m8 chp 14 9 textbook power point

8/3/2019 m8 Chp 14 9 Textbook Power Point

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2005 Prentice Hall Business Publishing, Introduction to Management Accounting13/e, Horngren/Sundem/Stratton 14 - 1

Job-Costing and

Process-Costing Systems

Chapter 14


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Learning Objective 1

Distinguish between job-order

costing and process costing.


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Distinction Between Job-Order

Costing and Process Costing

Job-order costing allocates coststo products that are identified by

individual units or batches.

Process costing averages costsover large numbers of nearly

identical products.


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Job-Order Costing Basic Records

Job-cost record

Materials requisitions

Labor time cards


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Date Started: 1/7/03 Job Number: 963Date Completed: 1/14/03 Units completed: 12Cost Date Ref. Quantity Amount Summary

Direct Materials:

6 Bars 1/7 N41 24 120.00Casings 1/9 K56 12 340.00 460.00Direct Labor:Drill 1/8 7Z4 7.0 105.00

1/9 7Z5 5.5 82.50

Grind 1/13 9Z2 4.0 80.00 267.50Overhead:Applied 1/14 9.0 mach. hrs. 180.00 180.00Total cost 907.50Unit cost 75.625

Job-Cost Record


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Prepare summary journal

entries for the typical

transactions of a

job-costing system.


7/532005 Prentice Hall Business Publishing, Introduction to Management Accounting13/e, Horngren/Sundem/Stratton 14 - 7

General Flow of Costs:

Enriquez Machine Parts Company

Beginningdirect materials

inventory $110,000

Purchases

$1,900,000+

= EndingInventory$120,000

Direct materialsused$1,890,000





BeginningWIP

inventory $0

Direct materialsused

$1,890,000+

Direct laborand overhead$765,000

+

= Endinginventory$155,000

Cost of goodsmanufactured$2,500,000





Beginningfinished goods

inventory $12,000

Cost of goodsavailable forsale $2,512,000

Cost of goodsmanufactured

$2,500,000+ =

= Endinginventory$32,000

Cost ofgoods sold$2,480,000



110,000

1,900,0002,010,000

Materials Inventory

Materials Cost

Materials Inventory 1,900,000Accounts Payable 1,900,000

To record purchase of direct materials



Materials Cost

1,890,000

WIP Inventory

110,000

1,900,0002,010,000

Materials Inventory

1,890,000

Work-in-Process Inventory 1,890,000Materials Inventory 1,890,000

To record usage of direct materials


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Actual Overhead Costs

Factory Department OverheadControl 392,000

Various Accounts 392,000To record actual factory overhead incurred


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Labor and Overhead Costs

Work-in-Process Inventory 390,000Accrued Payroll 390,000

To record actual labor costs incurred

Work-in-Process Inventory 375,000

Factory DepartmentOverhead Control 375,000To record overhead applied


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Actual and Applied Overhead

Actual overhead = $392,000

Applied overhead = $375,000

$392,000 $375,000 = $17,000 underapplied

Cost of Goods Sold 17,000Factory DepartmentOverhead Control 17,000

To dispose of underapplied overhead


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How to Apply Factory Overhead

to Products

Enriquez Machine Parts Companysbudgeted manufacturing overhead for

the assembly department is $103,200.

Budgeted direct labor cost is $206,400.

$103,200 $206,400 = 50%


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How to Apply Factory Overhead

to Products

Suppose that at the end of the yearEnriquez has incurred $190,000

of direct-labor cost in assembly.

How much overhead was

applied to assembly?


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Use an activity-based costing

system in a job-order

environment.


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Activity-Based Costing in a

Job-Order Environment

Costs in an activity center

Nonvalueadded

Key activities must be identified.

Valueadded


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Show how service

organizations

use job costing.


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Product Costing in Service and

Nonprofit Organizations

Service and nonprofit organizationscall their product a program

or a class of service.

In service industries, each

customer order is a different job.


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Budgets and Control of

Engagements

$6,500,000 $2,500,000 = 260%

Revenue $10,000,000

Direct labor 2,500,000Contribution to overhead

and operating income 7,500,000Overhead (all other costs) 6,500,000Operating income $ 1,000,000


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Accuracy of Costs of Engagements

Projectedcost Price

Direct labor $ 50,000 $ 75,000

Applied overhead @ 260% 130,000 195,000Total costs excluding travel $180,000 $270,000Travel costs 14,000 14,000Total projected costs $194,000 $284,000

Suppose that this accounting firms policy for pricing

is 150% of total professional costs plus travel costs.


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Explain the basic ideas

underlying process costingand how they differ from

job costing.


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Process Costing Basics

Process costing is more efficientfor companies that produce, in a

continuous process, large quantitiesof homogenous product.


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Process Costing Compared With

Job Costing

Direct materialsDirect labor

Indirect resource cost

Job 101Job 100

Finishedgoods

Cost ofgoods sold


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Job Costing

Finishedgoods

Cost ofgoods sold

Direct materialsDirect labor

Indirect resource cost

AssemblyProcess A Process B


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Job Costing

The journal entries for process-costingsystems are similar to those

for the job-order system.

there is more than one singlework-in-process account.


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Compute output in termsof equivalent units.


