1. summary account A control account is a
within a general ledger that accumulates the details of an account in a subsidiary ledger

3. Cost Accounting Systems
Cost Accounting involves … Measuring, Recording and Reporting “product” costs.
Depending on what is being manufactured use either:
(1) job order cost system … (Chapter 16)
(2) process cost system … (Chapter 17)
(3) activity based cost system … (Chapter 18)

4. Costs assigned to dept / process for a specified period of time.
Cost Accounting Systems
Chapter 17 … Process Cost System
Costs assigned to dept / process for a specified period of time.
Used for large volume, similar products are produced. (cereal, gasoline, twinkies, ice cream).
Costs accumulated for a time period – (week or month).

5. Costs assigned to each job / batch.
Job Order Cost system
Chapter 16 … Job Order Cost System
Costs assigned to each job / batch.
Key feature: Each job has distinguishing characteristics, custom or unique products (or groups of products).
Measures costs for each job completed – not for set time periods.

6. Job Order Cost Flow
Costs accumulate in “INVENTORY” (control accounts) that parallel the physical flow of the materials & labor.
Material costs first go to Raw Materials Inventory
Manufacturing costs assigned to Work in Process Inventory or Mfg Overhead
Costs (by job) transferred to Finished Goods Inventory.
When sold, cost is “expensed” to Cost of Goods Sold.

7. Job Order Cost Flow

8. Job Order Cost Flow Raw Material Costs Illustration: Company buys:
2,000 batteries (Stock #AA) at $5 each … $10,000
800 modules (Stock #Mod) at $40 each .. $32,000

9. Job Order Cost Flow Labor Costs Company issues workers paychecks:
Machine operators $28, (direct labor)
AND … Prod Supv & Janitor $ 4, (indirect labor).
Costs
AND … Marketing & Admin , (period cost)
To the Income Statement

10. Job Order Cost Flow Period Cost vs Product Costs: (Mfg Overhead)
Period Costs: Non-manufacturing (non-factory) costs are immediately expensed to the month or period.
Product Costs: Costs related to mfg process are accumulated in Mfg (Factory) Overhead.

11. Job Order Cost Flow Manufacturing Overhead Costs
Company accrues JAN property taxes:
2,000 taxes for Factory Building
1,000 taxes for Corporate Offices
* (Note: taxes will be paid April 1)
Product Cost
Period Cost

12. Job Order Cost Flow Manufacturing Overhead Costs
Ex: depreciation on factory machines is 10,000 while depreciation on corporate office machines is 3,000. Prepare the entry:
(Refresher: ACC201 adjustment for depreciation is: debit DEPR EXP … credit ACC DEPR):
Jan
Factory Overhead (Product Cost)
10,000
Depreciation Expense (Period Cost)
3,000
Accum Deprec (Factory Machine)
Accum Deprec (Corp Office Machines)

13. Job Order Cost Flow Manufacturing Overhead Costs
Illustration: entry for manufacturing overhead in Company is:
Jan
Factory Overhead (Product Cost)
10,000
Depreciation Expense (Period Cost)
3,000
Accum Deprec (Factory Machine)
Accum Deprec (Corp Office Machines)

14. Job Order Cost Flow

16. Raw Material Costs Prior Slide: – we previously bought the materials
Illustration: Company buys:
2,000 batteries (Stock #AA) at $5 each … $10,000
800 modules (Stock #Mod) at $40 each .. $32,000

17. Job Order Cost Flow
Ex: a source document to move materials (within factory)
To: Work In Process Inventory (increase this asset)
From: Materials Inventory (decrease this asset)

18. Job Order Cost Flow
Ex: a source document to move materials (within factory)
To: Mfg Overhead (increase this asset)
From: Materials Inventory (decrease this asset)

19. Job Order Cost Flow To: Mfg Overhead (increase this asset)
From: Materials Inventory (decrease this asset)
Jan
Work In Process Inventory
24,000
Manufacturing Overhead
6,000
Raw Materials Inventory
30,000
Direct materials
Indirect materials

20. Job Order Cost Flow
Direct Materials
Indirect Materials

22. Labor Costs Prior Slide: – we previously paid the workers.
Company issues workers paychecks:
Machine operators $28, (direct labor)
AND … Prod Supv & Janitor $ 4, (indirect labor).
Costs
AND … Marketing & Admin , (period cost)
To the Income Statement

23. Job Order Cost Flow

24. Job Order Cost Flow Assigning Factory Labor Costs Direct Labor
Ex: $32,000 total factory labor cost consists of $20,000 of direct labor and $8,000 of indirect labor, the entry is:
Jan
Work In Process Inventory
28,000
Manufacturing Overhead
4,000
Factory Labor
32,000
Direct Labor
Indirect Labor

25. Job Order Cost Flow
Direct Labor
Indirect Labor

27. Prior Slide: - we previously increased Mfg Overhead.
Company accrues JAN property taxes:
2,000 taxes for Factory Building
1,000 taxes for Corporate Offices
* (Note: taxes will be paid April 1)
Product Cost
Period Cost

