Transcript Job-Costing and Process

Job-Costing and
Process-Costing Systems
Chapter 14
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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Learning Objective 1
Distinguish between job-order
costing and process costing.
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Distinction Between Job-Order
Costing and Process Costing
Job-order costing allocates costs
to products that are identified by
individual units or batches.
Process costing averages costs
over large numbers of nearly
identical products.
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Job-Order Costing Basic Records
Job-cost record
Materials requisitions
Labor time cards
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Job-Cost Record
Date Started:
1/7/03
Date Completed: 1/14/03
Cost
Date
Direct Materials:
6” Bars
1/7
Casings
1/9
Direct Labor:
Drill
1/8
1/9
Grind
1/13
Overhead:
Applied
1/14
Total cost
Unit cost
Ref.
Job Number:
Units completed:
Quantity
Amount
963
12
Summary
N41
K56
24
12
120.00
340.00
460.00
7Z4
7Z5
9Z2
7.0
5.5
4.0
105.00
82.50
80.00
267.50
9.0 mach. hrs.
180.00
180.00
907.50
75.625
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Learning Objective 2
Prepare summary journal
entries for the typical
transactions of a
job-costing system.
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General Flow of Costs:
Enriquez Machine Parts Company
Beginning
direct materials
+
inventory $110,000
–
Direct materials
used
$1,890,000
=
Purchases
$1,900,000
Ending
Inventory
$120,000
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General Flow of Costs:
Enriquez Machine Parts Company
Beginning
WIP
inventory $0
+
Direct materials
used
$1,890,000
+
Direct labor
Cost of goods
Ending
and overhead – manufactured = inventory
$765,000
$2,500,000
$155,000
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General Flow of Costs:
Enriquez Machine Parts Company
Beginning
finished goods
inventory $12,000
+
Cost of goods
manufactured
$2,500,000
Cost of goods
Cost of
available for
– goods sold =
sale $2,512,000
$2,480,000
=
Ending
inventory
$32,000
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Materials Cost
Materials Inventory
110,000
1,900,000
2,010,000
Materials Inventory
1,900,000
Accounts Payable
1,900,000
To record purchase of direct materials
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Materials Cost
Materials Inventory
110,000 1,890,000
1,900,000
2,010,000
WIP Inventory
1,890,000
Work-in-Process Inventory 1,890,000
Materials Inventory
1,890,000
To record usage of direct materials
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Actual Overhead Costs
Factory Department Overhead
Control
392,000
Various Accounts
392,000
To record actual factory overhead incurred
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Labor and Overhead Costs
Work-in-Process Inventory
390,000
Accrued Payroll
To record actual labor costs incurred
Work-in-Process Inventory
Factory Department
Overhead Control
To record overhead applied
390,000
375,000
375,000
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Actual and Applied Overhead
Actual overhead = $392,000
Applied overhead = $375,000
$392,000 – $375,000 = $17,000 underapplied
Cost of Goods Sold
17,000
Factory Department
Overhead Control
To dispose of underapplied overhead
17,000
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How to Apply Factory Overhead
to Products
Enriquez Machine Parts Company’s
budgeted manufacturing overhead for
the assembly department is $103,200.
Budgeted direct labor cost is $206,400.
$103,200 ÷ $206,400 = 50%
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How to Apply Factory Overhead
to Products
Suppose that at the end of the year
Enriquez has incurred $190,000
of direct-labor cost in assembly.
How much overhead was
applied to assembly?
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Learning Objective 3
Use an activity-based costing
system in a job-order
environment.
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Activity-Based Costing in a
Job-Order Environment
Key activities must be identified.
Costs in an activity center
Value
added
Nonvalue
added
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Learning Objective 4
Show how service
organizations
use job costing.
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Product Costing in Service and
Nonprofit Organizations
Service and nonprofit organizations
call their “product” a program
or a class of service.
In service industries, each
customer order is a different job.
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Budgets and Control of
Engagements
Revenue
Direct labor
Contribution to overhead
and operating income
Overhead (all other costs)
Operating income
$10,000,000
2,500,000
7,500,000
6,500,000
$ 1,000,000
$6,500,000 ÷ $2,500,000 = 260%
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Accuracy of Costs of Engagements
Suppose that this accounting firm’s policy for pricing
is 150% of total professional costs plus travel costs.
Projected
cost
Direct labor
$ 50,000
Applied overhead @ 260%
130,000
Total costs excluding travel $180,000
Travel costs
14,000
Total projected costs
$194,000
Price
$ 75,000
195,000
$270,000
14,000
$284,000
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Learning Objective 5
Explain the basic ideas
underlying process costing
and how they differ from
job costing.
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Process Costing Basics
Process costing is more efficient
for companies that produce, in a
continuous process, large quantities
of homogenous product.
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Process Costing Compared With
Job Costing
Direct materials
Direct labor
Indirect resource cost
Job 100
Job 101
Finished
goods
Cost of
goods sold
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Process Costing Compared With
Job Costing
Direct materials
Direct labor
Indirect resource cost
Process A
Finished
goods
Process B
Assembly
Cost of
goods sold
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Process Costing Compared With
Job Costing
The journal entries for process-costing
systems are similar to those
for the job-order system.
there is more than one single
work-in-process account.
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Learning Objective 6
Compute output in terms
of equivalent units.
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Five Key Steps
Step 1: Summarize the flow of physical units.
Step 2: Calculate output in terms of equivalent units.
Step 3: Summarize the total costs to account for.
Step 4: Calculate unit costs.
Step 5: Apply costs to units completed and
to units in ending work in process.
