Dutchess Community College
ACC 204 – Managerial Accounting
Quiz Prep Chapter 2
Job Order Cost Accounting
Peter Rivera
January 2010
Disclaimer
This Quiz Prep is provided as an outline of
the key concepts from the chapter.
It is not intended to be comprehensive or
exhaustive.
Quizzes may include material from the
classroom lectures, the text or the homework
assignments.
ACC 204 Chapter 2
1
2 Types of Cost Accounting Systems
Job Order Cost This Chapter
Costs are assigned to
• Individual job, e.g., movie, fire truck
• Batch, e.g., wedding invitation printer
Process Cost
Costs are accumulated over a period of time
for a continuous manufacturing process, e.g.,
corn flakes
Predetermined Overhead Rate
Estimated Annual
Overhead Costs
=
Expected Annual
Operating Activity
!
Be sure you are
using the
correct activity
Predetermined
Overhead Rate
• Direct Labor Hours
• Direct Labor Costs
• Machine Hours
• Other
ACC 204 Chapter 2
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Normal Balances
Recall
from
ACC 104
Debit
Credit
Liabilities
Assets
 Balance Sheet
Equity
 Statement of
Retained Earnings
Dividends
Expenses
Revenues
 P&L
Normal Balances
Normal Balances can be either Debit or Credit.
The Normal Balance is the side that increases the
account balance. For example, Cash has a Debit
Normal Balance:
Debits increase
Cash
ACC 204 Chapter 2
Cash
Debit
Credit
Opening Balance
100
25
Ending Balance
85
Credits decrease
Cash
40
3
Journal Entries
There are 9 journal entries required in a Job Order Cost system:
1 - Raw Materials: Accumulate (Purchase)
2 - Raw Materials: Allocate
3 - Labor:
Accumulate
Note the
4 - Labor:
Allocate
Accumulate/Allocate
5 - Overhead:
Accumulate
pattern for the 3
6 - Overhead:
Allocate
categories of cost:
7 - WIP
Finished Goods
• Materials
8 - Sale
• Labor
9 - Finished Goods
COGS
• Overhead
Note that COGS is recorded at the time of sale
because it is a Perpetual Inventory System
Purchase Raw Materials
General Ledger
Raw Materials Inventory
Accounts Payable
Dr
Cr
5,000
5,000
Subsidiary Ledger: Materials Inventory Record
This record tracks the Receipts and Issuances of
Raw Materials by
• Specific Item; e.g., sparkplug # 1234
• # of Units
The sum of the subsidiary ledgers
• Unit Cost
should equal the general ledger
• Total Cost
ACC 204 Chapter 2
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Labor
General Ledger
Dr
Factory Labor
FICA Tax Payable (Social Security)
Medicare Tax Payable
Federal Tax Payable
State Tax payable
Salaries Payable
FICA Tax Payable (Employer)
Medicare Tax Payable (Employer)
Cr
1,077
62
15
220
50
653
62
15
Factory Labor is an intermediate account
Overhead
General Ledger
Dr
Manufacturing Overhead
Rent Payable
Utilities Payable
Prepaid Insurance
Cr
2,000
1,000
800
200
Manufacturing Overhead is an intermediate account
ACC 204 Chapter 2
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Job Cost Sheet
Each Job has a unique Job Identification
number.
The Job Cost Sheet accumulates the
• Raw Material,
• Labor and
• Overhead costs
for each individual job.
Allocate Raw Materials to Jobs
The Materials Requisition Slip documents the
distribution of raw materials from the warehouse to
be used on
• specific jobs
• and/or as overhead.
This information must be reflected in both the
General Ledger and the Job Cost Sheets.
ACC 204 Chapter 2
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Allocate Raw Materials to Jobs
General Ledger Journal Entry
Work In Process Inventory
Manufacturing Overhead
Dr
Cr
2,400
600
Raw Materials Inventory
Job #1 Cost Sheet
Direct Materials Direct Labor Overhead
+ 2,000
Job #2 Cost Sheet
Direct Materials Direct Labor Overhead
+ 400
3,000
The sum of the
Job Cost Sheets
should equal the
General Ledger
Allocate Labor to Jobs
Time Sheets are used to allocate Labor Costs from
the Factory Labor account to
• specific jobs
• and/or as overhead.
This information must be reflected in both the
General Ledger and the Job Cost Sheets.
ACC 204 Chapter 2
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Allocate Labor to Jobs
General Ledger Journal Entry
Dr
Cr
Work In Process Inventory
700
Manufacturing Overhead
377
Factory Labor
Job #1 Cost Sheet
Direct Materials Direct Labor Overhead
2,000
+ 600
Job #2 Cost Sheet
Direct Materials Direct Labor Overhead
400
+ 100
1,077
Intermediate
Account
The sum of the
Job Cost Sheets
should equal the
General Ledger
Allocate Overhead to Jobs
Use the Predetermined Overhead Rate to calculate
the amount of overhead to be applied to the
individual jobs.
This information must be reflected in both the
General Ledger and the Job Cost Sheets.
Assume that Overhead is applied on the basis of
120% of direct labor costs:
Job #1: 120% x $600 = $720
Job #2: 120% x $100 = $120
ACC 204 Chapter 2
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Allocate Overhead to Jobs
General Ledger Journal Entry
Work In Process Inventory
Dr
Cr
840
Manufacturing Overhead
840
Intermediate
Account
Job #1 Cost Sheet
Direct Materials Direct Labor Overhead
2,000
600
+720
Job #2 Cost Sheet
Direct Materials Direct Labor Overhead
400
100
+120
The sum of the
Job Cost Sheets
should equal the
General Ledger
Completed Work In Process
Assume that Job #1 is completed
General Ledger Journal Entry
Finished Goods
Work In Process Inventory
Dr
Cr
3,320
3,320
Job #1 Cost Sheet
Direct Materials Direct Labor Overhead
2,000
600
720
ACC 204 Chapter 2
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Sale & Cost Of Goods Sold
Assume that Job #1 is sold for $4,000.
Note that as a Perpetual Inventory System, the
COGS entry is made at the time of sale.
General Ledger Journal Entries
Accounts Receivable
Dr
Cr
4,000
Sales Revenue
4,000
Dr
Cost Of Goods Sold
Cr
3,320
Finished Goods
3,320
Under / Over-applied Overhead
Note that the Predetermined Overhead Rate is based
on 2 estimates, and therefore is highly unlikely to be
exact, which will result in Overhead being either
under-applied or over-applied
Estimated Annual
Overhead Costs
=
Expected Annual
Operating Activity
ACC 204 Chapter 2
Predetermined
Overhead Rate
10
Under / Over-applied Overhead
Manufacturing Overhead
Dr
Actual Costs
Cr
Costs Applied
At the end of the year:
if Actual > Applied (i.e., a net debit balance) then Under-applied
if Actual < Applied (i.e., a net credit balance) then Over-applied
Generally, the balances are closed out as an adjustment to COGS.
ACC 204 Chapter 2
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