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Job Order Costing Chapter 19 19-1 Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall
Transcript

Job OrderCosting

Chapter 19

19-1Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall

Learning Objectives

1. Distinguish between job order costing and process costing

2. Record materials and labor costs in a job order costing system

3. Calculate the predetermined overhead allocation rate and allocate overhead costs

19-2Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall

Learning Objectives

4. Record the completion and sales of finished goods

5. Adjust for overallocated and underallocated overhead

6. Calculate job costs for a service company

19-3Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall

Learning Objective 1

Distinguish between Distinguish between job order costing and job order costing and

process costingprocess costing

19-4Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall

Knowing the Cost of One Unit of Product Helps Managers to:

• Set selling prices that will lead to profits

• Compute cost of goods sold for the income statement

• Compute the cost of inventory for the balance sheet

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-5

Examples of Unit Costs

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-6

Costing Systems

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-7

Four-Step Method to Track Product Costs

1. Accumulate

2. Assign

3. Allocate

4. Adjust

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-8

Would the following companies most likely use job order costing or process costing?

1. Paint manufacturer

2. Print shop

3. Caterer

4. Soft drink bottler

5. Yacht builder

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-9

Would the following companies most likely use job order costing or process costing?

1. Paint manufacturer Process costing

2. Print shop

3. Caterer

4. Soft drink bottler

5. Yacht builder

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-10

Would the following companies most likely use job order costing or process costing?

1. Paint manufacturer Process costing

2. Print shop Job order costing

3. Caterer

4. Soft drink bottler

5. Yacht builder

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-11

Would the following companies most likely use job order costing or process costing?

1. Paint manufacturer Process costing

2. Print shop Job order costing

3. Caterer Job order costing

4. Soft drink bottler

5. Yacht builder

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-12

Would the following companies most likely use job order costing or process costing?

1. Paint manufacturer Process costing

2. Print shop Job order costing

3. Caterer Job order costing

4. Soft drink bottler Process costing

5. Yacht builder

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-13

Would the following companies most likely use job order costing or process costing?

1. Paint manufacturer Process costing

2. Print shop Job order costing

3. Caterer Job order costing

4. Soft drink bottler Process costing

5. Yacht builder Job order costing

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-14

Learning Objective 2

Record materials and Record materials and labor costs in a job labor costs in a job

order costing systemorder costing system

19-15Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall

Flow of Product Costs in Job Order Costing

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-16

Job Cost RecordJob 27

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 27

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 28

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 28

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 29

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 29

Direct MaterialsDirect LaborManufacturing Overhead

Product costsfor each job are

recorded onindividual job cost

records

Exhibit 19-2 Flow of Product Costs in Job Order CostingExhibit 19-2 Flow of Product Costs in Job Order Costing

Flow of Product Costs in Job Order Costing

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-17

Job Cost RecordJob 27

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 27

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 28

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 28

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 29

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 29

Direct MaterialsDirect LaborManufacturing Overhead

Product costsfor each job are

recorded onindividual job cost

records

Exhibit 19-2 Flow of Product Costs in Job Order CostingExhibit 19-2 Flow of Product Costs in Job Order Costing

Work-in-Process Inventory

Costs IncurredJob 27Job 28Job 29

Finished Goods Inventory

BALANCE SHEET

Costs incurred for each job areadded to WIP with debits

Flow of Product Costs in Job Order Costing

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-18

Job Cost RecordJob 27

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 27

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 28

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 28

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 29

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 29

Direct MaterialsDirect LaborManufacturing Overhead

Product costsfor each job are

recorded onindividual job cost

records

Exhibit 19-2 Flow of Product Costs in Job Order CostingExhibit 19-2 Flow of Product Costs in Job Order Costing

Work-in-Process Inventory

Costs IncurredJob 27Job 28Job 29

COGMJob 27Job 28

Finished Goods Inventory

COGMJob 27Job 28

BALANCE SHEET

Costs incurred for each job areadded to WIP with debits

When the job is completed,the costs are transferred out

of WIP with a credit andtransferred into FG with a debit.

