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2 - 1 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under-

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Presentation on theme: "2 - 1 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under-"— Presentation transcript:

1 2 - 1 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show

2 2 - 2 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show Job Order Cost Accounting

3 2 - 3 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show Cost Accounting An area of accounting that involves: Measuring Recording Reporting PRODUCT COSTS

4 2 - 4 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show Why Do We Need Product Costs? To determine: Which products to produce? What price to charge? What amounts to produce? What evaluation to give employees?

5 2 - 5 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show Cost Accounting System Manufacturing cost accounts that are fully integrated into the general ledger of the company. Perpetual inventory system used to provide, immediate up-to-date information on cost of product.

6 2 - 6 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show Two Cost Accounting Systems Job Order Cost System Process Cost System

7 2 - 7 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show Job Order System A cost accounting system where costs are assigned to each job or batch of goods. Custom built factory Production of movie Batch of menus Audit engagement

8 Job Order Cost System Two Jobs: Wedding Invitations and Menus Each job has distinguishing characteristics and related costs. Job #9501 Black ink $ Typesetting $ 225 Invitations $ 225 Envelopes $ Vellum stock $ Job #9502 Typesetting Yellow Stock Yellow stock Lamination $ 50 Copies $ Illustration 2-1 $ $ Colored Ink $

9 2 - 9 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show Process Cost System A system of accounting used by companies that manufacture Relatively homogeneous (same or similar) products Through a series of continuous processes or operations.

10 Compact Disc Production Relatively similar products are produced over a specified time period. 1. Oil is pumped. 2. Benzene is removed. 3. The benzene is made into pellets from which compact discs are made. Illustration 2-2 Process Cost System

11 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show Job Order Cost Flow Illustration 2-3

12 Job Order Cost Accounting Illustration 2-4

13 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show Two Major Steps in Flows of Costs Accumulating the manufacturing costs incurred –Raw materials inventory –Factory Labor –Manufacturing Overhead Assigning the accumulated costs to the work done

14 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show Material Inventory Record Each individual item of raw materials has a card or record. Illustration 2-5 The sum of the balances of all these records should equal raw materials in the general ledger.

15 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show Summary Entry A journal entry that summarizes the total from multiple transactions.

16 DateAccount Titles and ExplanationDebitCredit (3) Jan. 31Manufacturing Overhead Utilities Payable Prepaid Insurance Accounts Payable - for repairs Accumulated Depreciation Property Taxes Payable (To record overhead costs) 13,800 4,800 2,000 2,600 3,000 1,400 DateAccount Titles and ExplanationDebitCredit (2) Jan. 31Factory Labor Factory Wages Payable Employer Payroll Taxes Payable (To record factory labor costs) 32,000 27,000 5,000 DateAccount Titles and ExplanationDebitCredit (1) Jan. 4Raw Materials Inventory Accounts Payable (Purchase of raw materials on account) 42,000 Accumulating Manufacturing Costs

17 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show Job Cost Sheet A form used to record the costs chargeable to a job to determine: the total and unit cost of the completed job. Illustration 2-6

18 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show Materials Requisition Slip A document authorizing the issuance of raw materials from the store to production. Illustration 2-7 Wallace Manufacturing Company Materials Requisition Slip Deliver to:Assembly DepartmentReq. No.R247 Charge to:Work in Process – Job No. 101Date1/6/96 QuantityDescriptionStock No.Cost Per UnitTotal 200HandlesAA2746$5.00$1,000 Requested by:Received by: Approved by:Costed by:

19 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show Job Cost Sheets – Direct Materials Illustration 2-8

20 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show Time Ticket A document that indicates the employee, the hours worked, the account and the job to be charged, and the total labor cost. Bob KadlerM.Cher Illustration 2-10

21 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show Job Cost Sheets – Direct Labor Illustration 2-11

22 Predetermined Overhead Rate A rate based on the relationship between estimated annual overhead costs and expected annual operating activity, expressed in terms of a common activity base. Estimated Annual Overhead Costs Expected Annual Operating Activity ÷= Predetermined Overhead Rate Illustration 2-12

23 Using Predetermined Overhead Rate Illustration 2-13 X Activity Base Predetermined Overhead Rate is assigned to Work in Process Job 1 Job 2 Job 3

24 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show Job Cost Sheets – Manufacturing Overhead Applied Illustration 2-14

25 Assigning Manufacturing Costs DateAccount Titles and ExplanationDebitCredit (4) Jan. 31Work in Process Inventory Manufacturing Overhead Raw Materials Inventory (To assign materials to jobs and overhead) 24,000 6,000 30,000 Date Account Titles and Explanation DebitCredit (5) Jan. 31Work in Process Inventory Manufacturing Overhead Factory Labor (To assign labor to jobs and overhead) 28,000 4,000 32,000 Date Account Titles and Explanation DebitCredit (6) Jan. 31Work in Process Inventory Manufacturing Overhead (To assign overhead to jobs) 22,400

26 Jobs Completed and Sold DateAccount Titles and ExplanationDebitCredit (1) Jan. 31Accounts Receivable Sales Cost of Goods Sold To record cost of Job 101A 24,000 18,000 24,000 Finished Goods Inventory To record sale of Job 101A

27 Flow of Costs Key to Entries: Job Order Cost Accounting Illustration 2-18

28 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show Underapplied Overhead A situation in which overhead assigned to work in process is less than the overhead incurred.

29 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show Overapplied Overhead A situation in which overhead assigned to work in process is greater than the overhead incurred.

30 Purposes of Cost Accounting Flow of Costs in Job Order Importance of Job Cost Sheet Predetermined Overhead Rate Entries for Jobs Completed/Sold Under- and Over-applied Overhead Next Slide Previous Slide End Show Under- or Overapplied Manufacturing Overhead Year-End Balance- adjust to Cost of Goods Sold Date Account Titles and Explanation DebitCredit (5) Dec. 31Manufacturing Overhead Cost of Goods Sold (To transfer overapplied overhead to cost of goods sold) 2,500

31 Copyright © 2001 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that named in Section 117 of the United States Copyright Act without the express written consent of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.


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