Chapter 16
Introduction to Managerial
Accounting and Job Order Cost
Systems
Financial and Managerial Accounting
8th Edition
Warren Reeve Fess
PowerPoint Presentation by Douglas Cloud
Professor Emeritus of Accounting
Pepperdine University
© Copyright 2004 South-Western, a division
of Thomson Learning. All rights reserved.
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Objectives
1. Describe the
differences
between
After studying this
managerial
and financial
accounting.
chapter,
you should
2. Evaluate the organizational
role of
be able to:
management accountants.
3. Define and illustrate materials, factory
labor, and factory overhead costs.
4. Describe accounting systems used by
manufacturing businesses.
Objectives
5. Describe and prepare summary journal
entries for a job order cost accounting
system.
6. Use job order cost information for
decision making.
7. Diagram the flow of costs for a service
business that uses a job order cost
accounting system.
The Differences Between
Managerial and Financial
Accounting
Financial and Managerial
Accounting
Financial Accounting
Managerial Accounting
Users of Accounting Information
Shareholders
Creditors
Government
General Public
Management
Management
Financial
Accounting
Users:
Characteristics:
Financial
Statements
External Users and
Management
Objective
Prepared according
to GAAP
Prepared periodically
Business entity
Managerial
Accounting
Users:
Characteristics:
Management
Reports
Management
Objective and subjective
Prepared according to
management needs
Prepared periodically
or as needed
Business entity or segment
Partial Organization Chart – Callaway Golf Company
Chief Executive
Officer
Vice-President—
Global Sales
Vice-President—
Manufacturing
Vice-President
New Product
Development
Manager——Pro
Tour Relations
Plant Manager-Carlsbad, CA
Plant
Manager—Shaft
Development
Chief Financial
Officer
Controller
Manufacturing Cost
Terms
COST
EXPENSE
ASSET
EXPENSE
Direct
Materials
Product
Costs
The cost of materials
that are an integral
part of the product.
Direct
Labor
The cost of labor directly
involved in converting
material into the product.
Factory
Overhead
Manufacturing costs other
than direct materials and
direct labor.
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.
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.
Flow of Manufacturing Costs
•Direct Labor
•Factory Overhead
MATERIALS STOREROOM
PRINTING PLANT
Job 73
Materials
Inventory
Work in Process
Inventory
Flow of Manufacturing Costs
WAREHOUSE
CAMPUS BOOKSTORE
Job 69
Job 70
Finished Goods
Inventory
Cost of Goods
Sold
Flow of Manufacturing Costs
Receiving
Report
No. 196
Materials received are
inspected by the
Receiving Department.
Once inspected, a
receiving report is
prepared showing the
quantity received and
its condition.
Flow of Manufacturing Costs
Receiving
Report
No. 196
Invoice
The receiving report and the invoice are used
to record the receipt of the merchandise and
to control the payment.
Flow of Manufacturing Costs
Receiving
Report
No. 196
Invoice
a. Materials
Accounts Payable
Materials purchased during
December.
10 500 00
10 500 00
Flow of Manufacturing Costs
Receiving
Report
No. 196
Invoice
The Materials account is a controlling
account. A separate account for each
type of material is maintained in a
subsidiary materials ledger.
Receiving
Report
No. 196
MATERIAL: No. 23 Paper
MATERIALS LEDGER ACCOUNT
RECEIVED
Rec.
Report
No.
Quantity
ISSUED
Amount
Mat.
Req.
No.
672
196
1,500
Direct Materials
$10,500
Quantity
400
Amount
ORDER POINT: 1,000 lbs.
BALANCE
Date
Quantity
Dec. 1 1,200
$ 2,000
4
800
8
800
1,500
First-in, first-out
Amount
$ 6,000
4,000
4,000
10,500
Unit
Price
$5.00
5.00
5.00
7.00
Direct Materials
Later, Materials Requisition Number 704 is prepared for
Job No. 72 requisitioning 1,800 units of No. 23 paper.
MATERIAL: No. 23 Paper
MATERIALS LEDGER ACCOUNT
RECEIVED
Rec.
Report
No.
Quantity
196
1,500
ISSUED
Amount
$10,500
Mat.
Req.
No.
Quantity
672
400
704
1,800
Amount
ORDER POINT: 1,000 lbs.
BALANCE
Date
Quantity
Dec. 1 1,200
$ 2,000
4
800
8
800
1,500
11,000
12
500
Amount
$ 6,000
4,000
4,000
10,500
3,500
to Materials Requisition
Unit
Price
$5.00
5.00
5.00
7.00
7.00
Direct Materials
from Materials Ledger Account
MATERIALS REQUISITIONS
REQUISITION NO. 704
JOB NO. 72
Description
No. 23 paper
Total issued
Quantity
Issued
Unit
Price
800
1,000
$5.00
7.00
Amount
$ 4,000
7,000
$11,000
to Job Cost
Sheet
Direct Materials
from Materials Requisition
Job 72
4,000 units of Algebra
Direct materials
Direct Labor
Factory Overhead
b. Work in Process
$11,000
11 000 00
The receiving report and the invoice are
Materials
used to record the receipt of the
Materials requisitioned to
merchandise and to control the payment.