This amount iscalled the job’s Cost of Goods

Manufactured (COGM)

Flow of Product Costs in Job Order Costing

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-19

Job Cost RecordJob 27

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 27

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 28

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 28

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 29

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 29

Direct MaterialsDirect LaborManufacturing Overhead

Product costsfor each job are

recorded onindividual job cost

records

Exhibit 19-2 Flow of Product Costs in Job Order CostingExhibit 19-2 Flow of Product Costs in Job Order Costing

Work-in-Process Inventory

Costs IncurredJob 27Job 28Job 29

COGMJob 27Job 28

Finished Goods Inventory

COGMJob 27Job 28

COGSJob 27

Cost of Goods Sold

COGSJob 27

BALANCE SHEET INCOME STATEMENT

Costs incurred for each job areadded to WIP with debits

When the job is completed,the costs are transferred out

of WIP with a credit andtransferred into FG with a debit.

This amount iscalled the job’s Cost of Goods

Manufactured (COGM)

When the job is sold,the costs are transferred out

of FG with a credit andtransferred into COGS

with a debit.This amount is the job’s

Cost of Goods Sold (COGS).

When the job is sold,the costs are transferred out

of FG with a credit andtransferred into COGS

with a debit.This amount is the job’s

Cost of Goods Sold (COGS).

Purchasing Materials

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-20

Transaction 1—Materials Purchased: During 2016, Smart Touch purchased raw materials of $367,000 on account.

A =

L + E

Raw Materials Inventory

Bal. 70,000

Purchasing Materials

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-21

Transaction 1—Materials Purchased: During 2016, Smart Touch purchased raw materials of $367,000 on account.

A ↑=

L ↑ + E

RM ↑ A/P ↑

Raw Materials Inventory

Bal. 70,000

Trans. 1 367,000

Raw Materials Subsidiary Ledger

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-22

Materials Requisition

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-23

Job Cost Record—Direct Materials Recorded

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-24

Using Materials

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-25

Transaction 2—Materials Used: In 2016, Smart Touch used direct materials costing $355,000 and indirect materials of $17,000.

A

=

L + E

Raw Materials Inventory

Bal. 70,000

Trans. 1 367,000

Work-in-Process Inventory

Bal. 80,000

Using Materials

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-26

Transaction 2—Materials Used: In 2016, Smart Touch used direct materials costing $355,000 and indirect materials of $17,000.

A ↓

=

L + E ↓

RM ↓ WIP ↑

MOH ↑

Raw Materials Inventory

Bal. 70,000

Trans. 1 367,000 Trans. 2 372,000

Work-in-Process Inventory

Bal. 80,000

Trans. 2 355,000

Manufacturing Overhead

Trans. 2 17,000

Direct materials$355,000

Indirect materials$17,000

Job Cost Record—Direct Labor Recorded

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-27

Labor Costs Incurred

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-28

Transaction 3—Labor Costs Incurred: During 2016, Smart Touch incurred total labor costs of $197,000, of which $169,000 was direct labor and $28,000 was indirect labor.

A

=

L + E

Work-in-Process Inventory

Bal. 80,000

Trans. 2 355,000

Manufacturing Overhead

Trans. 2 17,000

Labor Costs Incurred

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-29

Transaction 3—Labor Costs Incurred: During 2016, Smart Touch incurred total labor costs of $197,000, of which $169,000 was direct labor and $28,000 was indirect labor.

A ↑

=

L ↑ + E ↓

WIP ↑ Wages Pay ↑

MOH ↑

Wages Payable

Trans. 3 197,000

Work-in-Process Inventory

Bal. 80,000

Trans. 2 355,000

Trans. 3 169,000

Manufacturing Overhead

Trans. 2 17,000

Trans. 3 28,000

Direct labor$169,000

Indirect labor$28,000

Record the following journal entries for Smith Company:

6. Purchased materials on account, $10,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-30

Record the following journal entries for Smith Company:

6.Purchased materials on account, $10,000

Raw Materials Inventory 10,000

Accounts Payable 10,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-31

Record the following journal entries for Smith Company:

7.Used $6,000 in direct materials and $500 in indirect materials in production.

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-32

Record the following journal entries for Smith Company:

7.Used $6,000 in direct materials and $500 in indirect materials in production.

Work in Process Inventory 6,000

Manufacturing Overhead 500

Raw Materials Inventory 6,500

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-33

Record the following journal entries for Smith Company:

8.Incurred $8,000 in labor costs, of which 80% was direct labor.

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-34

Record the following journal entries for Smith Company:

8.Incurred $8,000 in labor costs, of which 80% was direct labor.

