Inventory and Operations Chapter 16

Inventory and Operations Common Elements of Cost Accounting Systems Raw Materials Cost Labor Cost Factory Overhead Cost

Inventory and Operations Common Elements of Cost Accounting Systems Raw Materials Inventory Goods in Process Inventory Finished Goods Inventory

Flow of Manufacturing Costs Goods in Process Inv Raw Materials Inv Direct materials Direct labor Applied FOH Cost of Finished Goods Direct materials Indirect materials Wages Payable Finished Goods Inv Direct labor Indirect labor Finished Goods Available Cost of Goods Sold Factory Overhead Cost of Goods Sold Actual Applied Cost of Goods Sold

Job Order Costing Source Documents Job order cost sheets (individual jobs) Materials requisition forms Labor time tickets Factory overhead reports

Job Order Costing Application of Raw Materials Costs Materials requisition form Direct materials use recorded in Goods-in- Process Inventory account Indirect materials use recorded in Factory Overhead Account

Job Order Costing Application of Factory Labor Costs Labor tickets Direct labor cost recorded in Goods-in-Process Inventory account Indirect labor cost recorded in Factory Overhead account

Job Order Costing Application of Factory Overhead Costs Predetermined overhead rate determined: Expected OH Cost Expected DL or M Hours Factory overhead then applied to Goods-in- Process Inventory account

Job Order Costing Goods in process account includes: Actual direct materials cost Actual direct labor cost Applied overhead

Job Order Costing Completion of Job Orders Transfer costs from Goods-in-Process Inventory account to Finished Goods Inventory account

Job Order Costing Recording the Sale of Finished Goods Perpetual inventory system: Two “entries”: Increase Cash (or A/R) and Sales accounts Increase Cost of Goods Sold and decrease Finished Goods Inventory account

Job Order Costing Handling of Overapplied and Underapplied Overhead Close out Factory Overhead account and adjust (increase/decrease) Cost of Goods Sold account

Process Costing Concepts Large quantities, continuous process(es) Materials costs (direct materials) Conversion costs (direct labor and factory OH) Equivalent units (unfinished products) Materials costs (assume 100% complete) Conversion costs (% partially complete) Process cost sheets (assign average costs per unit to products)

Process Costing Siruation 1:No Beg. or End. Goods-in-Process Inventory Direct materials cost  Units = Average cost per unit Conversion costs  Units = Average cost per unit Cost transferred to Finished Goods = Units transferred X Avg cost per unit for DM + Units transferred X Avg cost per unit for conv.

Process Costing Situation II: Ending Goods-in-Process inventory DM cost  Equivalent units = Average cost per equivalent unit Conversion costs  Equivalent units = Average cost per equivalent unit

Process Costing Ending Goods-in-Process inventory (cont.) Cost transferred to Finished Goods Inventory = (Units transferred X Average cost per equivalent unit for direct materials) + (Units transferred X Average cost per equivalent unit for conversion costs)

Process Costing Ending Goods-in-Process inventory (cont.) Cost remaining in ending Goods-in-Process = (Equivalent units in inventory X Average cost per equivalent unit for direct materials) + (Equivalent units in inventory X Average cost per equivalent unit for conversion costs)

Process Costing Situation III: Beginning and Ending Goods-in-Process Inventory Compute equivalent units for direct materials and conversion costs in the usual manner Average materials cost per equivalent unit = (Beginning direct materials cost + Cost added during period)  Equivalent units

Process Costing Beginning and Ending Goods-in-Process Inventory Average conversion cost per equivalent unit = (Beginning conversion costs + Costs added during period)  Equivalent units Cost transferred to Finished Goods (same calculations as used previously) Cost remaining in ending Goods-in-Process (same calculations as used previously)

The End