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27-2 Job Order Cost Accounting Section 1: Cost Accounting Chapter 27 Section Objectives 1.Explain how a job order cost accounting system operates.

27-3 A job order cost accounting system is used by businesses that produce special orders or produce more than one product in batches. A process cost accounting system is used when standard products are manufactured using a continuous process. A standard cost accounting system, in which standard costs of production are measured, can be used with a job order or a process cost system. Types of Cost Accounting Systems

27-4 Raw Materials Inventory Work in Process Inventory Finished Goods Inventory Cost of Goods Sold Purchases Issued Materials Labor Overhead Transferred out Transferred in Transferred out Transferred in Wages Payable Charged to Work in Process Manufacturing Overhead Indirect Materials Indirect Labor Other Applied to Work in Process ProcurementProductionWarehousingSelling Flow of Costs through a Job Order Cost Accounting System

27-5 The perpetual inventory system tracks inventories on hand at all times. The following accounts are involved in a perpetual inventory system: Raw Materials Inventory Wages Payable Manufacturing Overhead Work in Process Inventory Finished Goods Inventory Cost of Goods Sold Perpetual Inventory System

27-6 Computing the Balance of the Work in Process Inventory Beginning inventory of work in process xx Ending inventory of work in process xx Reflects the cost of partially completed units Deduct cost of goods completed xx Add direct materials, direct labor, and manufacturing overhead charged to production xx x

27-7 Computing the Balance of Finished Goods Inventory Beginning inventory of finished goods xx Ending inventory of finished goods xx Represents the cost of finished goods on hand Deduct cost of goods sold xx Add cost of goods manufactured xx xx

27-8 Just-in-Time Inventory Systems Used by companies who wish to eliminate raw materials inventory. Raw materials ordered to arrive just in time to be placed into production. Costs of arriving materials placed immediately into Work in Process Inventory. Reduces amount of capital tied up in inventory. Reduces inventory storage space. Reduces costs for storeroom personnel, insurance, and recordkeeping.

27-9 Job Order Cost Accounting Section 2: Job Order Cost Accounting System Chapter 27 Section Objectives 2.Journalize the purchase and issuance of direct and indirect materials. 3.Maintain perpetual inventory records. 4.Record labor costs incurred and charge labor into production. 5.Compute overhead rates and apply overhead to jobs. 6.Compute overapplied or underapplied overhead and report it in the financial statements.

27-10 When pricing the raw materials inventory, three common methods are used: FIFO LIFO Average Cost Each method reflects a different valuation of raw materials inventory. Each company determines its own pricing policy. Cost Basis

27-11 Labor Costs Workers complete a separate time ticket for each job. The total charged to all cost sheets must agree with direct labor debited to Work in Process Inventory. All labor time tickets are sorted by job, summarized at end of the payroll period, and entered on job order cost sheets.

27-12 Recording Labor Costs

27-13 Includes all manufacturing costs except direct materials and direct labor. Examples: Indirect materials Indirect labor Depreciation Insurance Utilities Rent Manufacturing Overhead Compute overhead rates and apply overhead to jobs Objective 5

27-14 Overhead costs are applied to specific jobs based on an overhead application rate. Several different bases can be used to develop the overhead application rate. Some of more common bases for allocating overhead are: Based on direct labor costs. Based on direct labor hours Based on machine hours. Applying Overhead to Jobs

27-15 At month-end, compare the total credits in Manufacturing Overhead Applied to the total debits in Manufacturing Overhead. If credits in Manufacturing Overhead Applied are less than debits in Manufacturing Overhead, overhead has been underapplied. If debits in Manufacturing Overhead are less than credits in Manufacturing Overhead Applied, overhead has been overapplied. Compute overapplied or underapplied overhead and report it in the financial statements Objective 6 Determining Overapplied or Underapplied Overhead

27-16 Job Order Cost Accounting Section 3: Accounting for Job Orders Chapter 27 Section Objectives 7.Maintain job order cost sheets. 8.Record the cost of jobs completed and the cost of goods sold under a perpetual inventory system.

27-17 Each job started in production has its own job order cost sheet. The cost sheets constitute the subsidiary ledger for the Work in Process account. The job cost sheet totals should equal the general ledger account balance. The cost sheet shows: Direct materials Direct labor Overhead Maintain job order cost sheets Objective 7 Job Order Cost Sheet

27-18 Apply overhead using predetermined rate Total the costs when the job is completed Job Order Cost Sheet Enter materials used Enter labor costs

27-19 Cost of Goods Sold (Perpetual Inventory) Instead of showing overapplied or underapplied overhead on the income statement, the accountant might prefer to show actual manufacturing costs on the statement of cost of goods manufactured.