Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
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Managerial Accounting
Second Edition
Weygandt / Kieso / Kimmel
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
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Job Order Cost Accounting
Cost Accounting
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
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An area of accounting that
involves:
 Measuring
 Recording
 Reporting
PRODUCT COSTS
Why Do We Need Product Costs?
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
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To determine:
 Which products to produce?
 What price to charge?
 What amounts to produce?
 What evaluation to give
employees?
Cost Accounting System
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
Manufacturing cost accounts
that are fully integrated into
the general ledger of the
company.
Perpetual inventory system used
to provide, immediate up-to-date
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information on cost of product.
Two Cost Accounting Systems
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
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• Job Order Cost System
• Process Cost System
Job Order System
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
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A cost accounting system
where costs are assigned to
each job or batch of goods.
• Custom built factory
• Production of movie
• Batch of menus
• Audit engagement
Illustration 2-1
Job Order Cost System
Two Jobs: Wedding Invitations and Menus
$
Typesetting $
Vellum stock $
Yellow stock $
Yellow Stock
Lamination$
225 Envelopes
50 Copies $
$
Black ink $
Colored Ink
Typesetting $
225
Invitations $
Job #9501
Job #9502
Each job has distinguishing characteristics and related costs.
Process Cost System
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
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A system of accounting used by companies
that manufacture
 Relatively homogeneous (same or similar)
products
 Through a series of continuous processes
or operations.
Illustration 2-2
Process Cost System
Compact Disc Production
1. Oil is
pumped.
2. Benzene
is
removed.
3. The
benzene
is made
into pellets...
4. ...from which
compact discs are
made.
Relatively similar products are produced over a specified time period.
Illustration 2-3
Job Order Cost Flow
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
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Illustration 2-4
Job Order Cost Accounting
Two Major Steps in Flows of Costs
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
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• Accumulating the
manufacturing costs incurred
– Raw materials inventory
– Factory Labor
– Manufacturing Overhead
• Assigning the accumulated
costs to the work done
Illustration 2-5
Material Inventory Record
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
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Each individual item of raw
materials has a card or record.
Item: Handles
Receipts
Date Units Cost Total
1/4 2,000 $5 $10,000
Issues
Units Cost Total
Part No: AA2746
Balance
Units Cost Total
2,000 $5 $10,000
The sum of the balances of all
these records should equal raw
materials in the general ledger.
Summary Entry
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
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A journal entry that
summarizes the total from
multiple transactions.
Accumulating Manufacturing Costs
Date
Jan. 4
Date
Jan. 31
Date
Jan. 31
Account Titles and Explanation
(1)
Raw Materials Inventory
Accounts Payable
(Purchase of raw materials on account)
Account Titles and Explanation
(2)
Factory Labor
Factory Wages Payable
Employer Payroll Taxes Payable
(To record factory labor costs)
Account Titles and Explanation
(3)
Manufacturing Overhead
Utilities Payable
Prepaid Insurance
Accounts Payable - for repairs
Accumulated Depreciation
Property Taxes Payable
(To record overhead costs)
Debit
42,000
Debit
Credit
42,000
Credit
32,000
27,000
5,000
Debit
13,800
Credit
4,800
2,000
2,600
3,000
1,400
Illustration 2-6
Job Cost Sheet
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
A form used to record the costs
chargeable to a job to determine:
• the total and
• unit cost
of the
completed
job.
Job Cost Sheet
Job No. _________________________________ Quantity ________________________________
Item ___________________________________ Date Requested __________________________
For ____________________________________ Date Completed
__________________________
Date
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Direct
Materials
Cost of completed job
Direct materials
Direct labor
Manufacturing overhead
Total cost
Unit cost (total dollars ÷ quantity)
Direct
Labor
Manufacturing
Overhead
$
$
$
Illustration 2-7
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Materials Requisition Slip
A document authorizing the
issuance of raw materials
from the store to production.
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
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Wallace Manufacturing Company
Materials Requisition Slip
Deliver to:
Charge to:
Quantity
200
Assembly Department
Work in Process – Job No. 101
Description
Handles
Stock No.
