2 Describe the building-block concepts of costing systems. Learning Objective 1Describe the building-blockconcepts of costing systems.
3 Building-Block Concepts of Costing Systems Cost objectDirect costsof a cost objectIndirect costsof a cost object
4 Building-Block Concepts of Costing Systems Cost AssignmentDirectCostsCost TracingCostObjectIndirectCostsCost Allocation
5 Building-Block Concepts of Costing Systems Cost poolCost allocation base
6 Distinguish between job costing and process costing. Learning Objective 2Distinguish between jobcosting and process costing.
7 Job-Costing and Process-Costing Systems Distinct unitsof a productor serviceMasses of identicalor similar units ofa product or service
8 approach to job costing. Learning Objective 3Outline a seven-stepapproach to job costing.
9 Seven-Step Approach to Job Costing Identify the chosen cost object.Step 2:Identify the direct costs of the job.Step 3:Select the cost-allocation bases.Step 4:Identify the indirect costs.
10 Seven-Step Approach to Job Costing Compute the rate per unit.Step 6:Compute the indirect costs.Step 7:Compute the total cost of the job.
11 General Approach to Job Costing A manufacturing company is planning to sella batch of 25 special machines (Job 650) to aretailer for $114,800.Step 1:The cost object is Job 650.Step 2:Direct costs are: Direct materials = $50,000Direct manufacturing labor = $19,000
12 General Approach to Job Costing Step 3:The cost allocation base is machine-hours.Job 650 used 500 machine-hours.2,480 machine-hours were used by all jobs.Step 4:Manufacturing overhead costs were $65,100.
13 General Approach to Job Costing Step 5:Actual indirect cost rate is$65,100 ÷ 2,480 = $26.25 per machine-hour.Step 6:$26.25 per machine-hour × 500 hours = $13,125
14 General Approach to Job Costing Step 7:Direct materials $50,000Direct labor ,000Factory overhead ,125Total $82,125
15 General Approach to Job Costing What is the gross margin of this job?Revenues $114,800Cost of goods sold ,125Gross margin $ 32,675What is the gross margin percentage?$32,675 ÷ $114,800 = 28.5%
16 Materials requisition record Source DocumentsJob cost recordMaterials requisition recordLabor time record
17 Distinguish actual costing Learning Objective 4Distinguish actual costingfrom normal costing.
18 Costing Systems Actual costing is a system that uses actual costs to determine the cost of individual jobs.It allocates indirect costs based on the actualindirect-cost rate(s) times the actual quantityof the cost-allocation base(s).
19 Costing Systems Normal costing is a method that allocates indirect costs based on the budgetedindirect-cost rate(s) times the actualquantity of the cost allocation base(s).
20 Normal Costing Assume that the manufacturing company budgets $60,000 for total manufacturing overhead costsand 2,400 machine-hours.What is the budgeted indirect-cost rate?$60,000 ÷ 2,400 = $25 per hourHow much indirect cost was allocated to Job 650?500 machine-hours × $25 = $12,500
21 What is the cost of Job 650 under normal costing? Direct materials $50,000Direct labor 19,000Factory overhead 12,500Total $81,500
22 in a job-costing system. Learning Objective 5Track the flow of costsin a job-costing system.
23 Transactions Purchase of materials and other manufacturing inputs Conversion into work in process inventoryConversion into finished goods inventorySale of finished goods
24 Transactions $80,000 worth of materials (direct and indirect) were purchased on credit.MaterialsControlAccounts PayableControl1. 80,0001. 80,000
25 Transactions Materials costing $75,000 were sent to the manufacturing plant floor.$50,000 were issued to Job No. 650 and$10,000 to Job 651.$15,000 of indirect materials were issued.What is the journal entry?
26 Transactions Work in Process Control: Job No. 650 50,000 Factory Overhead Control 15,000Materials Control ,000
27 Transactions Materials Control 1. 80,000 2. 75,000 Work in Process 1. 80, ,000Work in ProcessControl2. 60,000ManufacturingOverheadControl2. 15,000Job 6502. 50,000
28 Transactions Total manufacturing payroll for the period was $27,000. Job No. 650 incurred direct labor costsof $19,000 and Job No. 651 incurreddirect labor costs of $3,000.$5,000 of indirect labor was also incurred.What is the journal entry?
29 Transactions Work in Process Control: Job No. 650 19,000 Manufacturing Overhead Control 5,000Wages Payable ,000
30 Transactions Wages Payable Control 3. 27,000 Work in Process Control 2. 60,0003. 22,000ManufacturingOverheadControl2. 15,0003. 5,000Job 6502. 50,0003. 19,000
31 Wages payable were paid. TransactionsWages payable were paid.Wages Payable Control ,000Cash Control ,000Wages PayableControlCashControl4. 27,0003. 27,0004. 27,000
32 Transactions Assume that depreciation for the period is $26,000. Other manufacturing overheadincurred amounted to $19,100.What is the journal entry?
