3 Cost AccountingAn area of accounting that involves:MeasuringRecordingReportingPRODUCT COSTS
4 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 Cost Accounting System Manufacturing cost accounts that are fully integrated into the general ledger of the company.Perpetual inventory system usedto provide, immediate up-to-dateinformation on cost of product.
6 Two Cost Accounting Systems Job Order Cost SystemProcess Cost System
7 Job Order SystemA cost accounting system where costs are assigned to each job or batch of goods.Custom built factoryProduction of movieBatch of menusAudit engagement
8 Job Order Cost System Two Jobs: Wedding Invitations and Menus $ $ $ Illustration 2-1Job Order Cost SystemTwo Jobs: Wedding Invitations and MenusJob #9501Black ink $Typesetting $225 Invitations $225 Envelopes $Vellum stock $$Colored Ink$Job #9502TypesettingYellow StockYellow stockLamination$50 Copies $$Each job has distinguishing characteristics and related costs.
9 Process Cost SystemA system of accounting used by companies that manufactureRelatively homogeneous (same or similar) productsThrough a series of continuous processes or operations.
10 Compact Disc Production Illustration 2-2Process Cost SystemCompact Disc Production1. Oil is pumped.2. Benzene is removed.3. The benzene is made into pellets...4. ...from which compact discs are made.Relatively similar products are produced over a specified time period.
12 Job Order Cost Accounting Illustration 2-4Job Order Cost Accounting
13 Two Major Steps in Flows of Costs Accumulating the manufacturing costs incurredRaw materials inventoryFactory LaborManufacturing OverheadAssigning the accumulated costs to the work done
14 Material Inventory Record Illustration 2-5Each individual item of raw materials has a card or record.The sum of the balances of all these records should equal raw materials in the general ledger.
15 Summary EntryA journal entry that summarizes the total from multiple transactions.
16 Accumulating Manufacturing Costs DateAccount Titles and ExplanationDebitCredit(3)Jan. 31Manufacturing OverheadUtilities PayablePrepaid InsuranceAccounts Payable - for repairsAccumulated DepreciationProperty Taxes Payable(To record overhead costs)13,8004,800 2,000 2,600 3,000 1,400(2)Factory LaborFactory Wages PayableEmployer Payroll Taxes Payable(To record factory labor costs)32,00027,0005,000(1)Jan. 4Raw Materials InventoryAccounts Payable(Purchase of raw materials on account)42,000
17 Illustration 2-6Job Cost SheetA form used to record the costs chargeable to a job to determine:the total andunit costof thecompletedjob.
18 Materials Requisition Slip Illustration 2-7Materials Requisition SlipA document authorizing the issuance of raw materials from the store to production.Wallace Manufacturing CompanyMaterials Requisition SlipDeliver to:Assembly DepartmentReq. No.R247Charge to:Work in Process – Job No. 101Date1/6/96QuantityDescriptionStock No.Cost Per UnitTotal200HandlesAA2746$5.00$1,000Requested by:Received by:Approved by:Costed by:
19 Job Cost Sheets – Direct Materials Illustration 2-8Job Cost Sheets – Direct Materials
20 Illustration 2-10Time TicketA document that indicates the employee, the hours worked, the account and the job to be charged, and the total labor cost.Bob KadlerM.Cher
21 Job Cost Sheets – Direct Labor Illustration 2-11Job Cost Sheets – Direct Labor
22 Predetermined Overhead Rate Illustration 2-12Predetermined Overhead RateA 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 CostsExpected Annual Operating Activity÷=Predetermined Overhead Rate
23 Using Predetermined Overhead Rate Illustration 2-13Using Predetermined Overhead RateXActivity BasePredetermined Overhead Rateis assigned toWork in ProcessJob 1Job 2Job 3
25 Assigning Manufacturing Costs DateAccount Titles and ExplanationDebitCredit(4)Jan. 31Work in Process InventoryManufacturing OverheadRaw Materials Inventory(To assign materials to jobs and overhead)24,0006,00030,000(5)Factory Labor(To assign labor to jobs and overhead)28,000 4,00032,000(6)(To assign overhead to jobs)22,400
26 Jobs Completed and Sold DateAccount Titles and ExplanationDebitCredit(1)Jan. 31Accounts ReceivableSalesCost of Goods SoldTo record cost of Job 101A24,00018,000Finished Goods InventoryTo record sale of Job 101A
27 Job Order Cost Accounting Illustration 2-18Job Order Cost AccountingFlow of CostsKey to Entries:75846
28 Underapplied Overhead A situation in which overhead assigned to work in process is less than the overhead incurred.
29 Overapplied OverheadA situation in which overhead assigned to work in process is greater than the overhead incurred.
30 Under- or Overapplied Manufacturing Overhead Year-End Balance- adjust to Cost of Goods SoldDateAccount Titles and ExplanationDebitCredit(5)Dec. 31Manufacturing Overhead2,5002,500Cost of Goods Sold(To transfer overapplied overhead to cost of goods sold)