Work in Process Inventory 6,400

Manufacturing Overhead 1,600

Wages Payable 8,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-35

Learning Objective 3

Calculate the Calculate the predetermined predetermined

overhead allocation overhead allocation rate and allocate rate and allocate overhead costsoverhead costs

19-36Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall

Actual Overhead Costs Incurred

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-37

Transaction 4—Actual Overhead Costs Incurred: Depreciation on manufacturing plant and equipment, $20,000.

A

=

L + E

Manufacturing Overhead

Trans. 2 17,000

Trans. 3 28,000

Actual Overhead Costs Incurred

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-38

Transaction 4—Actual Overhead Costs Incurred: Depreciation on manufacturing plant and equipment, $20,000.

A ↓

=

L + E ↓

Accum Depr ↑

MOH ↑

Manufacturing Overhead

Trans. 2 17,000

Trans. 3 28,000

Trans. 4 20,000

Actual Overhead Costs Incurred

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-39

Transaction 5—Actual Overhead Costs Incurred: Plant utilities, $7,000.

A

=

L + E

Manufacturing Overhead

Trans. 2 17,000

Trans. 3 28,000

Trans. 4 20,000

Actual Overhead Costs Incurred

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-40

Transaction 5—Actual Overhead Costs Incurred: Paid $7,000 for plant utilities.

A ↓

=

L + E ↓

Cash ↓ MOH ↑

Manufacturing Overhead

Trans. 2 17,000

Trans. 3 28,000

Trans. 4 20,000

Trans. 5 7,000

Actual Overhead Costs Incurred

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-41

Transaction 6—Actual Overhead Costs Incurred:Plant insurance, $6,000 (previously paid).

A

=

L + E

Manufacturing Overhead

Trans. 2 17,000

Trans. 3 28,000

Trans. 4 20,000

Trans. 5 7,000

Actual Overhead Costs Incurred

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-42

Transaction 6—Actual Overhead Costs Incurred: Plant insurance, $6,000 (previously paid).

A ↓

=

L + E ↓

Prepaid Ins ↓

MOH ↑

Manufacturing Overhead

Trans. 2 17,000

Trans. 3 28,000

Trans. 4 20,000

Trans. 5 7,000

Trans. 6 6,000

Actual Overhead Costs Incurred

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-43

Transaction 7—Actual Overhead Costs Incurred: Plant property taxes incurred but not yet paid, $5,000.

A

=

L + E

Manufacturing Overhead

Trans. 2 17,000

Trans. 3 28,000

Trans. 4 20,000

Trans. 5 7,000

Trans. 6 6,000

Actual Overhead Costs Incurred

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-44

Transaction 7—Actual Overhead Costs Incurred: Plant property taxes incurred but not yet paid, $5,000.

A

=

L ↑ + E ↓

Prop Tax Pay ↑

MOH ↑

Manufacturing Overhead

Trans. 2 17,000

Trans. 3 28,000

Trans. 4 20,000

Trans. 5 7,000

Trans. 6 6,000

Trans. 7 5,000

Bal 83,000

Steps for Allocating Overhead Costs

1. Calculating the predetermined overhead rate before the period

2. Allocating overhead during the period

3. Adjusting overhead at the end of the period

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-45

Predetermined OverheadAllocation Rate

Total estimated overhead costs

Total estimated quantity of the overhead allocation base

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-46

Traditional Cost Drivers

• Direct labor hours (for labor-intensive production environments)

• Direct labor cost (for labor-intensive production environments)

• Machine hours (for machine-intensive production environments)

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-47

Predetermined OverheadAllocation Rate

At the end of 2015, Smart Touch estimated that total overhead costs for 2016 would be $68,000 and direct labor cost would total $170,000.

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-48

Predetermined OverheadAllocation Rate

At the end of 2015, Smart Touch estimated that total overhead costs for 2016 would be $68,000 and direct labor cost would total $170,000.

Total estimated overhead costsTotal estimated quantity of the overhead allocation base

$ 68,000$170,000

= 0.40 = 40%

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-49

Allocating Overhead

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-50

Allocated Manufacturing Overhead Cost

=Predetermined

Overhead Allocation Rate

×

Actual Quantity of the Allocation Base Used by

Each Job

Allocating Overhead

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-51

Smart Touch Learning’s total direct labor cost for Job 27 was $1,250. How much overhead should be allocated to Job 27?