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Physical Units and
Equivalent Units
(Step 2)
Equivalent units
(Step 1)
Started and completed
Ending WIP
Units accounted for
Work done to date
Physical
units
Direct
materials
Conversion
20,000
5,000
25,000
20,000
5,000
20,000
1,250
25,000
21,250
100%
25%
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Learning Objective 7
Compute costs and prepare
journal entries for the
principal transactions
in a process-costing system.
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Calculation of Product Costs
Totals
(Step 3)
(Step 4)
Costs to account for $112,500
÷ Equivalent units
= Unit costs
Direct Conversion
materials costs
$70,000 $42,500
25,000
21,250
$ 2.80 $ 2.00
What is the cost of a completed unit?
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Production Cost Report
(Step 5) Application of costs
Units completed and transferred out:
20,000 units @ 44.80
$ 96,000
Units in ending inventory:
Materials:
5,000 × 2.80
14,000
Conversion: 1,250 × 2.00
2,500
Total costs
$112,500
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Journal Entries
Work-in-Process – Forming
70,000
Direct-materials Inventory
70,000
Materials added to production during the month
Work-in-Process – Forming
Accrued Payroll
Direct labor during the month
10,625
10,625
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Journal Entries
Work-in-Process – Forming
31,875
Factory Overhead
31,875
Factory overhead applied during the month
Work-in-Process – Finishing
96,000
Work-in-Process – Forming
96,000
Costs of goods completed and transferred
during the month from forming to assembly
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Learning Objectives 8
Demonstrate how the presence
of beginning inventories
affects the computation
of unit costs under the
weighted-average method
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Weighted-Average Method
Example
Month ended May 31:
Forming Department
Beginning WIP:
5,000 units
100% materials
25% conversion costs
Ending WIP:
7,000 units
100% materials
60% conversion costs
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Weighted-Average Method
Example
(Step 2)
(Step 1)
Physical
units
Beginning WIP
Started in May
Units to accounted for
Completed and
transferred out
Ending WIP
Units accounted for
Equivalent units
Direct
materials
Conversion
24,000
7,000
31,000
34,000
4,200
28,200
5,000
26,000
31,000
24,000
7,000
31,000
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Weighted-Average Method
Example
Totals
(Step 3)
(Step 4)
Beginning WIP
$ 16,500
Costs added
138,820
Costs to account for $155,320
÷ Equivalent units
= Unit costs
Direct Conversion
materials costs
$14,000 $ 2,500
82,100
56,720
$96,100 $59,220
31,000
28,200
$ 3.10 $ 2.10
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Weighted-Average Method
Example
(Step 5) Application of costs
Units completed and transferred out:
24,000 units @ $5.20
$124,800
Units in ending inventory:
Materials:
7,000 × 3.10
21,700
Conversion: 4,200 × 2.10
8,820
Total costs
$155,320
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FIFO Method Example
(Step 1)
Physical
units
Beginning WIP
Started in May
Units to accounted for
Completed and
transferred out
Ending WIP
Units accounted for
Work done to date
Less: Beginning WIP
Equivalent units
(Step 2)
Equivalent units
Direct
materials
Conversion
24,000
7,000
24,000
4,200
31,000
5,000
26,000
28,200
1,250
26,950
5,000
26,000
31,000
24,000
7,000
31,000
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FIFO Method Example
Totals
(Step 3)
(Step 4)
Beginning WIP
$ 16,500
Costs added
138,820
Costs to account for $155,320
÷ Equivalent units
= Unit costs
Direct Conversion
materials costs
(work done before May)
$82,100 $56,720
26,000
26,950
$3.1577 $2.1046
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FIFO Method Example
(Step 5) Application of costs
Units in ending inventory:
Materials:
7,000 × 3.1577
Conversion:
4,200 × 2.1046
Total WIP (7,000 units)
Completed and transferred out
(24,000 units), $155,320 – $30,943
Total costs accounted for
$ 22,104
8,839
$ 30,943
124,377
$155,320
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Transferred-in Costs in
Process Costing
The costs transferred from
another department are similar
to direct material added at
the beginning of processing.
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Learning Objective 9
Use backflush costing with
a JIT production system.
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Process Costing in a JIT System
In just-in-time production systems, inventory
of work in process is typically small compared
to the costs of goods produced and sold.
The cost of tracking work in process
exceeds the benefits for many companies.
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Backflush Costing
What is backflush costing?
It is an accounting system that
applies costs to products only
when the production is complete.
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Principles of Backflush Costing
Backflush costing has only
two categories of costs:
Materials
Conversion
There is no work in process account.
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Backflush Costing Example
Speaker Technology, Inc., recently
introduced backflush costing and JIT.
Model AX27 Standard material cost:
Standard conversion cost:
Actual production for the month:
Actual materials purchased:
Actual conversion costs:
$14
$21
400 units
$5,600
$8,400
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Backflush Costing Example
Materials Inventory
5,600
Accounts Payable or Cash
To record material purchases
5,600
Conversion Costs
8,400
Accrued Wages
To record conversion costs incurred
8,400
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Backflush Costing Example
Finished Goods Inventory
14,000
Material Inventory
5,600
Conversion Costs
8,400
To record costs of completed production
Cost of Goods Sold
14,000
Finished Goods Inventory
To record costs of 400 units sold
14,000
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Backflush Costing Example
The Finished Goods Account can be eliminated.
Cost of Goods Sold
Material Inventory
Conversion Costs
14,000
5,600
8,400
Cost of Goods Sold
200
Conversion Costs
200
To recognize underapplied conversion costs
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End of Chapter 14
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