials Requisition
Road Warriors Materials Requisition No. R-4705
Job No. B15
Material Stock No.
Date
3-7-05
M-347
Material Description
Alarm system wiring
Quantity Requested
1
Quantity Provided
Filled By
Remarks
1
M. Batemen
Requested By
C. Luther
Date Provided
3-7-05
Received By
C. Luther
Objective 6 (continued)
Time Tickets - Source document
used to report the time an
employee spent working on a job
or on overhead activities and then
to determine the amount of direct
labor to charge to the job or the
amount of indirect labor to charge
to overhead.
Time Ticket
Road Warriors Time Ticket No. L-3479
Job No. B15
Date
3/8/05
Employee Name T. Zeller
Employee Number
3969
TIME AND RATE INFORMATION:
Start Time
Elapsed Time
Approved By
Remarks
9:00
3.0
Finish Time
12:00
Hourly Rate
$20.00
Total Cost
$60.00
Objective 6 (continued)
Job Cost Sheet – a separate
record maintained for each
job indicating the direct
materials, direct labor, and
manufacturing overhead
applied to the job
Job Cost Sheet
Road Warriors Job Cost Sheet
Customer
Carroll Connor
Job No.
B15
Address 1442 High Point Dr. Portland, Oregon
Job Description Level I Alarm System on Ford Expedition
Date promised 3/15/05 Dated started 3/3/05
Date completed
Direct Materials
Date
Req.
Cost
Total
Direct Labor
Date
Ticket
Cost
Total
Remarks
Factory Overhead
Date
Rate
Cost
Total
Cost Summary
Direct Materials
Direct Labor
Factory Overhead
Total Cost
Objective 6 (continued)
Explain how the four documents
discussed above interact in a job
order cost accounting system
When materials are requested, the
materials requisition form provides
information that flows to the Materials
Ledger Card.
The Materials Ledger Card and Time
Tickets provide cost information for
materials and labor that are reported on
the Job Cost Sheet.
Objective 7
Explain how to establish a
predetermined overhead rate
Since many overhead costs are not
determined until the end of the period,
and businesses cannot wait until the
end of the period to apply overhead to
a specific job, a method of estimating
an applying overhead must be
established.
Objective 7 (continued)
Explain how to establish a
predetermined overhead rate
In order to establish an overhead
application rate, an estimate of total
overhead costs must be made and an
allocation factor must be selected.
The two most common overhead
allocation factors are direct materials
and direct labor.
Objective 7 (continued)
Explain how to establish a
predetermined overhead rate
Predetermined Overhead Rate =
Estimated Overhead Costs/
Estimated Factor Costs
Objective 8
Explain how overhead is applied
using a POR
Overhead is applied by multiplying the
POR by the actual cost of the
allocation factor.
Overhead Application Exercise
Management estimates that total
overhead costs will be $1,800,000 and
direct labor costs will be $450,000.
Determine the Overhead Application Rate
1,800,000/450,000 = 400%
2. Determine the amount of overhead to be
applied to a job if the direct labor for that
job is $445,000.
445,000 X 400% = $1,780,000
1.
Objective 9
Complete Job Cost Sheets
Exercise 19-3
See Exercise 19-3 on pages
796 of your text.
Print the Job Cost Sheet for
Wright Boats.
Using the information provided in
Ex 19-3, complete only the Cost
Summary portion of the Job Cost Sheet.
Assume that all materials and labor are
direct.
Check your answers on the next slide.
Quick Study 19-3
WRIGHT BOATS JOB COST SHEET
Job No.
Materials
$ 2,450
Labor
$ 1,650
Overhead
$ 2,310 ($1,650 x 140%)
Total Cost
$ 6,410
Status
Finished
Objective 10
Prepare journal entries to track
the flow of job costs
Common Transactions and journal
entries for Manufacturers include:
Purchasing raw materials
Applying raw materials to goods in process
Paying wages for labor
Applying direct labor to goods in process
Applying overhead to goods in process
Transferring completed goods from goods in
process to finished goods
Selling finished goods
Objective 10 (continued)
Prepare journal entries to track
the flow of job costs
See the Chapter 19 handout entitled
Common Transactions and Journal
Entries for Manufacturers for more
information on journalizing these entries
Print the handout from the Lesson 7
page.
Objective 11
Describe under- and overapplied overhead
Recall that overhead is applied using an
estimated overhead application rate.
It is very likely that the actual amount of
overhead incurred during the accounting
period will not equal the amount of applied
overhead.
If estimated overhead is less than actual
overhead, overhead has been underapplied.
If estimated overhead is more than actual
overhead, overhead has been overapplied.
Objective 11 (continued)
Describe under- and overapplied overhead
Underapplied overhead will result in a DEBIT
balance in the Factory Overhead account.
Overapplied overhead will result in a CREDIT
balance in the Factory Overhead account.
Objective 12
Explain the two ways to account
for under- or over-applied
overhead
If over/underapplied overhead is material
(significant), the balance is allocated among
the accounts affected which include Cost of
Goods Sold, Finished Goods Inventory, and
Goods in Process Inventory.
If over/underapplied overhead is immaterial
(insignificant), the balance is fully allocated to
the Cost of Goods Sold account. (This is the
method that will be used in this lesson.)
Material Over- or Under-Applied
Overhead
When a material balance remains in the overhead
account at the end of the accounting period, the
balance should be allocated among Cost of Goods
Sold, Finished Goods Inventory, and Goods in
Process Inventory. This is accomplished by
multiplying the amount of over- or under-applied
overhead by the percentage balance in each of the
inventory accounts.
Material Over- or Under-Applied
Overhead - Example
Assume the following end-of–period account balances:
Ending
Balance
Goods in Process
70,000
Finished Goods
80,000
Cost of Goods Sold
Percent
of Total
Calculation
100,000
Total
•Step 1 – Find the total of the three inventory accounts.
Material Over- or Under-Applied
Overhead - Example
Assume the following end-of–period account balances:
Ending
Balance
Goods in Process
70,000
Finished Goods
80,000
Cost of Goods Sold
100,000
Total
250,000
Percent
of Total
Calculation
•Step 2 – Find the percent of total for each of the
three inventory accounts.
Material Over- or Under-Applied
Overhead - Example
Assume the following end-of–period account balances:
Ending
Balance
Percent
of Total
Calculation
Goods in Process
70,000
28% (70,000/250,000)
Finished Goods
80,000
32% (80,000/250,000)
Cost of Goods Sold
100,000
40% (100,000/250,000)
Total
250,000
100%
Material Over- or Under-Applied
Overhead - Example
Assume that overhead has a debit balance of $10,000
(indicating that overhead was underapplied). In order
remove this balance from the overhead account,
Factory Overhead must be credited for $10,000 and
the three allocation accounts will therefore be debited.
The amount debited to each account is determined by
their relative percents calculated in the previous step.
•Step 3 – Allocate overhead to the three accounts
Material Over- or Under-Applied
Overhead - Example
Recall the relative percent of total:
Goods in Process
Finished Goods
Ending Percent
Balance of Total
Calculation
70,000
28% (70,000/250,000)
80,000
32% (80,000/250,000)
Cost of Goods Sold
100,000
Total
250,000
40% (100,000/250,000)
100%
Journal entry to close Factory Overhead
Debit
Goods in Process
Finished Goods
Cost of Goods Sold
Factory Overhead
Credit
2,800
3,200
4,000
(10,000 X .28)
(10,000 X .32)
(10,000 X .40)
10,000
End of Chapter 19 Notes