Chapter
20
Job Order
Costing
Chapter
20-1
Accounting Principles, Ninth Edition
Study Objectives
1.
Explain the characteristics and purposes of cost
accounting.
2.
Describe the flow of costs in a job order cost accounting
system.
3.
Explain the nature and importance of a job cost sheet.
4.
Indicate how the predetermined overhead rate is
determined and used.
5.
Prepare entries for jobs completed and sold.
6.
Distinguish between under- and overapplied
manufacturing overhead.
Chapter
20-2
Preview of Chapter
Accurate product costing is critical to a
company’s success
For accurate bids on new
jobs
For determining potential
profitability of new jobs
For identifying profitability
of completed jobs
Chapter
20-3
Job Order Cost Accounting
Cost Accounting
Systems
Job Order Cost
Flow
Reporting Job
Cost Data
Job Order Cost
System
Process Cost
System
Accumulating
Manufacturing
Costs
Assigning
Manufacturing
Costs to Work in
Process
Cost of goods
manufactured
schedule
Income statement
presentation
Assigning Costs to
Finished Goods
Assigning Costs to
Cost of Goods Sold
Chapter
20-4
Summary
Under-or
overapplied
manufacturing
overhead
Cost Accounting Systems
Cost accounting involves:
Measuring,
Recording, and
Reporting of product costs
Consists of the various manufacturing costs that are
fully integrated into the general ledger system.
An important feature is the use of a perpetual inventory system
to provide immediate, up-to-date information on
the cost of a product.
Chapter
20-5
LO 1: Explain the characteristics and purposes of cost accounting.
Cost Accounting Systems
There are two basic types of cost accounting systems.
Chapter
20-6
SO 1: Explain the characteristics and purposes of cost accounting.
Job Order Cost System
Costs are assigned to each job or batch
A job may be for a specific order or inventory
A key feature:
Each job or batch has its own
distinguishing characteristics
The objective: to compute the cost per job
Measures costs for each job completed – not for
set time periods
Chapter
20-7
SO 1: Explain the characteristics and purposes of cost accounting.
Job Order Cost System
Illustration 20-1
Chapter
20-8
SO 1: Explain the characteristics and purposes of cost accounting.
Process Cost System
Used when a large volume of similar products are
manufactured Cereal, Automobiles, Compact Discs, Paint
Costs are accumulated for a specific time period –
A week or a month
Costs are assigned to departments or processes
for a set period of time
Chapter
20-9
SO 1 Explain the characteristics and purposes of cost accounting.
Process Cost System
Illustration 20-2
Chapter
20-10
SO 1 Explain the characteristics and purposes of cost accounting.
Cost Accounting Systems
Review Question
Cost accounting involves the measuring,
recording, and reporting of:
a.
Product costs.
b. Future costs.
c.
Manufacturing processes.
d. Managerial accounting decisions.
Chapter
20-11
SO 1 Explain the characteristics and purposes of cost accounting.
Job Order Cost Flow
The cost flow parallels the physical flow of the
materials as they are converted into finished goods
Manufacturing costs are assigned to Work in Process
Cost of completed jobs is transferred to Finished Goods
When units are sold, the cost is transferred to Cost of Goods
Sold
Chapter
20-12
SO 2 Describe the flow of costs in a job order cost accounting system.
Job Order Cost Flow - Overview
Illustration 20-3
Chapter
20-13
SO 2 Describe the flow of costs in a job order cost accounting system.
Job Order Cost Flow
Illustration 20-4
Chapter
20-14
SO 2 Describe the flow of costs in a job order cost accounting system.
Job Order Cost Flow
Two Major Steps in Flows of Costs
Accumulate the manufacturing costs incurred
Raw Materials
Factory Labor
Manufacturing Overhead
Assign the accumulated costs to the work done
Chapter
20-15
SO 2 Describe the flow of costs in a job order cost accounting system.
Accumulating Manufacturing Cost
Raw Materials Costs
Raw Materials are debited to Raw Materials Inventory when
purchased.
At this point, the cost of materials are not assigned to
specific jobs or orders.
Example:
On January 4, Wallace Manufacturing Company purchases 2,000 handles at $5 per unit
($10,000) and 800 modules at $40 per unit ($32,000) for a total cost of $42,000.
Chapter
20-16
SO 2 Explain the flow of costs in a job order cost accounting system.
Accumulating Manufacturing Cost
Factory Labor Costs
Procedures for accumulating factory labor costs
similar to those for computing the payroll for a
merchandising company
Consists of
Gross earnings of factory workers
Employer payroll taxes on such earnings, and
Fringe benefits incurred by the employer
Chapter
20-17
SO 2: Explain the flow of costs in a job order cost accounting system.
Accumulating Manufacturing Cost
Factory Labor Costs - Continued
Debited to Factory Labor when incurred
Example:
Wallace Manufacturing incurs $32,000 of factory labor costs, of which $27,000
relates to wages payable and $5,000 relates to payroll taxes payable in January.
Chapter
20-18
SO 2: Explain the flow of costs in a job order cost accounting systems.
Accumulating Manufacturing Cost
Manufacturing Overhead Costs
Many types of overhead costs
For example, machinery repairs, indirect materials,
and indirect labor
Debit to Manufacturing Overhead
Daily as incurred or
Periodically through adjusting entries
Manufacturing overhead is a control account
Subsidiary ledger consists of individual accounts for
each type of cost
Chapter
20-19
SO 2 Explain the flow of costs in a job order cost accounting system.
Accumulating Manufacturing Cost
Manufacturing Overhead Costs - Continued
Example:
The following is a summary entry to record the totals from multiple
transactions that occurred during January for the Wallace Manufacturing
Company.
Chapter
20-20
SO 2 Explain the flow of costs in a job order cost accounting system.
Accumulating Manufacturing Costs
Review Question
When incurred, factory labor costs are
debited to:
a.
Work in Process.
b. Factory Wages Expense.
c.
Factory Labor.
d. Factory Wages Payable.
Chapter
20-21
SO 2 Explain the flow of costs in a job order cost accounting system.