1. Hilton Maher Selto

2. 3 Cost Accumulation for Job-Shop & Batch Production Operations McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

3. 3-3 vs. Job Costing Process Costing Each job treated as a separate unit of output. Costs are allocated to each job. All units processed are treated as the unit of output. Costs are allocated to each unit. Operation Costing is a hybrid. Evaluating Major Types of Costing Systems

4. 3-4 The use of the model serves as a control that helps to ensure goals and objectives are met. The Basic Cost Flow Model

5. 3-5 Job Cost Record A record of all production- related resources used today. The sum of all the costs in active jobs = Work-in-Process Inventory Managing and Using Cost Flow Information

6. 3-6 Work-in-Process Inventory Represents the cost of all the unfinished (in-process) jobs. As jobs are completed, the costs are moved to... Finished Goods Inventory Managing and Using Cost Flow Information

7. 3-7 Boss, Co. began May with $1,000 of costs in Work-in-Process (WIP) Inventory and $2,000 of completed units in Finished Goods Inventory. During May, Boss incurred $68,000 of production costs. Goods costing $62,000 were sent to Finished Goods during the month. Also, during May, goods costing $60,000 were sold. Using the Cost Flow Model, compute the ending inventory amounts for WIP Inventory and Finished Goods Inventory. Boss, Co. began May with $1,000 of costs in Work-in-Process (WIP) Inventory and $2,000 of completed units in Finished Goods Inventory. During May, Boss incurred $68,000 of production costs. Goods costing $62,000 were sent to Finished Goods during the month. Also, during May, goods costing $60,000 were sold. Using the Cost Flow Model, compute the ending inventory amounts for WIP Inventory and Finished Goods Inventory. Managing and Using Cost Flow Information - Example

8. 3-8 From Job Cost Records Cost of Goods Sold Managing and Using Cost Flow Information - Example

9. 3-9 Job-cost accounting systems record cost flows systematically. Transactions are journalized. Info is posted to ledger accounts. Basic Job-Cost Flows

10. 3-10 Accounts related to Jobs are posted to various Job WIP accounts. Basic Job-Cost Flows

11. 3-11 We can determine Direct Materials Cost and Direct Labor Cost for a Job as we do the work. But we won’t know actual Overhead Cost until the end of the accounting period, so we apply overhead to the job using a Predetermined Cost- Driver Rate. Assigning Overhead to Jobs

12. 3-12 Each time we assign overhead to a job, we Debit the Job and Credit the Overhead Control account. Debit.. Credit Assigning Overhead to Jobs

13. 3-13 When overhead costs are actually incurred, Debit the Overhead Control account and Credit the Accounts Payable (or Cash) account. Credit. Debit. Assigning Overhead to Jobs

14. 3-14 The difference between actual overhead for the period, and estimated overhead for the period is called the OVERHEAD VARIANCE. Write off the immaterial difference to COGS. Assigning Overhead to Jobs

15. 3-15 Simple Process  Identify the items to be included as indirect overhead costs.  Estimate the costs for each of the indirect overhead items.  Select the cost-driver.  Estimate the amount of the cost- driver rate.  Compute the predetermined overhead rate. Simple Process  Identify the items to be included as indirect overhead costs.  Estimate the costs for each of the indirect overhead items.  Select the cost-driver.  Estimate the amount of the cost- driver rate.  Compute the predetermined overhead rate. Use of Predetermined Overhead Rates

16. 3-16 Identify each indirect overhead item for the job. Identify the cost-driver rate for each base. Identify the cost for each overhead item. × × Sum the cost- driver amounts to determine total cost allocated to the job. Use of Predetermined Overhead Rates

17. 3-17 Use of Predetermined Overhead Rates - Example Boss, Co. produces several jobs a year, and uses ABC to allocate costs to each job. The information related to Boss, Co.’s General and Administrative spending is included in the table on the next slide. Compute the Predetermined Cost Overhead Rate for each indirect activity identified in the table. Boss, Co. produces several jobs a year, and uses ABC to allocate costs to each job. The information related to Boss, Co.’s General and Administrative spending is included in the table on the next slide. Compute the Predetermined Cost Overhead Rate for each indirect activity identified in the table.

18. 3-18 ? Use of Predetermined Overhead Rates - Example

19. 3-19 Use of Predetermined Overhead Rates - Example

20. 3-20 ? Job 6166 required 15 days and the services of 6 employees in 2,200 sq. ft. How much indirect overhead should be assigned to Job 6166? Use of Predetermined Overhead Rates - Example

21. 3-21 Use of Predetermined Overhead Rates - Example Job 6166 required 15 days and the services of 6 employees in 2,200 sq. ft. How much indirect overhead should be assigned to Job 6166?

22. 3-22 Three events can trigger the posting of info from the job cost record to WIP- Summary: 1. Completion of a Job 2. Sale of a Job 3. End of an accounting period. Three events can trigger the posting of info from the job cost record to WIP- Summary: 1. Completion of a Job 2. Sale of a Job 3. End of an accounting period. Recording Job-Order Costs

23. 3-23 Completion of Jobs As stated earlier, costs then move from WIP to Finished Goods and then to COGS.

24. 3-24 Remember, the overhead assigned to the job was an ESTIMATE. Actual overhead may differ from the estimate. Remember, the overhead assigned to the job was an ESTIMATE. Actual overhead may differ from the estimate. The amounts transferred from WIP to Finished Goods include: Direct material Direct Labor Assigned Overhead The amounts transferred from WIP to Finished Goods include: Direct material Direct Labor Assigned Overhead If actual overhead differs from the estimated overhead that was used to compute the predetermined cost-driver rate, the difference is usually posted to COGS Overhead Adjustments

25. 3-25 The OVERHEAD VARIANCE is separated into two components. Overhead Spending Variance (or Budget Variance) Overhead Activity Variance (or Volume Variance) Overhead Variance

26. 3-26 We compare the Actual Overhead to Estimated Overhead (also called Applied Overhead) Actual > Estimated Overhead is UNDERAPPLIED Actual < Estimated Overhead is OVERAPPLIED Overhead Variance

27. 3-27?? Actual Costing vs. Standard Costing Actual Costing? Standard Costing? Direct costs are assigned to jobs as they are used. Indirect Costs are assigned when the actual amounts are known. Direct costs are assigned to jobs as they are used. Indirect Costs are assigned when the actual amounts are known. Direct costs are assigned to jobs as they are used. Indirect Costs are assigned using predetermined overhead rates. Direct costs are assigned to jobs as they are used. Indirect Costs are assigned using predetermined overhead rates.

28. 3-28 The following conditions can lead to improper job costing: Misstating the stage of completion. Charging costs to the wrong Job. Misrepresenting the cost of jobs. Intentional misrepresentation in contracts. The following conditions can lead to improper job costing: Misstating the stage of completion. Charging costs to the wrong Job. Misrepresenting the cost of jobs. Intentional misrepresentation in contracts. Job Cost and Project Improprieties

29. 3-29 Work-in- Process can be a special thing. End of Chapter 3