1. Introduction to Managerial Accounting and Job Order Cost Systems

2. Cost Accounting Systems Job order cost system Provides a separate record for the cost of each quantity of product that passes through the factory. Process cost system System in which costs are accumulated for each of the departments or processes within the factory. *Note that the examples in this presentation use the job order cost accounting system.

3. The costs of converting the materials into finished products consists of direct labor and factory overhead. These two costs combined are often referred to as conversion costs.

4. Flow of Manufacturing Costs PRINTING PLANT Job 73 Work in Process Inventory Direct Labor Factory Overhead MATERIALS STOREROOM INK Materials Inventory

5. Flow of Manufacturing Costs CAMPUS BOOKSTORE Cost of Goods Sold Finished Goods Inventory WAREHOUSE Job 69 Job 70

6. Flow of Manufacturing Costs Materials received are inspected by the Receiving Department. Once inspected, a receiving report is prepared showing the quantity received and its condition. Receiving Report No. 196 Receiving Report No. 196

7. Flow of Manufacturing Costs Invoice The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. Receiving Report No. 196 Receiving Report No. 196

8. Flow of Manufacturing Costs Invoice a. Materials 10 500 00 Accounts Payable10 500 00 Materials purchased during December. Receiving Report No. 196 Receiving Report No. 196

9. Flow of Manufacturing Costs The Materials account is a controlling account. A separate account for each type of material is maintained in a subsidiary materials ledger. Invoice Receiving Report No. 196 Receiving Report No. 196

10. MATERIALS LEDGER ACCOUNT MATERIAL: No. 23 PaperORDER POINT: 1,000 lbs. RECEIVED ISSUED BALANCE Rec. Mat. Report Req. Unit No. Quantity Amount No. Quantity Amount Date Quantity Amount Price Dec. 11,200$ 6,000$5.00 672400$ 2,00048004,0005.00 Receiving Report No. 196 Receiving Report No. 196 1961,500$10,50088004,0005.00 1,50010,5007.00 First-in, first-out Direct Materials

11. MATERIALS LEDGER ACCOUNT MATERIAL: No. 23 PaperORDER POINT: 1,000 lbs. RECEIVED ISSUED BALANCE Rec. Mat. Report Req. Unit No. Quantity Amount No. Quantity Amount Date Quantity Amount Price Dec. 11,200$ 6,000$5.00 672400$ 2,00048004,0005.00 1961,500$10,50088004,0005.00 1,50010,5007.00 Later, Materials Requisition Number 704 is prepared for Job No. 72 requisitioning 1,800 units of No. 23 paper. to Materials Requisition Direct Materials 7041,80011,000125003,5007.00

12. MATERIALS REQUISITIONS REQUISITION NO. 704 JOB NO. 72 Quantity Unit Description Issued Price Amount No. 23 paper800$5.00$ 4,000 1,0007.007,000 Total issued$11,000 from Materials Ledger Account to Job Cost Sheet Direct Materials

13. Job 72 4,000 units of Algebra Direct materials Direct Labor Factory Overhead from Materials Requisition $11,000 The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. b. Work in Process 11 000 00 Materials11 000 00 Materials requisitioned to Job 72. Direct Materials

14. Direct Labor TIME TICKET Job 72 Time Tickets No. 6311 Employee Name S. Andrews Date Dec. 26, 2006 Work Description Printing Job No. 72 Start Finish Hours Hourly Time Time Worked Rate Cost 9:0012:003$15.00$45.00 1:006:00515.0075.00 Total Cost$120.00 Approved by _____________________________ A. M. December Job 72 (500 hours) for a total cost of $7,500 to Job Cost Sheet

15. Direct Labor Job 72 4,000 units of Algebra Direct materials$11,000 Direct Labor Factory Overhead from Time Tickets 7,500 The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. c. Work in Process 7 500 00 Wages Payable7 500 00 Factory labor used in production of Job 72.

16. When indirect material is used or depreciation of factory equipment is recorded, a cost account (rather than an expense account) needs to be charged. All manufacturing costs except direct materials and direct labor fall into this category. d. Factory Overhead 4 600 00 Factory overhead incurred. Materials 500 00 Wages Payable2 000 00 Utilities Payable900 00 Accumulated Depreciation1 200 00 Factory Overhead

17. A firm can’t wait until the end of the fiscal year to price a product, so overhead must be estimated (or applied) using this formula. Estimated total factory overhead costs Estimated activity base Predetermined factory overhead rate = Factory Overhead

18. An activity base is chosen for the denominator of the formula that is relevant to overhead and can be realistically measured. There are several possibilities for Goodwell Printers. Activity base possibilities Activity base possibilities 1. Direct labor hours 2. Direct labor dollars 3. Machine hours 4. Direct materials Factory Overhead

19. Goodwell Printers estimates factory overhead costs to be $50,000 and chooses direct labor hours as its activity base. Factory Overhead

20. Management estimated that 10,000 direct labor hours would be used during the fiscal period. This allowed for a predetermined factory overhead rate to be calculated. Estimated total factory overhead costs Estimated direct labor hours $50,000 10,000 direct labor hours = $5 per direct labor hours Factory Overhead

