1. Inventory and Operations
Chapter 16

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

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

4. 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

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

6. 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

7. 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

8. 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

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

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

11. 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

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

13. 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)

14. 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.

15. 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

16. 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)

17. 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)

18. 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

19. 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)

20. The End