Job 72.
11 000 00
Direct Labor
Job 72 Time Tickets
TIME TICKET
December Job
72 (500 hours)
for a total cost
of $7,500
to Job Cost
Sheet
No. 6311
Employee Name
S. Andrews
Date Dec. 26, 2006
Work Description
Printing
Job No. 72
Start
Time
9:00
Finish
Time
12:00
1:00
6:00
Total Cost
Hours
Worked
3
5
Hourly
Rate
$15.00
Cost
$45.00
15.00
75.00
$120.00
A. M.
Approved by _____________________________
Direct Labor
from Time Tickets
Job 72
4,000 units of Algebra
Direct materials
Direct Labor
Factory Overhead
$11,000
7,500
c. Work in Process
7 500 00
The receiving report and the invoice are
Wages Payable
used to record the receipt of the
Factory labor used in
merchandise and to control the payment.
production of Job 72.
7 500 00
Factory Overhead
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
Materials
Wages Payable
Utilities Payable
Accumulated Depreciation
Factory overhead incurred.
4 600 00
500 00
2 000 00
900 00
1 200 00
Factory Overhead
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
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
1. Direct labor hours
2. Direct labor dollars
3. Machine hours
4. Direct materials
Factory Overhead
Goodwell Printers estimates
factory overhead costs to be
$50,000 and chooses direct labor
hours as its activity base.
Factory Overhead
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
Job 72 required 500
direct labor hours.
December
Job 72 (500
hours) for a
total cost of
$7,500
Job 72 Time Tickets
TIME TICKET
No. 6311
Employee Name
B. Andrews
Date Dec. 26, 2006
Work Description
Printing
Job No. 72
Start
Time
9:00
Finish
Time
12:00
1:00
6:00
Total Cost
Hours
Worked
3
5
Hourly
Rate
$15.00
Cost
$45.00
15.00
75.00
$120.00
A. M.
Approved by _____________________________
Factory Overhead
500 hours x $5
Job 72
4,000 units of Algebra
Direct materials
Direct Labor
Factory Overhead
Total job cost
d. Work in Process
$11,000
7,500
2,500
$21,000
2 500 00
The receiving report and the invoice are
Factory Overhead
used to record the receipt of the
Factory overhead applied to
merchandise and to control the payment.
Job 72.
2 500 00
Factory Overhead
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
Date
Factory Overhead
Item
Dec. 1 Balance
31 FO cost incurred
31 FO cost applied
ACCOUNT NO.
Post.
Balance
Ref. Debit Credit Debit Credit
200
4,600
4,400
4,250 150
Factory Overhead
ACCOUNT
Date
Factory Overhead
Item
ACCOUNT NO.
Post.
Balance
Ref. Debit Credit Debit Credit
Dec. 1 Balance
31 FO cost incurred
31 FO cost applied
Factory Overhead
requires closing at the
end of the fiscal period.
200
4,600
4,400
4,250 150
Overapplied
(overestimated)
Underapplied
(underestimated)
Disposal of Factory Overhead Balance
ACCOUNT
Date
ACCOUNT NO.
Factory Overhead
Item
Dec. 1 Balance
31 FO cost incurred
31 FO cost applied
Post.
Balance
Ref. Debit Credit Debit Credit
200
4,600
4,400
4,250 150
f. Cost of Goods Sold
150 00
The receiving report and the invoice are
Factory Overhead
used to record the receipt of the
Closed underapplied factory
merchandise and to control the payment.
overhead to cost of goods sold.
150 00
Disposal of Factory Overhead Balance
ACCOUNT
Date
Dec. 1
31
31
31
Factory Overhead
Item
Balance
FO cost incurred
FO cost applied
Closing
ACCOUNT NO.
Post.
Balance
Ref. Debit Credit Debit Credit
200
4,600
4,400
4,250 150
150
—
Completion of Jobs
Job 71
1,000 units of American History
Balance
Direct materials
Direct Labor
Factory Overhead
Total job cost
g. Finished Goods
$ 3,000
2,000
3,500
1,750
$10,250
Job 71 was
started in
November and
competed in
December.
10 250 00
The receiving report and the invoice are
Work in Process
used to record the receipt of the
Job 71 completed in
merchandise
and to control the payment.
December.
10 250 00
Sale of Product
ITEM: American History
FINISHED GOODS LEDGER
Manufactured
Job
Order
No.
Quantity
Ship
Order
Amount
No.
Shipped
Quantity
Balance
Amount
Date
Quantity
Dec. 1 2,000
Amount
Unit
Price
$ 20,000 $10.00
Sold 2,000 American History
textbooks on account, $28,000.
Sale of Product
ITEM: American History
FINISHED GOODS LEDGER
Manufactured
Job
Order
No.
Quantity
Shipped
Ship
Order
Amount
No.
643
Quantity
Balance
Amount
2,000 $20,000
Date
Quantity
Dec. 1 2,000
9
---
Amount
Unit
Price
$ 20,000 $10.00
Sold 2,000 American History
textbooks on account, $28,000.