Allocating Overhead

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-52

Allocated Manufacturing Overhead Cost

=Predetermined

Overhead Allocation Rate

×

Actual Quantity of the Allocation Base Used by

Each Job

= 40% × $1,250

= $500

Smart Touch Learning’s total direct labor cost for Job 27 was $1,250. How much overhead should be allocated to Job 27?

Job Cost Record—Completed

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-53

Cost of goods manufacturedTotal units produced

$4,50015 tablets

= $300 per tablet

Cost of goods manufacturedTotal units produced

$4,50015 tablets

= $300 per tablet

Overhead Allocation

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-54

Transaction 8—Overhead Allocation: Smart Touch’s total direct labor cost for 2016 was $169,000. Overhead was allocated based on direct labor cost.

A

=

L + E

Overhead Allocation

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-55

Transaction 8—Overhead Allocation: Smart Touch’s total direct labor cost for 2016 was $169,000. Overhead was allocated based on direct labor cost.

A ↑

=

L + E ↑

WIP ↑ MOH ↓

Manufacturing Overhead

Trans. 2 17,000 Trans. 8 67,600

Trans. 3 28,000

Trans. 4 20,000

Trans. 5 7,000

Trans. 6 6,000

Trans. 7 5,000

Bal 15,400

Work-in-Process Inventory

Bal. 80,000

Trans. 2 355,000

Trans. 3 169,000

Trans. 8 67,600Overhead Allocated

40% × $169,000

Smith Company expected to incur $10,000 in manufacturing overhead costs and use 4,000 machine hours for the year. Actual manu-facturing overhead was $9,700 and the company used 4,250 machine hours.

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-56

9. Calculate the predetermined overhead allocation rate using machine hours as the allocation base.

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-57

9. Calculate the predetermined overhead allocation rate using machine hours as the allocation base.

$10,000

4,000 machine hours

$2.50 per machine hour

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-58

10. How much manufacturing overhead was allocated during the year?

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-59

10. How much manufacturing overhead was allocated during the year?

$2.50 per machine hour × 4,250 machine hours

= $10,625

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-60

Learning Objective 4

Record the completion Record the completion and sales of finished and sales of finished

goodsgoods

19-61Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall

Flow of Product Costs in Job Order Costing

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-62

Job Cost RecordJob 27

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 27

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 28

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 28

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 29

Direct MaterialsDirect LaborManufacturing Overhead

Job Cost RecordJob 29

Direct MaterialsDirect LaborManufacturing Overhead

Product costsfor each job are

recorded onindividual job cost

records

Exhibit 19-8 Flow of Product Costs for Jobs 27, 28, and 29Exhibit 19-8 Flow of Product Costs for Jobs 27, 28, and 29

Work-in-Process Inventory

Costs IncurredJob 27

4,500Job 28

6,000Job 29

3,300Bal

3,300

COGMJob 27

4,500Job 28

6,000

Finished Goods Inventory

COGMJob 27

4,500Job 28

6,000Bal

6,000

COGSJob 27

4,500

Cost of Goods Sold

COGSJob 27

4,500Bal

4,500

BALANCE SHEET INCOME STATEMENT

Costs incurred for each job areadded to WIP with debits

When the job is completed,the costs are transferred out

of WIP with a credit andtransferred into FG with a debit.

This amount iscalled the job’s Cost of Goods

Manufactured (COGM)

When the job is sold,the costs are transferred out

of FG with a credit andtransferred into COGS

with a debit.This amount is the job’s

Cost of Goods Sold (COGS).

When the job is sold,the costs are transferred out

of FG with a credit andtransferred into COGS

with a debit.This amount is the job’s

Cost of Goods Sold (COGS).

Jobs Completed

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-63

Transaction 9—Jobs Completed: The $644,600 Cost of Goods Manufactured is the cost of all jobs Smart Touch completed during 2016.

A

=

L + E

Jobs Completed

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-64

Transaction 9—Jobs Completed: The $644,600 Cost of Goods Manufactured is the cost of all jobs Smart Touch completed during 2016.

A ↑ ↓

=

L + E

FG ↑WIP ↓

Work-in-Process Inventory

Bal. 80,000

Trans. 2 355,000 Trans. 9 644,600

Trans. 3 169,000

Trans. 8 67,600

Finished Goods Inventory

Bal. 0

Trans. 9 644,600Cost of Goods Manufactured

Jobs Sold

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-65

Transaction 10—Jobs Sold: During 2016, sales on account were $1,200,000.