AA2746
Req. No.
Date
Cost Per Unit
$5.00
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Requested by:
Received by:
Approved by:
Costed by:
R247
1/6/96
Total
$1,000
Illustration 2-8
Job Cost Sheets – Direct Materials
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
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Illustration 2-10
Time Ticket
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
A document that indicates the
employee, the hours worked,
the account and the job to be
charged, and the total labor
cost.
Wallace Manufacturing Company
Time Ticket
Employee
Charge to:
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Start
0800
John Nash
Work in Process
Time
Stop
1200
Total Hours
4
Date:
Employee No.
Job No.
Hourly
Rate
10.00
Bob Kadler
Approved by
1/6/99
124
101
Total
Cost
40.00
M.Cher
Costed by
Illustration 2-11
Job Cost Sheets – Direct Labor
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
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Illustration 2-12
Predetermined Overhead Rate
A rate based on the relationship
between estimated annual overhead
costs and expected annual
operating activity, expressed in
terms of a common activity base.
Estimated Annual
Overhead Costs
÷
Expected Annual
Operating Activity
=
Predetermined
Overhead Rate
Illustration 2-13
Using Predetermined Overhead Rate
Work in Process
Activity Base
X
is
Predetermined
Overhead
assigned
Rate
to
Job
1
Job
2
Job
3
Illustration 2-14
Job Cost Sheets –
Manufacturing Overhead Applied
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
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Assigning Manufacturing Costs
Date
Jan. 31
Date
Jan. 31
Date
Jan. 31
Account Titles and Explanation
(4)
Work in Process Inventory
Manufacturing Overhead
Raw Materials Inventory
(To assign materials to jobs and overhead)
Account Titles and Explanation
(5)
Work in Process Inventory
Manufacturing Overhead
Factory Labor
(To assign labor to jobs and overhead)
Account Titles and Explanation
(6)
Work in Process Inventory
Manufacturing Overhead
(To assign overhead to jobs)
Debit
Credit
24,000
6,000
30,000
Debit
Credit
28,000
4,000
32,000
Debit
Credit
22,400
22,400
Jobs Completed and Sold
Date
Account Titles and Explanation
Debit
Credit
(1)
Jan. 31
Accounts Receivable
24,000
24,000
Sales
To record sale of Job 101A
Cost of Goods Sold
Finished Goods Inventory
To record cost of Job 101A
18,000
18,000
Illustration 2-18
Job Order Cost Accounting
Flow of Costs
Raw Materials Inventory
(1)
42,000
(4)
30,000
Bal.
12,000
(2)
(4)
(5)
(6)
Bal.
4
Factory Labor
32,000
(5)
32,000
5
Work in Process Inventory
24,000
(7)
39,000
28,000
22,400
35,400
7
(7)
Finished Goods Inventory
39,000
(8)
39,000
(8)
Cost of Goods Sold
39,000
Key to Entries:
Manufacturing Overhead
(3)
13,800
(6)
22,400
(4)
6,000
(5)
4,000
Bal.
1,400
6
Accumulation
1. Purchase raw materials
2. Incur factory labor
3. Incur manufacuring
overhead
4.
5.
6.
7.
8.
Assignment
Raw materials are used
Factory labor is used
Overhead is applied
Completed goods are
recognized
Cost of goods sold is
recognized
8
Underapplied Overhead
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
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A situation in which overhead
assigned to work in process
is less than the overhead
incurred.
Overapplied Overhead
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
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A situation in which overhead
assigned to work in process
is greater than the overhead
incurred.
Purposes of Cost
Accounting
Flow of Costs in
Job Order
Importance of
Job Cost Sheet
Predetermined
Overhead Rate
Entries for Jobs
Completed/Sold
Under- and
Over-applied
Overhead
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Under- or Overapplied
Manufacturing Overhead
Year-End Balance- adjust to
Cost of Goods Sold
Date
Dec. 31
Account Titles and Explanation
(5)
Manufacturing Overhead
Debit
Credit
2,500
Cost of Goods Sold
(To transfer overapplied overhead to cost of goods sold)
2,500
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