Presentation on theme: "ACCT 1105 Lesson 7 – Chapter 19 Job Order Cost Accounting"— Presentation transcript:
1 ACCT 1105 Lesson 7 – Chapter 19 Job Order Cost Accounting Learning ObjectivesSee Lesson 19 for a summarized list of Learning Objectives
2 ACCT 1105 Lesson 7 – Chapter 19 Job Order Cost Accounting To ensure that interactive components function, view this presentation as a slide show.
3 Objective 1 Define cost accounting system Records manufacturing activities using a perpetual inventory system which continuously updates records for costs of materials, goods in process, and finished goods inventories; also provides information about manufacturing costs per unit of product
4 Objective 2 Describe Job Order Manufacturing A manufacturing system in which products are individually designed to meet the needs of a specific customer
5 Objective 3Identify the two defining characteristics of a job order cost systemCustom ProductsLow Volume of Production
6 Check Your Understanding For each of the following products, indicate whether it is most likely produced in a job order or process manufacturing system.Baseball caps for the a local little league team.Paper towelsA flower arrangement sent to a patient at the local hospitalAn oil portrait of the town mayorHanes t-shirtsJob orderProcessJob orderJob orderProcess
7 Objective 4 Distinguish between a job and a job lot Job-the production activities for a customized productJob Lot-the production activities for a group of customized products
8 Objective 5 List the events in job order manufacturing Customer Order Estimate Costs and Negotiate Sales PricePrepare Work ScheduleOrder Raw MaterialsApply Materials, Labor, and Overhead to Goods
9 Objective 6Define the following documents and explain how they interact in a job order cost accounting system
10 Objective 6 (continued) Materials Ledger Card-perpetual records that are updated each time units are purchased and each time units are issued for use in production
14 Objective 6 (continued) Time Tickets - Source document used to report the time an employee spent working on a job or on overhead activities and then to determine the amount of direct labor to charge to the job or the amount of indirect labor to charge to overhead.
18 Objective 6 (continued) Explain how the four documents discussed above interact in a job order cost accounting systemWhen materials are requested, the materials requisition form provides information that flows to the Materials Ledger Card.The Materials Ledger Card and Time Tickets provide cost information for materials and labor that are reported on the Job Cost Sheet.
19 Objective 7 Explain how to establish a predetermined overhead rate Since many overhead costs are not determined until the end of the period, and businesses cannot wait until the end of the period to apply overhead to a specific job, a method of estimating an applying overhead must be established.
20 Objective 7 (continued) Explain how to establish a predetermined overhead rateIn order to establish an overhead application rate, an estimate of total overhead costs must be made and an allocation factor must be selected.The two most common overhead allocation factors are direct materials and direct labor.
21 Objective 7 (continued) Explain how to establish a predetermined overhead ratePredetermined Overhead Rate = Estimated Overhead Costs/ Estimated Factor Costs
22 Objective 8 Explain how overhead is applied using a POR Overhead is applied by multiplying the POR by the actual cost of the allocation factor.
23 Overhead Application Exercise Management estimates that total overhead costs will be $1,800,000 and direct labor costs will be $450,000.Determine the Overhead Application Rate1,800,000/450,000 = 400%Determine the amount of overhead to be applied to a job if the direct labor for that job is $445,000.445,000 X 400% = $1,780,000
25 Exercise 19-3 See Exercise 19-3 on pages 796 of your text. Print the Job Cost Sheet for Wright Boats.Using the information provided in Ex 19-3, complete only the Cost Summary portion of the Job Cost Sheet.Assume that all materials and labor are direct.Check your answers on the next slide.
27 Objective 10 Prepare journal entries to track the flow of job costs Common Transactions and journal entries for Manufacturers include:Purchasing raw materialsApplying raw materials to goods in processPaying wages for laborApplying direct labor to goods in processApplying overhead to goods in processTransferring completed goods from goods in process to finished goodsSelling finished goods
28 Objective 10 (continued) Prepare journal entries to track the flow of job costsSee the Chapter 19 handout entitled Common Transactions and Journal Entries for Manufacturers for more information on journalizing these entriesPrint the handout from the Lesson 7 page.
29 Objective 11 Describe under- and over-applied overhead Recall that overhead is applied using an estimated overhead application rate.It is very likely that the actual amount of overhead incurred during the accounting period will not equal the amount of applied overhead.If estimated overhead is less than actual overhead, overhead has been underapplied.If estimated overhead is more than actual overhead, overhead has been overapplied.
30 Objective 11 (continued) Describe under- and over-applied overheadUnderapplied overhead will result in a DEBIT balance in the Factory Overhead account.Overapplied overhead will result in a CREDIT balance in the Factory Overhead account.
31 Objective 12Explain the two ways to account for under- or over-applied overheadIf over/underapplied overhead is material (significant), the balance is allocated among the accounts affected which include Cost of Goods Sold, Finished Goods Inventory, and Goods in Process Inventory.If over/underapplied overhead is immaterial (insignificant), the balance is fully allocated to the Cost of Goods Sold account. (This is the method that will be used in this lesson.)
32 Material Over- or Under-Applied Overhead When a material balance remains in the overhead account at the end of the accounting period, the balance should be allocated among Cost of Goods Sold, Finished Goods Inventory, and Goods in Process Inventory. This is accomplished by multiplying the amount of over- or under-applied overhead by the percentage balance in each of the inventory accounts.
33 Material Over- or Under-Applied Overhead - Example Assume the following end-of–period account balances:Ending BalancePercent of Total CalculationGoods in Process70,000Finished Goods80,000Cost of Goods Sold100,000TotalStep 1 – Find the total of the three inventory accounts.
34 Material Over- or Under-Applied Overhead - Example Assume the following end-of–period account balances:Ending BalancePercent of Total CalculationGoods in Process70,000Finished Goods80,000Cost of Goods Sold100,000Total250,000Step 2 – Find the percent of total for each of the three inventory accounts.
35 Material Over- or Under-Applied Overhead - Example Assume the following end-of–period account balances:Ending BalancePercent of Total CalculationGoods in Process70,00028%(70,000/250,000)Finished Goods80,00032%(80,000/250,000)Cost of Goods Sold100,00040%(100,000/250,000)Total250,000100%
36 Material Over- or Under-Applied Overhead - Example Assume that overhead has a debit balance of $10,000 (indicating that overhead was underapplied). In order remove this balance from the overhead account, Factory Overhead must be credited for $10,000 and the three allocation accounts will therefore be debited. The amount debited to each account is determined by their relative percents calculated in the previous step.Step 3 – Allocate overhead to the three accounts
37 Material Over- or Under-Applied Overhead - Example Recall the relative percent of total:Ending BalancePercent of Total CalculationGoods in Process70,00028%(70,000/250,000)Finished Goods80,00032%(80,000/250,000)Cost of Goods Sold100,00040%(100,000/250,000)Total250,000100%Journal entry to close Factory OverheadDebitCreditGoods in Process2,800(10,000 X .28)Finished Goods3,200(10,000 X .32)Cost of Goods Sold4,000(10,000 X .40)Factory Overhead10,000