A

=

L + E

Jobs Sold

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-66

Transaction 10—Jobs Sold: During 2016, sales on account were $1,200,000

A ↑

=

L + E ↑

A/R ↑ Sales ↑

Cost of Jobs Sold

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-67

Transaction 11—Cost of Jobs Sold: The cost of all jobs that Smart Touch sold during 2016 was $584,600.

A

=

L + E

Cost of Jobs Sold

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-68

Transaction 11—Cost of Jobs Sold: The cost of all jobs that Smart Touch sold during 2016 was $584,600.

A ↓

=

L + E ↓

FG ↓ COGS ↑

Cost of Goods Sold

Trans. 11 584,600Cost of Goods

Sold

Finished Goods Inventory

Bal. 0

Trans. 9 644,600 Trans. 11 584,600

Summary of the Completion and Sale of Jobs

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-69

Work-in-Process Inventory

Costs Incurred COGM

Bal. 80,000

Trans. 2 355,000 Trans. 9 644,600

Trans. 3 169,000

Trans. 8 67,600

Bal. 27,000

Finished Goods Inventory

COGM COGS

Bal.

0

Trans. 9

644,600

Trans. 11

584,600

Bal.

60,000

Cost of Goods Sold

COGS

Trans. 11

584,600

BALANCE SHEET INCOME STATEMENT

The following information pertains to Smith Company, which you worked with previously in this chapter:

11.Smith Company completed jobs that cost $25,000 to manufacture. Record the journal entry.

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-70

The following information pertains to Smith Company, which you worked with previously in this chapter:

11.Smith Company completed jobs that cost $25,000 to manufacture. Record the journal entry.

Finished Goods Inventory 25,000

Work-in-Process Inventory 25,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-71

12. Smith Company sold jobs to customers on account for $52,000 that cost $22,000 to manufacture. Record the journal entries.

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-72

12. Smith Company sold jobs to customers on account for $52,000 that cost $22,000 to manufacture. Record the journal entries.

Accounts Receivable 52,000Sales Revenues 52,000

Cost of Goods Sold22,000Finished Goods Inventory 22,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-73

Learning Objective 5

Adjust for Adjust for overallocated and overallocated and

underallocated underallocated overheadoverhead

19-74Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall

Manufacturing Overhead Balance

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-75

Manufacturing Overhead

Trans. 2 17,000 Trans. 8 67,600

Trans. 3 28,000

Trans. 4 20,000

Trans. 5 7,000

Trans. 6 6,000

Trans. 7 5,000

Bal. 15,400

Actual costs$83,000

Allocated costs

Adjusting Manufacturing Overhead

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-76

Transaction 12—Adjusting Manufacturing Overhead: At the end of 2016, the Manufacturing Overhead account is closed.

A

=

L + E

Adjusting Manufacturing Overhead

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-77

Transaction 12—Adjusting Manufacturing Overhead: At the end of 2016, the Manufacturing Overhead account is closed.

A

=

L + E ↑ ↓

COGS ↑MOH ↓

Manufacturing Overhead

Trans. 2 17,000 Trans. 8 67,600

Trans. 3 28,000

Trans. 4 20,000

Trans. 5 7,000

Trans. 6 6,000

Trans. 7 5,000

Bal. 15,400

Trans. 12 15,400

Bal. 0

Cost of Goods Sold

Trans. 11 584,600

Trans. 12 15,400

Bal. 600,000

Underallocated Manufacturing

Overhead

Accounting for Manufacturing Overhead

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-78

Exhibit 19-9 Accounting for Manufacturing OverheadExhibit 19-9 Accounting for Manufacturing Overhead

Before the PeriodCalculating the Predetermined Overhead Allocation Rate

Predetermined OverheadAllocation Rate

=Total estimated manufacturing costs

Total estimated quantity of the overhead allocation base

Accounting for Manufacturing Overhead

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-79

Exhibit 19-9 Accounting for Manufacturing OverheadExhibit 19-9 Accounting for Manufacturing Overhead

