2Study ObjectivesDifferentiate the cost accounting systems of service and manufacturing firms and of unique and standardized products.Discuss the interrelationship of cost accumulation, cost measurement, and cost assignment.Explain the difference between job-order and process costing, and identify the source documents used in job-order costing.Describe the cost flows associated with job-order costing, and prepare the journal entries.Explain why multiple overhead rates may be preferred to a single, plantwide rate.Explain how spoilage is treated in a job-order costing system.
3Manufacturing Firms versus Service Firms 1.Manufacturing involves joining together direct materials, direct labor, and overhead to produce a new product. The product is tangible and can be inventoried.A service is intangible. It cannot be separated from the customer and cannot be inventoried.Managers must be able to track the costs of services rendered just as precisely as they must track the costs of goods manufactured.
4Unique versus Standardized Products and Services 1.Firms that produce unique products in small batches that incur different product costs must track the costs of each product or batch separately. This is a…Job-order costing systemExamples: Cabinet makers, home builders, dental and medical services
5Unique versus Standardized Products and Services 1.Some firms produce identical units of the same product. The costs of each unit are also the same. This is a…Process-costing costing systemExamples: Food, cement, petroleum and chemicals
7Setting Up the Cost Accounting System 2.Cost AccumulationThe recognition and recording of costs.Source documents can be designed to supply information that can be used for multiple purposes.
8Setting Up the Cost Accounting System 2.Cost MeasurementClassifying the costs and determining the dollar amounts for direct materials, direct labor and overhead.Methods of measurementActual costing: uses actual costs for direct materials, direct labor, and overheadNormal costing: uses actual costs for direct materials and direct labor but measures overhead costs on a predetermined basis
9Setting Up the Cost Accounting System 2.Cost AssignmentOccurs after costs have been accumulated and measured.Total product costs associated with the units is divided by the number of units produced to determine unit cost.
10Setting Up the Cost Accounting System 2.Unit CostUsed in manufacturing firms toValue inventoryDetermine incomeInform decision makingUsed in nonmanufacturing firms toDetermine profitabilityDetermine feasibility of new services
11Setting Up the Cost Accounting System 2.Unit cost is made up ofDirect materialsDirect laborOverheadTraced directly to units
12Setting Up the Cost Accounting System 2.Overhead is applied using a predetermined rate based on budgeted overhead costs and budgeted amount of driver.Commonly used drivers includeUnits producedDirect labor hoursDirect labor dollarsMachine hoursDirect materials dollars or cost
13Setting Up the Cost Accounting System 2.Activity levelMust be predicted for the coming year to calculate the predetermined overhead rate.Predicting activityReflective of consumer demandNormal activity levelExpected activity levelReflective of production capabilitiesTheoretical activity levelPractical activity level
14Job-Order Costing: Overview 3.Job-order industries produce a wide variety of products or jobs that are distinct.Costs are accumulated by job in a job-order costing system.Each job is documented on a job-order cost sheet.
15Job-Order Costing: Overview 3.Total manufacturing costs for the job are divided by the number of units produced to determine unit cost.The work-in-process inventory is the collection of all job-order cost sheets.
16Job-Order Costing: General Description 3.Job-order cost sheet
17Job-Order Costing: General Description 3.Materials requisition form
18Job-Order Costing: General Description 3.Time ticket
19Job-Order Costing: General Description 3.Overhead is assigned to jobs using a predetermined overhead rate. The actual amount of the driver used as a base must be collected and recorded.
20Job-Order Costing: Specific Cost Flow Description 4.Summary of DM cost flows
21Job-Order Costing: Specific Cost Flow Description 4.Summary DL cost flows
22Job-Order Costing: Specific Cost Flow Description 4.Summary of OH cost flows
23Job-Order Costing: Specific Cost Flow Description 4.
24Job-Order Costing: Specific Cost Flow Description 4.Summary of finished goods cost flows
33Single versus Multiple Overhead Rates 5.Single (plantwide) rate$240,000 ÷ 20,000 DLHr = $12 per DL hourMultiple (departmental) ratesDepartment A labor-intensive$60,000 ÷ 15,000 DLHr = $4 per DL hourDepartment B machine-intensive$180,000 ÷ 15,000 MHr = $12 per M hourData of cost and activity
34Single versus Multiple Overhead Rates 5.Using single overhead application rate:
35Single versus Multiple Overhead Rates 5.Single (plantwide) rate$240,000 ÷ 20,000 DLHr = $12 per DL hourMultiple (departmental) ratesDepartment A labor-intensive$60,000 ÷ 15,000 DLHr = $4 per DL hourDepartment B machine-intensive$180,000 ÷ 15,000 MHr = $12 per M hourData of cost and activity
36Single versus Multiple Overhead Rates Using multiple overhead application rates:Ex 5-17
37Single versus Multiple Overhead Rates Using multiple overhead application rates: