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

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Presentation on theme: "Chapter 2 Job Order Cost Systems. Cost Accounting Systems  Job Order Cost system  Perpetual Inventory Accounting  Process Cost System."— Presentation transcript:

1 Chapter 2 Job Order Cost Systems

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

3

4 Job Order Cost System  WIP – Product Costs  Direct Materials  Factory Labor  Allocation of Factory Overhead  Transition to FG/Sales  Period Costs

5 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

6 40 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 2-2 Predetermined factory overhead rate Estimated Total Factory Overhead Costs Estimated Activity Base =

7 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. Direct labor hours 2. Direct labor dollars 3. Machine hours 4. Direct materials 2-2

8 42 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. Estimated Total Factory Overhead Costs Estimated Direct Labor Hours Predetermined Factory Overhead Rate = $50,000 10,000 direct labor hours Predetermined Factory Overhead Rate = = $5 per direct labor hour Predetermined Factory Overhead Rate 2-2

9 Product Costs Costs & Expenses Balance Sheet Direct Labor Direct Labor Direct Labor Direct Labor Factory Overhead Finished Goods Inventory Finished Goods Inventory Cost of goods manufactured Work in Process Inventory Work in Process Inventory Materials Inventory Materials Inventory Materials Purchases Materials Purchases Summary of Cost Flows

10 Product Costs Costs & Expenses Balance Sheet Direct Labor Direct Labor Direct Labor Direct Labor Factory Overhead Work in Process Inventory Work in Process Inventory Materials Inventory Materials Inventory Materials Purchases Materials Purchases Summary of Cost Flows Cost of Goods Sold Cost of Goods Sold Period Costs Income Statement Selling and Administrative Selling and Administrative Selling and Administrative Selling and Administrative Period costs flow directly to the income statement Finished Goods Inventory Finished Goods Inventory

11 18-1 Example Exercise 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.

12 For Practice: PE 2-1A, PE 2-1B Mar. 5Materials5,600 Accounts Payable5,600 $5,600 = 400 x $14 Mar. 10Work in Process6,600* Materials6,600 Job 101$2,400= 200 x $12 Job 102 4,200= 300 x $14 Total$6,600 * Follow My Example 19-1

13 18-1 Example Exercise 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.

14 For Practice: PE 2-2A, PE 2-2B 3434 Follow My Example Work in Process20,000 Wages Payable20,000 [$20,000 = (800 x $16) + (600 x $12)].

15 Example Exercise 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.

16 For Practice: PE 2-3A, PE 2-3B 3838 Follow My Example Factory Overhead3,200 Materials250 Wages Payable1,200 Utilities750 Accumulated Depreciation1,000

17 18-1 Example Exercise 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.

18 For Practice: PE 2-4A, PE 2-4B 5151 Follow My Example (a)$4.00 = $100,000/25,000 direct labor hours (b)Job 101$3,200= 800 hours x $4.00 per hour Job 102 2,400= 600 hours x $4.00 per hour Total$5,600 (c)Work in Process5,600 Factory Overhead5,600

19 18-1 Example Exercise 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.

20 For Practice: PE 2-5A, PE 2-5B 5656 Follow My Example (a)Job 101$18,400= $2,400 + $12,800 + $3,200 Job 102$13,800= $4,200 + $7,200 + $2,400 (b)Job 101$36.80= $18,400/500 units Job 102$13.80= $13,800/1,000 units

21 Decision Making  Actual vs. expected costs  Analyze discrepancies

22 Homework  Read Chapter 3  EX 2-1, 2-5, 2-8, PR2-1A


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