Before the PeriodCalculating the Predetermined Overhead Allocation Rate

Predetermined OverheadAllocation Rate

=Total estimated manufacturing costs

Total estimated quantity of the overhead allocation base

During the PeriodAllocating Overhead

Allocated ManufacturingOverhead Cost

=Predetermined

OverheadAllocation Rate

×Actual Quantity of theAllocation Base Used

by Each Job

Accounting for Manufacturing Overhead

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-80

Exhibit 19-9 Accounting for Manufacturing OverheadExhibit 19-9 Accounting for Manufacturing Overhead

Before the PeriodCalculating the Predetermined Overhead Allocation Rate

Predetermined OverheadAllocation Rate

=Total estimated manufacturing costs

Total estimated quantity of the overhead allocation base

During the PeriodAllocating Overhead

Allocated ManufacturingOverhead Cost

=Predetermined

OverheadAllocation Rate

×Actual Quantity of theAllocation Base Used

by Each Job

At the End of the PeriodAdjusting for Overallocated and Underallocated Overhead

ManufacturingOverhead

Cost ofGoods Sold

Journal Entry

Actual costs > allocated costs Underallocated Undercosted DR – COGS ↑CR – MOH ↓

Accounting for Manufacturing Overhead

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-81

Exhibit 19-9 Accounting for Manufacturing OverheadExhibit 19-9 Accounting for Manufacturing Overhead

Before the PeriodCalculating the Predetermined Overhead Allocation Rate

Predetermined OverheadAllocation Rate

=Total estimated manufacturing costs

Total estimated quantity of the overhead allocation base

During the PeriodAllocating Overhead

Allocated ManufacturingOverhead Cost

=Predetermined

OverheadAllocation Rate

×Actual Quantity of theAllocation Base Used

by Each Job

At the End of the PeriodAdjusting for Overallocated and Underallocated Overhead

ManufacturingOverhead

Cost ofGoods Sold

Journal Entry

Actual costs > allocated costs Underallocated Undercosted DR – COGS ↑CR – MOH ↓

Actual costs < allocated costs Overallocated Overcosted DR – MOH ↑CR – COGS ↓

Summary of Journal Entries

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-82

A ↑=

L ↑ + E

RM ↑ A/P ↑

A ↓

=

L + E ↓

RM ↓ WIP ↑

MOH ↑

A ↑

=

L ↑ + E ↓

WIP ↑ Wages Pay ↑

MOH ↑

Summary of Journal Entries(continued)

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-83

A ↓

=

L + E ↓

AccumDepr ↑

MOH ↑

A ↓

=

L + E ↓

Cash ↓

MOH ↑

A ↓

=

L + E ↓

PrepaidInsurance ↓

MOH ↑

Summary of Journal Entries(continued)

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-84

A ↑

=

L + E ↑

WIP ↑ MOH ↓

A ↑↓

=

L + E

FG ↑WIP ↓

A

=

L ↑ + E ↓

Prop Tax

Pay ↑MOH ↑

Summary of Journal Entries(continued)

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-85

A ↓

=

L + E ↓

FG ↓ COGS ↑

A

=

L + E ↑↓

COGS ↑MOH ↓

A ↑

=

L + E ↑

A/R ↑

SalesRevenue ↑

Schedule of Cost of Goods Manufactured

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-86

Income Statement

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-87

The following information pertains to Smith Company for the year:Estimated manufacturing overhead $500,000

Estimated direct labor hours 10,000 hours

Actual manufacturing overhead $550,000

Actual direct labor hours 10,500 hours

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-88

13. Calculate the predetermined overhead allocation rate using direct labor hours as the allocation base.

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-89

13. Calculate the predetermined overhead allocation rate using direct labor hours as the allocation base.

$500,00010,000 direct labor hours

$50 per direct labor hour

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-90

14. Determine the amount of overhead allocated during the year. Record the journal entry.

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-91

14. Determine the amount of overhead allocated during the year. Record the journal entry.

$50 per direct labor hour × 10,500 hours

= $525,000

Work-in-Process Inventory 525,000Manufacturing Overhead 525,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-92

15. Determine the amount of underallocated or overallocated overhead. Record the journal entry to adjust Manufacturing Overhead.

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-93

15. Determine the amount of underallocated or overallocated overhead. Record the journal entry to adjust Manufacturing Overhead.