33 Transactions Manufacturing Overhead Control 45,100 Accumulated DepreciationControl ,000Various Accounts ,100What is the balance of the ManufacturingOverhead Control account?
34 Transactions $62,000 of overhead was allocated to the various jobs of which $12,500 went to Job 650.Work in Process Control 62,000Manufacturing Overhead Control 62,000What are the balances of the control accounts?
36 Transactions The cost of Job 650 is: Job 650 2. 50,000 3. 19,000 2. 50,0003. 19,0006. 12,500Bal. 81,500
37 Transactions Jobs costing $104,000 were completed and transferred to finished goods, including Job 650.What effect does this have on the control accounts?
38 Transactions Work in Process Control Finished Goods Control 2. 60,000 2. 60,0003. 22,0006. 62,000Bal. 40,0007. 104,0007. 104,000
39 What is the journal entry? TransactionsJob 650 was sold for $114,800.What is the journal entry?Accounts Receivable Control 114,800Revenues ,800Cost of Goods Sold ,500Finished Goods Control ,500
40 Transactions What is the balance in the Finished Goods Control account?$104,000 – $81,500 = $22,500Assume that marketing and administrativesalaries were $9,000 and $10,000.What is the journal entry?
41 Transactions Marketing and Administrative Costs 19,000 Salaries Payable Control ,000
42 + – = Transactions Direct Materials Used $60,000 Direct Labor and Overhead $84,000–Cost of Goods Manufactured $104,000=Ending WIP Inventory $40,000
43 – = Transactions Cost of Goods Manufactured $104,000 Ending Finished Goods Inventory $22,500=Cost of Goods Sold $81,500
44 Account for end-of-period underallocated or overallocated Learning Objective 6Account for end-of-periodunderallocated or overallocatedindirect costs usingalternative methods.
46 End-Of-Period Adjustments How was the allocated overhead determined?2,480 machine-hours × $25 budgeted rate = $62,000$65,100 – $62,000 = $3,100 (underallocated)
47 End-Of-Period Adjustments Actual manufacturing overhead costs of $65,100are more than the budgeted amount of $60,000.Actual machine-hours of 2,480 are more thanthe budgeted amount of 2,400 hours.
48 End-Of-Period Adjustments Approaches to disposing underallocatedor overallocated overhead:1. Adjusted allocation rate approach2. Proration approaches3. Immediate write-off to Cost of GoodsSold approach
49 Adjusted Allocation Rate Approach Actual manufacturing overhead ($65,100)exceeds manufacturing overhead allocated($62,000) by 5%.3,100 ÷ 62,000 = 5%Actual manufacturing overhead rate is $26.25per machine-hour ($65,100 ÷ 2,480) ratherthan the budgeted $25.00.
50 Adjusted Allocation Rate Approach The manufacturing company could increasethe manufacturing overhead allocated toeach job by 5%.Manufacturing overhead allocated to Job 650under normal costing is $12,500.$12,500 × 5% = $625$12,500 + $625 = $13,125, which equalsactual manufacturing overhead.
51 Proration Approach Basis to prorate under- or overallocated overhead: – total amount of manufacturing overheadallocated (before proration)– ending balances of Work in Process, FinishedGoods, and Cost of Goods Sold
52 Proration Approach “A” Assume the following manufacturingoverhead component of year-endbalances (before proration):Work in Process $23, %Finished Goods , %Cost of Goods Sold , %Total $62, %
53 Proration Approach “A” Manufacturing Overhead Finished Goods , , , , , , Cost of Goods Sold Work in Process , , , , ,178
54 Proration Approach “B” Ending balances of Work in Process,Finished Goods, and Cost of Goods SoldWork in Process $ 40, %Finished Goods , %Cost of Goods Sold , %Total $144, %
55 Proration Approach “B” Manufacturing Overhead Finished Goods , , , , , Cost of Goods Sold Work in Process , , , , ,868
56 Immediate Write-off to Cost of Goods Sold Approach Manufacturing Overhead , , , Cost of Goods Sold , , ,600
58 Variations of Normal Costing Home Health budget includes the following:Total direct labor costs: $400,000Total indirect costs: $96,000Total direct (professional) labor-hours: 16,000
59 Variations of Normal Costing What is the budgeted direct labor cost rate?$400,000 ÷ 16,000 = $25What is the budgeted indirect cost rate?$96,000 ÷ 16,000 = $6
60 Variations of Normal Costing Suppose a patient uses 25 direct labor-hours.Assuming no other direct costs, what is thecost to Home Health?Direct labor: 25 hours × $25 = $625Indirect costs: 25 hours × $6 = 150Total $775