ronald hilton chapter 3

8/13/2019 Ronald Hilton Chapter 3

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Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

Product Costing and Cost Accumulation in a BatchProduction Environment

Chapter 3


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LearningObjective

1


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3-3

Product and Service Costing

Financial Accounting

Product costs areused to valueinventory and tocompute cost of

goods sold.

Managerial Accounting and

Cost Management

Product costs areused for planning,

control, directing, andmanagement decision

making.


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LearningObjective

2


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3-5

Direct material cost Product cost transferredDirect labor costManufacturing overhead when product is finished

Expense closed into

Income Summary at endof accounting period

Work-in-Process Inventory Finished Goods Inventory

Cost of Goods Sold Income Summary

Flow of Costs in Manufacturing Firm


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LearningObjective

3


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3-7

Used for production of large, unique, high-cost items. Built to order rather than mass produced.

Many costs can be directly traced to each job.

TWO TYPES:

Job-shop operations

Products manufactured in very low volumes or oneat a time.

Batch-production operations

Multiple products in batches of relatively smallquantity.

ProcessCosting

Job-OrderCosting

Types of Product-Costing Systems


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Job Number F16 Description

Date Started Nov. 1, 20x1 Date CompletedNumber of Units Completed 80

Date Quantity Cost11/1 7,200 sq ft $18,000

Date Quantity Cost

Variousdates 600 $12,000

Date Quantity Cost11/30 600 $18,000

Date Cost Balance

JOB-COST RECORD

Direct MaterialRequisition Number Unit Price

$2.50

Direct Labor Requisition Number Unit Price

Direct Labor Hours $30.00

80 deluxe alum. fishing boats

Nov. 22, 20x1

Various time cards $20

Manufacturing OverheadRequisition Number Unit Price

803

Cost ItemTotal direct material

AmountCost Summary

$18,000Total direct labor Total manufacturing overhead

12,000 18,000

Total costUnit cost

Shipping Summary

Units Shipped

Units Remaining

in Inventory

Job-Order Cost Accounting


9/25Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

LearningObjective

4


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Overhead is applied to jobs using a predeterminedoverhead rate (POHR) based on estimates made at

the beginning of the accounting period.

POHR = Budgeted manufacturing overhead costBudgeted amount of cost driver (or activity base)

Overhead applied = POHR Actual activity

Based on estimates , anddetermined before the

period begins

Actual amount of the allocationbase, such as direct labor hours,

incurred during the period

1

2

Manufacturing Overhead Costs



LearningObjective

5


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Raw Materials Material

Purchases DirectMaterial

DirectMaterial

Mfg. Overhead IndirectMaterial

IndirectMaterial

Work in Process(Job-Cost Record)

Job-Order System Cost Flows


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DirectLabor


DirectMaterial

IndirectLabor

DirectLabor

IndirectLabor

Wages PayableWork in Process

(Job-Cost Record)



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DirectLabor


DirectMaterial

OverheadApplied toWork inProcess

If actual and applied

manufacturing overhead arenot equal, a year-end

adjustment is required. Wewill look at the procedure to

accomplish this later.

IndirectLabor

DirectLabor

Overhead

Applied

IndirectLabor

Wages PayableWork in Process

(Job-Cost Record)



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Cost ofGoods

Mfd.

Finished Goods

Cost ofGoods

Sold

Cost ofGoods

Mfd.

Cost of Goods Sold

Cost ofGoods

Sold

DirectMaterial DirectLabor

Overhead

Applied

Work in Process(Job-Cost Record)



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Alternative 1 Alternative 2If Manufacturing Close to CostOverhead is . . . Allocation of Goods Sold

UNDERAPPLIED INCREASE INCREASEWork in Process Cost of Goods Sold

(Applied OH is less Finished Goods

than actual OH) Cost of Goods SoldOVERAPPLIED DECREASE DECREASE

Work in Process Cost of Goods Sold(Applied OH is greater Finished Goods

than actual OH) Cost of Goods Sold

Overapplied and Underapplied

Manufacturing Overhead - Summary



LearningObjective

6


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Schedule of Cost of Goods Manufactured

Direct material:Raw material inventory, beginning $xxx

Add: Raw material purchases xxxRaw material available for use $xxxDeduct: Raw material, ending xxxRaw material used $xxx

Direct labor xxx

Manufacturing overheadIndirect material $xxxIndirect labor xxxOther actual overhead charges xxx

Total actual manufacturing overhead $xxx

Add: Overapplied overheador Deduct: Underapplied overhead xxx

Overhead applied to work-in-process xxx

Total manufacturing costs $xxx Add: Work-in-process inventory, beginning xxxSubtotal $xxx

Deduct: Work-in-process inventory, ending xxxCost of goods manufactured $xxx

Schedule of Cost of Goods Manufactured


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Schedule of Cost of Goods Sold

Finished goods inventory, beginning $xxx Add: Cost of goods manufactured* xxxCost of goods available for sale $xxxDeduct: Finished goods inventory, ending xxxCost of goods sold $xxx

Add: Underapplied overheador Deduct: Overapplied overhead xxxCost of goods sold (adjusted) $xxx

* From Cost of Goods Manufactured Schedule

Schedule of Cost of Goods Sold


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Actual direct materialand direct labor

combined withactual overhead.

Actual direct materialand direct labor

combined withpredetermined overhead.

Using a predetermined rate makes itpossible to estimate total job costs sooner.

Actual overhead for the period is notknown until the end of the period.

Actual and Normal Costing



LearningObjective

7


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Departmental Overhead Rates

Department1

Department2

Department3

Products

Cost pools

DirectLaborHours

MachineHours

RawMaterials

Cost

Stage One:Costs assignedto pools

Stage Two:

Costs appliedto products

Departmental Allocation Bases

IndirectMaterials

OtherOverhead

IndirectLabor



LearningObjective

8


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CAN BE USED IN NONMANUFACTURINGORGANIZATIONS

THE JOB Cases Programs Contracts Missions

CHANGING TECHNOLOGY IN MANUFACTURUNGOPERATIONS

Computerized data interchange has eliminated much ofthe paperwork associated with job-order cost systems.

Scanning devices have simplified data entry to record material andlabor use.

Job-Order Costing


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End of Chapter 3

ronald hilton chapter 3

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