Actual overhead $ 550,000– Allocated overhead 525,000

Underallocated $ 25,000

Cost of Goods Sold 25,000Manufacturing Overhead 25,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-94

Learning Objective 6

Calculate job costs for Calculate job costs for a service companya service company

19-95Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall

Predetermined Overhead Allocation Rate in a Service Company

Walsh Associates, a law firm, estimates the following indirect costs for 2016:Office rent $ 200,000

Office support staff 70,000

Maintaining and updating law library for case research 25,000

Advertisements 3,000

Sponsorship of the symphony 2,000

Total indirect costs $ 300,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-96

Predetermined Overhead Allocation Rate in a Service Company

Walsh uses direct labor hours as the allocation base because direct labor hours are the main driver of indirect costs. It is estimated that Walsh attorneys will work 10,000 direct labor hours in 2016. The predetermined overhead allocation rate is:

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-97

Predetermined Overhead Allocation Rate in a Service Company

Walsh uses direct labor hours as the allocation base because direct labor hours are the main driver of indirect costs. It is estimated that Walsh attorneys will work 10,000 direct labor hours in 2016. The predetermined overhead allocation rate is:

$300,000 expected indirect costs10,000 expected direct labor hours

= $30 per direct labor hour

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-98

Allocating indirect costs to jobs

Direct labor costs are $50 per hour. Client 367 required 14 direct labor hours. The total costs assigned to Client 367 are:

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-99

Allocating indirect costs to jobs

Direct labor costs are $50 per hour. Client 367 required 14 direct labor hours. The total costs assigned to Client 367 are:

Direct labor: 14 hours × $50 per hour $700

Indirect costs: 14 hours × $30 per hour420

Total costs $ 1,120

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-100

Pricing Decisions

The total hourly rate for the company is $80 ($50 per hour for direct labor plus $30 per hour for indirect costs). If the firm desires a profit equal to 75% of the firm’s cost, then the price would be:

Markup = Total Cost × Markup Percentage

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-101

Pricing Decisions

The total hourly rate for the company is $80 ($50 per hour for direct labor plus $30 per hour for indirect costs). If the firm desires a profit equal to 75% of the firm’s cost, then the price would be:

Markup = Total Cost × Markup Percentage= $80 per hour × 75%= $60 per hour

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-102

Pricing Decisions

The total hourly rate for the company is $80 ($50 per hour for direct labor plus $30 per hour for indirect costs). If the firm desires a profit equal to 75% of the firm’s cost, then the price would be:

Markup = Total Cost × Markup Percentage= $80 per hour × 75%= $60 per hour

Price = Total Cost + Markup

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-103

Pricing Decisions

The total hourly rate for the company is $80 ($50 per hour for direct labor plus $30 per hour for indirect costs). If the firm desires a profit equal to 75% of the firm’s cost, then the price would be:

Markup = Total Cost × Markup Percentage= $80 per hour × 75%= $60 per hour

Price = Total Cost + Markup= $80 per hour + $60 per hour= $140 per hour

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-104

Wesson Company is a consulting firm. The firm expects to have $45,000 in indirect costs during the year and bill customers for 6,000 hours. The cost of direct labor is $75 per hour.

16.Calculate the predetermined overhead allocation rate for Wesson.

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-105

Wesson Company is a consulting firm. The firm expects to have $45,000 in indirect costs during the year and bill customers for 6,000 hours. The cost of direct labor is $75 per hour.

16.Calculate the predetermined overhead allocation rate for Wesson.

$45,0006,000 billable hours

$7.50 per billable hour

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-106

17. Wesson completed a consulting job for George Peterson and billed the customer for 15 hours. What was the total cost of the consulting job?

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-107

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-108

17. Wesson completed a consulting job for George Peterson and billed the customer for 15 hours. What was the total cost of the consulting job?

Direct labor15 billable hours × $75.00 per billable hour = $1,125.00

Indirect costs15 billable hours × $7.50 per billable hour = 112.50

Total cost $1,237.50

18. If Wesson wants to earn a profit equal to 60% of the cost of a job, how much should the company charge Mr. Peterson?

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-109

18. If Wesson wants to earn a profit equal to 60% of the cost of a job, how much should the company charge Mr. Peterson?

Profit = 60% of cost

= 60% × $1,237.50

= $742.50

Price = Cost + Profit

= $1,237.50 + $742.50

= $1,980.00

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-110

Key Terms

• Allocation Base

• Cost Driver

• Job

• Job Cost Record

• Job Order Costing System

• Labor Time Record

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 19-111


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