21. TIME TICKET Job 72 Time Tickets No. 6311 Employee Name B. Andrews Date Dec. 26, 2006 Work Description Printing Job No. 72 Start Finish Hours Hourly Time Time Worked Rate Cost 9:0012:003$15.00$45.00 1:006:00515.0075.00 Total Cost$120.00 Approved by _____________________________ A. M. Job 72 required 500 direct labor hours. December Job 72 (500 hours) for a total cost of $7,500 Factory Overhead

22. Job 72 4,000 units of Algebra Direct materials Direct Labor Factory Overhead 500 hours x $5 $11,000 7,500 The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. d. Work in Process 2 500 00 Factory Overhead2 500 00 Factory overhead applied to Job 72. 2,500 Total job cost$21,000 Factory Overhead

23. This illustrations has focused on Job 72. The textbook shows two jobs that were worked on in December. So, when overhead is applied to both jobs, the entry is for $4,250. ACCOUNT Factory Overhead ACCOUNT NO. Date Item Ref. Debit Credit Debit Credit Post. Balance Dec. 1Balance200 31FO cost incurred4,6004,400 31FO cost applied4,250150 Factory Overhead

24. Overapplied (overestimated) Underapplied (underestimated) Factory Overhead requires closing at the end of the fiscal period. Date Item Ref. Debit Credit Debit Credit Post. Balance Dec. 1Balance200 31FO cost incurred4,6004,400 31FO cost applied4,250150 ACCOUNT Factory Overhead ACCOUNT NO. Factory Overhead

25. Disposal of Factory Overhead Balance Date Item Ref. Debit Credit Debit Credit Post. Balance Dec. 1Balance200 31FO cost incurred4,6004,400 31FO cost applied4,250150 ACCOUNT Factory Overhead ACCOUNT NO. The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. f. Cost of Goods Sold 150 00 Factory Overhead150 00 Closed underapplied factory overhead to cost of goods sold.

26. ACCOUNT Factory Overhead ACCOUNT NO. Date Item Ref. Debit Credit Debit Credit Post. Balance Dec. 1Balance200 31FO cost incurred4,6004,400 31FO cost applied4,250150 31Closing150— Disposal of Factory Overhead Balance

27. Completion of Jobs The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. g. Finished Goods10 250 00 Work in Process10 250 00 Job 71 completed in December. Job 71 1,000 units of American History Direct materials Direct Labor Factory Overhead 2,000 3,500 1,750 Total job cost$10,250 Balance$ 3,000 Job 71 was started in November and competed in December.

28. FINISHED GOODS LEDGER ITEM: American History Manufactured Shipped Balance Job Ship Order Order Unit No. Quantity Amount No. Quantity Amount Date Quantity Amount Price Sale of Product Sold 2,000 American History textbooks on account, $28,000. Dec. 12,000$ 20,000$10.00

29. FINISHED GOODS LEDGER ITEM: American History Manufactured Shipped Balance Job Ship Order Order Unit No. Quantity Amount No. Quantity Amount Date Quantity Amount Price Dec. 12,000$ 20,000$10.00 6432,000$20,0009--- --- --- Sold 2,000 American History textbooks on account, $28,000. Sale of Product

30. The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. h. Cost of Goods Sold20 000 00 Finished Goods20 000 00 Cost of 2,000 American History textbooks sold. Entry to remove books from inventory. The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. i. Accounts Receivable28 000 00 Sales28 000 00 Revenue received from textbooks sold. Entry to record sale on account. Sale of Product

31. FINISHED GOODS LEDGER ITEM: American History Manufactured Shipped Balance Job Ship Order Order Unit No. Quantity Amount No. Quantity Amount Date Quantity Amount Price Dec. 12,000$ 20,000$10.00 6432,000$20,0009--- --- --- 711,000$10,250311,00010,25010.25 Transfer to Finished Goods Job 71 is transferred to finished goods.

32. Overview of Job Order Costing Overview of Job Order Costing Product Costs Costs & Expenses Balance Sheet Direct Labor Direct Labor Direct Labor Direct Labor Factory Overhead Finished Goods Inventory Finished Goods Inventory Cost of goods manufactured Work in Process Inventory Work in Process Inventory Materials Inventory Materials Inventory Materials Purchases Materials Purchases

33. Cost of Goods Sold Cost of Goods Sold Product Costs Period Costs Costs & Expenses Balance Sheet Direct Labor Direct Labor Direct Labor Direct Labor Factory Overhead Finished Goods Inventory Finished Goods Inventory Work in Process Inventory Work in Process Inventory Income Statement Selling and Administrative Selling and Administrative Selling and Administrative Selling and Administrative Period costs flow directly to the income statement Overview of Job Order Costing Overview of Job Order Costing Materials Inventory Materials Inventory Materials Purchases Materials Purchases

34. Job Order Systems for Professional Service Businesses Work in ProcessWages PayableCost of Services OverheadSupplies Direct labor xxx Indirect labor xxx Purchased xxx Used xxx xxx Other costs xxx Applied xxx xxx Completed jobs xxx

35. The End