Transcript Chapter 2 Job Order Cost Systems Cost Accounting Systems  Job Order Cost system  Perpetual Inventory Accounting  Process Cost System.

Chapter 2
Job Order Cost Systems
Cost Accounting Systems
 Job Order Cost system
 Perpetual Inventory Accounting
 Process Cost System
Job Order Cost System
 WIP – Product Costs
 Direct Materials
 Factory Labor
 Allocation of Factory Overhead
 Transition to FG/Sales
 Period Costs
Allocating Factory Overhead
Factory overhead costs are assigned to
the jobs on the basis of some known
measure about each job. The measure
used to allocate factory overhead is
frequently called an activity base,
allocation base, or activity driver.
2-2
Predetermined Factory Overhead Rate
2-2
To provide current job costs, factory
overhead may be allocated or applied to
production using a predetermined factory
overhead rate. This rate is calculated using
the following formula:
Predetermined
factory overhead rate
=
Estimated Total
Factory Overhead Costs
Estimated Activity Base
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2-2
An activity base is chosen for the denominator
of the formula that is relevant to overhead and
can be realistically measured. There are
several possibilities for Legend Guitars.
Activity base possibilities
1.
2.
3.
4.
Direct labor hours
Direct labor dollars
Machine hours
Direct materials
2-2
Management estimates factory overhead costs to be $50,000
and the activity base to be 10,000 direct labor hours. The
predetermined overhead rate is calculated below.
Predetermined
Estimated Total Factory Overhead Costs
=
Factory
Estimated Direct Labor Hours
Overhead Rate
Predetermined
$50,000
=
Factory
10,000 direct labor hours
Overhead Rate
Predetermined
= $5 per direct labor hour
Factory
Overhead Rate
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2-2
Summary of Cost Flows
Costs & Expenses
Product Costs
Materials
Purchases
Direct
Labor
Factory
Overhead
Balance Sheet
Materials
Inventory
Work in
Process
Inventory
Cost of goods
manufactured
Finished
Goods
Inventory
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2-2
Summary of Cost Flows
Costs & Expenses
Product Costs
Materials
Purchases
Direct
Labor
Factory
Overhead
Period Costs
Balance Sheet
Materials
Inventory
Work in
Process
Inventory
Finished
Goods
Inventory
Selling and
Administrative
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Period costs flow
directly to the
income statement
Income Statement
Cost of
Goods Sold
Selling and
Administrative
2-2
18-1
Example Exercise 2-1
On March 5, Hatch Company purchased 400 units of raw
materials at $14 per unit. On March 10, raw materials were
requisitioned for production as follows: 200 units for Job
101 at $12 per unit, and 300 units for Job 102 at $14 per
unit. Journalize the entry on March 5 to record the purchase
and on March 10 to record the requisition from the materials
storeroom.
2
5
2-2
Follow My Example 19-1
Mar. 5 Materials
Accounts Payable
$5,600 = 400 x $14
5,600
Mar. 10 Work in Process
Materials
6,600*
5,600
6,600
* Job 101 $2,400 = 200 x $12
Job 102 4,200 = 300 x $14
Total
$6,600
For Practice: PE 2-1A, PE 2-1B
2
6
2-2
18-1
Example Exercise 2-2
During March, Hatch Company accumulated 800 hours of direct labor
costs on Job 101, and 600 hours on Job 102. The total direct labor was
incurred at a rate of $16 per direct labor hour for Job 101 and $12 per
direct labor hour for Job 102. Journalize the entry to record the flow of
labor costs into production during March.
3
3
2-2
Follow My Example 2-2
Work in Process
Wages Payable
[$20,000 = (800 x $16) +
20,000
20,000
(600 x $12)].
For Practice: PE 2-2A, PE 2-2B
3
4
2-2
Example Exercise 2-3
During March, Hatch Company incurred factory overhead as
follows: indirect materials $250, indirect labor $1,200,
utilities cost $750, depreciation $1,000. Journalize the entry
to record the factory overhead incurred during March.
3
7
2-2
Follow My Example 2-3
Factory Overhead
Materials
Wages Payable
Utilities
Accumulated Depreciation
For Practice: PE 2-3A, PE 2-3B
3,200
250
1,200
750
1,000
3
8
2-2
18-1
Example Exercise 2-4
Hatch Company estimates that total factory overhead
costs will be $100,000 for the year. Direct labor hours
are estimated to be 25,000. Determine (a) the
predetermined factory overhead rate, (b) the amount of
factory overhead applied to Jobs 101 and 102 in March
using the data on direct labor hours from Example
Exercise 2-2 and (c) prepare the journal entry to apply
factory overhead to both jobs in March according to the
predetermined overhead rate.
5
0
2-2
Follow My Example 2-4
(a) $4.00 = $100,000/25,000 direct labor hours
(b) Job 101
Job 102
Total
$3,200 = 800 hours x $4.00 per hour
2,400 = 600 hours x $4.00 per hour
$5,600
(c) Work in Process
Factory Overhead
For Practice: PE 2-4A, PE 2-4B
5,600
5,600
5
1
2-2
18-1
Example Exercise 2-5
At the end of March, Hatch Company had completed
Jobs 101 and 102. Job 101 is for 500 units, and Job 102
is for 1,000 units. Using the data from Example
Exercise 2-1, 2-2, and 2-4, determine (a) the balance on
the job cost sheets for Jobs 101 and 102 at the end of
March, and (b) the cost per unit for Jobs 101 and 102 at
the end of March.
5
5
2-2
Follow My Example 2-5
(a) Job 101 $18,400 = $2,400 + $12,800 + $3,200
Job 102 $13,800 = $4,200 + $7,200 + $2,400
(b) Job 101
Job 102
$36.80 = $18,400/500 units
$13.80 = $13,800/1,000 units
For Practice: PE 2-5A, PE 2-5B
5
6
Decision Making
 Actual vs. expected costs
 Analyze discrepancies
Homework
 Read Chapter 3
 EX 2-1, 2-5, 2-8, PR2-1A