---
---
Sale of Product
Entry to remove books from inventory.
h. Cost of Goods Sold
20 000 00
The receiving report and the invoice are
Finished Goods
used to record the receipt of the
Cost of 2,000 American
merchandise
and to control the payment.
20 000 00
History textbooks sold.
Entry to record sale on account.
i. Accounts Receivable
28 000 00
The receiving report and the invoice are
Sales
used to record the receipt of the
Revenue received from
merchandise
and to control the payment.
textbooks sold.
28 000 00
Transfer to Finished Goods
ITEM: American History
FINISHED GOODS LEDGER
Manufactured
Job
Order
No.
71
Quantity
1,000
Shipped
Ship
Order
Amount
No.
$10,250
643
Quantity
2,000
Balance
Amount
Date
Quantity
Dec. 1 2,000
$20,000
9
--31 1,000
Amount
Unit
Price
$ 20,000 $10.00
----10,250 10.25
Job 71 is transferred to finished goods.
EXAMPLES OF PERIOD COSTS
SELLING EXPENSES
 Advertising expenses
 Sales salaries expenses
 Commission expenses
EXAMPLES OF PERIOD COSTS
ADMINISTATIVE EXPENSES
 Office salaries expenses
 Office supplies expenses
 Depreciation expense—
office buildings and
office equipment
Goodwell Printers
Income Statement
For the Month Ended December 31, 2006
Sales
$28,000
Cost of goods sold
20,150
Gross profit
$ 7,850
Selling and admin. expenses:
Sales salaries expense
$2,000
Office salaries expense
1,500
Total selling and admin.
expenses
3,500
Income from operations
$ 4,350
Overview of Job Order Costing
Costs & Expenses
Product Costs
Materials
Purchases
Direct
Labor
Factory
Overhead
Balance Sheet
Materials
Inventory
Work in
Process
Inventory
Finished
Goods
Inventory
Cost of goods
manufactured
Overview of Job Order Costing
Costs & Expenses
Product Costs
Materials
Purchases
Direct
Labor
Factory
Overhead
Period Costs
Selling and
Administrative
Balance Sheet
Materials
Inventory
Work in
Process
Inventory
Period costs flow
directly to the
income statement
Income Statement
Finished
Goods
Inventory
Cost of
Goods Sold
Selling and
Administrative
Flow of Manufacturing Costs
Materials
Materials
Purchased
DM
Work in Process
Finished Goods
DM
Cost of Goods Sold
Wages Payable
Factory Overhead
Total
Wages
DM
Direct materials used in production
Flow of Manufacturing Costs
Materials
Materials
Purchased
DM
Work in Process
Finished Goods
DM
IM
Cost of Goods Sold
Wages Payable
Total
Wages
IM
Factory Overhead
IM
Indirect materials used in production
Flow of Manufacturing Costs
Materials
Materials
Purchased
Work in Process
DM
DM
IM
DL
Finished Goods
Cost of Goods Sold
Wages Payable
Total
Wages
DL
DL
Factory Overhead
IM
Direct labor used in production
Flow of Manufacturing Costs
Materials
Materials
Purchased
Work in Process
DM
DM
IM
DL
Finished Goods
Cost of Goods Sold
Wages Payable
Total
Wages
IL
Factory Overhead
DL
IM
IL
IL
Indirect labor used in production
Flow of Manufacturing Costs
Materials
Materials
Purchased
Work in Process
DM
DM
IM
DL
Finished Goods
Cost of Goods Sold
Wages Payable
Total
Wages
Factory Overhead
DL
IM
IL
IL
OFOH
OFOH
Other factory overhead costs incurred
during production
Flow of Manufacturing Costs
Materials
Materials
Purchased
Work in Process
DM
DM
IM
DL
Finished Goods
FOHA
Cost of Goods Sold
Wages Payable
Total
Wages
Factory Overhead
DL
IM
IL
IL
OFOH
FOHA
FOHA
Based on
predetermined
overhead rate
Factory overhead applied to work in process
Flow of Manufacturing Costs
Materials
Materials
Purchased
Work in Process
DM
DM
IM
DL
COGM
Finished Goods
COGM
FOHA
Cost of Goods Sold
Wages Payable
Total
Wages
Factory Overhead
DL
IM
IL
IL
FOHA
OFOH
COGM
Cost of goods manufactured and transferred
to finished goods
Flow of Manufacturing Costs
Materials
Materials
Purchased
Work in Process
DM
DM
IM
DL
COGM
Finished Goods
COGM
SOLD
FOHA
Cost of Goods Sold
Wages Payable
Total
Wages
Factory Overhead
DL
IM
IL
IL
FOHA
OFOH
SOLD
Finished goods sold
SOLD
Job Order Systems for
Professional Service Businesses
Wages Payable
Direct
labor
Indirect
labor
Supplies
Purchased xxx Used
Work in Process
xxx
xxx
Cost of Services
Completed
jobs
xxx
Overhead
xxx Applied xxx
xxx
xxx
Other
costs
xxx
Chapter 16
The End