28. Manufacturing Overhead Costs
Prior Slide: - we previously increased Mfg Overhead.
Manufacturing Overhead Costs
Illustration: entry for manufacturing overhead in Company is:
Jan
Factory Overhead (Product Cost)
10,000
Depreciation Expense (Period Cost)
3,000
Accum Deprec (Factory Machine)
Accum Deprec (Corp Office Machines)

29. Job Order Cost Flow

30. Job Order Cost Flow Manufacturing Overhead Costs
How do I transfer Factory (Manufacturing) Overhead amounts to Work-In-Process Inventory IF I do not know all of the actual amounts of overhead – yet ?
(A “Job” may be completed and ready for delivery but all of the ACTUAL overhead costs are still not known like: last months electric bill, last weeks overtime, last months equipment repairs , last months building sanitizing)

31. Predetermined Overhead Rate
Job Order Cost Flow
Manufacturing Overhead Costs
Companies creates an “estimate” of actual Factory Overhead called a …
Predetermined Overhead Rate
It uses this to “assign” an (estimated) amount of Overhead to Work-In-Process (to the specific jobs).
The “estimate” will be close to the “actual” but it will NOT be exact. You will either be under-applied or over-applied.

32. Job Order Cost Flow Predetermined Overhead Rate
Based on the relationship between estimated annual overhead costs and expected annual operating activity
Expressed in terms of an activity base such as
Direct labor costs
Direct labor hours
Machine hours

33. Job Order Cost Flow Predetermined Overhead Rate
A “projection” (estimate) that is established at the beginning of the year.
May use a single, company-wide predetermined rate.
May use a different rate for each department and each department may have a different activity base.
Formula is:

34. Job Order Cost Flow Manufacturing Overhead Costs
Illustration: Using direct labor as activity base … assume that the company expects annual overhead costs to be $200,000 and direct labor costs for the year to be $200,000, compute overhead rate.
$200, $200,000 = 100%
This means that for every dollar of direct labor, company will ALSO assign __________ of manufacturing overhead to a job.
So if Direct Labor = $45,000 how much ADDITIONAL cost will be added for manufacturing overhead … ANOTHER $45,000 … (DL + Mfg OH = 45, ,000 = 90,000)
1 dollar

35. Job Order Cost Flow Manufacturing Overhead Costs (Mfg OH)
Illustration: Using direct labor as activity base … assume that the company expects annual overhead costs to be $450,000 and direct labor costs for the year to be $300,000, compute overhead rate.
$450, $300,000 = 150%
So if Direct Labor = $100,000 how much ADDITIONAL cost will be added for manufacturing overhead … ANOTHER $150,000 …
Is the 150,000 OH ACTUAL or APPLIED (as in estimated)

36. Job Order Cost Flow Manufacturing Overhead Costs
Illustration: Using direct labor as activity base … assume that the company expects annual overhead costs to be $280,000 and direct labor costs for the year to be $350,000, compute overhead rate.
$280, $350,000 = 80%
This means that for every dollar of direct labor, company will assign __________ of manufacturing overhead to a job.
80 cents

37. Job Order Cost Flow Manufacturing Overhead Costs
Illustration: Company applies manufacturing overhead to work in process when it assigns direct labor costs. Calculate the amount of applied overhead assuming POR = 80% and direct labor = $28,000.
$28,000 x 80% = $22,400
The following entry records this application.
Jan
Work In Process Inventory
22,400
Manufacturing Overhead

39. Job Order Cost Flow Manufacturing costs assigned to W-I-P with
Debit … Work in Process Inventory
Credits … Raw Materials Inventory … Factory Labor … Manufacturing Overhead

40. Job Order Cost Flow

41. Job Order Cost Flow Assigning Costs to Finished Goods
Ex: When a job is finished, Company transfer its total cost to finished goods inventory.
Jan
Finished Goods Inventory
39,000
Work In Process Inventory

42. Job Order Cost Flow

43. Job Order Cost Flow
Expense
SALE

44. Subtract PERIOD costs (selling-admin) to get:
Job Order Cost Flow
Assigning Costs to Cost of Goods Sold
Illustration: On January 31 company sells on account Job 101. The job cost $39,000, and it sold for $50,000. The entries are:
Jan
Accounts Receivable
50,000
Sales Revenue
Cost of Goods Sold
39,000
Finished Goods Inventory
Gross Profit: 50,000 – 39,000 = 11,000
Subtract PERIOD costs (selling-admin) to get:
Net Profit

45. Job Order Cost Flow
Summary
Illustration 16-15
LO 5

46. Reporting Job Cost Data
Under- or Overapplied Overhead
A debit balance in manufacturing overhead means that overhead is underapplied.
A credit balance in manufacturing overhead means that overhead is overapplied.
Illustration 16-19

47. Reporting Job Cost Data
Under- or Overapplied Overhead
Any Year-End Balance in manufacturing overhead is eliminated by adjusting cost of goods sold.
Underapplied overhead is debited to COGS
Overapplied overhead is credited to COGS

48. Reporting Job Cost Data
Under- or Overapplied Overhead
Illustration: Wallace has a $2,500 credit balance in Manufacturing Overhead at December The adjusting entry for the over-applied overhead is:
2,500
Dec 31
Manufacturing Overhead
Cost of Goods Sold
2,500