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Five Key Steps

Step 1: Summarize the flow of physical units.

Step 2: Calculate output in terms of equivalent units.

Step 3: Summarize the total costs to account for.

Step 4: Calculate unit costs.

Step 5: Apply costs to units completed andto units in ending work in process.


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Physical Units and

Equivalent Units

Started and completed 20,000 20,000 20,000Ending WIP 5,000 5,000 1,250Units accounted for 25,000

Work done to date 25,000 21,250

(Step 1)Physical

units

(Step 2)Equivalent units

Direct

materials Conversion

100% 25%


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Compute costs and prepare

journal entries for theprincipal transactions

in a process-costing system.


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Calculation of Product Costs

What is the cost of a completed unit?

(Step 3) Costs to account for $112,500 $70,000 $42,500

(Step 4) Equivalent units 25,000 21,250= Unit costs $ 2.80 $ 2.00

Directmaterials

ConversioncostsTotals


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Production Cost Report

Units completed and transferred out:

20,000 units @ 44.80 $ 96,000Units in ending inventory:Materials: 5,000 2.80 14,000Conversion: 1,250 2.00 2,500Total costs $112,500

(Step 5) Application of costs


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Journal Entries

Work-in-Process Forming 70,000Direct-materials Inventory 70,000

Materials added to production during the month

Work-in-Process Forming 10,625

Accrued Payroll 10,625Direct labor during the month


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Journal Entries

Work-in-Process Forming 31,875Factory Overhead 31,875

Factory overhead applied during the month

Work-in-Process Finishing 96,000

Work-in-Process Forming 96,000Costs of goods completed and transferredduring the month from forming to assembly


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Learning Objectives 8

Demonstrate how the presence

of beginning inventories

affects the computation

of unit costs under the

weighted-average method


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Weighted-Average Method

Example

Beginning WIP:5,000 units

100% materials25% conversion costs

Ending WIP:7,000 units

100% materials60% conversion costs

Month ended May 31:Forming Department


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Example

Beginning WIP 5,000Started in May 26,000Units to accounted for 31,000Completed and

transferred out 24,000 24,000 34,000Ending WIP 7,000 7,000 4,200Units accounted for 31,000 31,000 28,200

(Step 1)Physical

units


Direct



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Example

(Step 3) Beginning WIP $ 16,500 $14,000 $ 2,500

Costs added 138,820 82,100 56,720Costs to account for $155,320 $96,100 $59,220

(Step 4) Equivalent units 31,000 28,200= Unit costs $ 3.10 $ 2.10

Directmaterials



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Example

Units completed and transferred out:

24,000 units @ $5.20 $124,800Units in ending inventory:Materials: 7,000 3.10 21,700Conversion: 4,200 2.10 8,820Total costs $155,320



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FIFO Method Example

Beginning WIP 5,000Started in May 26,000Units to accounted for 31,000Completed and

transferred out 24,000 24,000 24,000Ending WIP 7,000 7,000 4,200

Units accounted for 31,000Work done to date 31,000 28,200Less: Beginning WIP 5,000 1,250Equivalent units 26,000 26,950

(Step 1)Physicalunits


Direct



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FIFO Method Example

(Step 3) Beginning WIP $ 16,500 (work done before May)

Costs added 138,820 $82,100 $56,720Costs to account for $155,320

(Step 4) Equivalent units 26,000 26,950= Unit costs $3.1577 $2.1046

Directmaterials



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FIFO Method Example

Units in ending inventory:

Materials: 7,000 3.1577 $ 22,104Conversion: 4,200 2.1046 8,839Total WIP (7,000 units) $ 30,943Completed and transferred out

(24,000 units), $155,320 $30,943 124,377Total costs accounted for $155,320



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Transferred-in Costs in

Process Costing

The costs transferred from

another department are similarto direct material added atthe beginning of processing.


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Use backflush costing witha JIT production system.


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Process Costing in a JIT System

In just-in-time production systems, inventoryof work in process is typically small compared

to the costs of goods produced and sold.

The cost of tracking work in processexceeds the benefits for many companies.


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Backflush Costing

What is backflush costing?

It is an accounting system that

applies costs to products onlywhen the production is complete.


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Principles of Backflush Costing

Backflush costing has onlytwo categories of costs:

Materials Conversion

There is no work in process account.


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Backflush Costing Example

Speaker Technology, Inc., recentlyintroduced backflush costing and JIT.

Model AX27 Standard material cost: $14Standard conversion cost: $21

Actual production for the month: 400 unitsActual materials purchased: $5,600Actual conversion costs: $8,400


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Materials Inventory 5,600

Accounts Payable or Cash 5,600To record material purchases

Conversion Costs 8,400Accrued Wages 8,400To record conversion costs incurred


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Finished Goods Inventory 14,000Material Inventory 5,600

Conversion Costs 8,400To record costs of completed production

Cost of Goods Sold 14,000Finished Goods Inventory 14,000To record costs of 400 units sold


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Cost of Goods Sold 14,000Material Inventory 5,600Conversion Costs 8,400

Cost of Goods Sold 200Conversion Costs 200

To recognize underapplied conversion costs

The Finished Goods Account can be eliminated.


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End of Chapter 14

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