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John Wiley & Sons, Inc.
Prepared byMarianne Bradford, Ph.D.
Bryant College
Accounting Principles, 6e Weygandt, Kieso, & Kimmel
Accounting Principles, 6e Weygandt, Kieso, & Kimmel
CHAPTER 21 JOB ORDER COST ACCOUNTINGCHAPTER 21 JOB ORDER COST ACCOUNTING
After studying this chapter, you should be able to:
1 Explain the characteristics and purposes of cost accounting.
2 Describe flow of costs in a job order cost accounting system.
3 Explain the nature and importance of a job cost sheet.
CHAPTER 21 JOB ORDER COST ACCOUNTINGCHAPTER 21 JOB ORDER COST ACCOUNTING
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.
After studying this chapter, you should be able to:
PREVIEW OF CHAPTER 21PREVIEW OF CHAPTER 21
JOB ORDER COST ACCOUNTING
Cost Accounting Systems
Job Order Cost Flow
Accumulating manufacturing costs
Assigning manufacturing costs to work in process
Assigning costs to finished goods
Assigning costs to cost of goods sold
Summary
Job order cost system
Process cost system
PREVIEW OF CHAPTER 21PREVIEW OF CHAPTER 21
JOB ORDER COST ACCOUNTING
Reporting Job Cost Data
Under- or Overapplied Manufacturing
Overhead
Interim balances
Year-end balance
STUDY OBJECTIVE 1STUDY OBJECTIVE 1
Explain the characteristics and purposes of cost accounting.Explain the characteristics and purposes of cost accounting.
Cost accounting involves the measuring, recording, and reporting of product costs.
Both the total cost and the unit cost of each product is determined from the accumulated data.
A cost accounting system consists of accounts for the various manufacturing costs. These accounts that are fully integrated into the general ledger of a company.
COST ACCOUNTING SYSTEMS
COST ACCOUNTING SYSTEMS
An important feature of a cost accounting system is the use of a perpetual inventory system. Such a system provides immediate, up-to-date information on the cost of a product. There are 2 basic types of cost accounting systems:
1 a job order cost system and
2 a process cost system.
COST ACCOUNTING SYSTEMS
COST ACCOUNTING SYSTEMS
Under a job order cost system, costs are assigned to each job.
An example of a job would be the manufacture of a high-speed drilling machine
An example of a batch would be the printing of 225 wedding invitations.
The objective is to calculate the cost per job. A process cost system is used when a series of connected
manufacturing processes or departments produce a large volume of similar products.
Process costing accounts for and accumulates product-related costs for a period of time.
COST ACCOUNTING SYSTEMS
COST ACCOUNTING SYSTEMS
ILLUSTRATION 21-1 JOB ORDER COST
SYSTEMS
ILLUSTRATION 21-1 JOB ORDER COST
SYSTEMSJob Order Cost System
Two jobs: Wedding Invitations and Menus
Each job has distinguishing characteristics and related costs.
Job #9501
Black ink $
Typesetting
$225
Invitations $225
Envelopes $
Vellum stock
$
Job #9502
Typesetting
$White stock $Lamination $50 Copies $
ILLUSTRATION 21-2 PROCESS COST
SYSTEMS
ILLUSTRATION 21-2 PROCESS COST
SYSTEMSProcess Cost System: Compact Disc Production
Similar products are produced over a specified time period.
1. Oil is pumped. 2. Benzene is removed.
3. The benzene is made into pellets...
4. ...from which compact discs are made.
STUDY OBJECTIVE 2STUDY OBJECTIVE 2
Describe the flow of costs in a job order cost accounting system.Describe the flow of costs in a job order cost accounting system.
The flow of costs in job order cost accounting parallels the physical flow of the materials as they are converted into finished goods.
There are 2 major steps in the flow of costs:1 accumulating the manufacturing costs incurred and2 assigning the accumulated costs to the work done.
As shown in Illustration 21-3, manufacturing costs incurred are accumulated in entries 1-3 by debits to Raw Materials Inventory, Factory Labor, and Manufacturing Overhead.
The remaining entries (entries 4-8) pertain to the assignment of manufacturing costs incurred.
JOB ORDER COST FLOWJOB ORDER COST FLOW
ILLUSTRATION 21-3 FLOW OF COSTS IN JOB ORDER
COST ACCOUNTING
ILLUSTRATION 21-3 FLOW OF COSTS IN JOB ORDER
COST ACCOUNTING
Manufacturing Costs
RAW MATERIALS
FACTORYLABOR
MANUFACTURING OVERHEAD
Assigned toAssigned to
ILLUSTRATION 21-3FLOW OF COSTS IN JOB ORDER COST ACCOUNTING
ILLUSTRATION 21-3FLOW OF COSTS IN JOB ORDER COST ACCOUNTING
Work in Process Inventory
CompletedCompleted
WORK IN PROCESS
ILLUSTRATION 21-3FLOW OF COSTS IN JOB ORDER
COST ACCOUNTING
ILLUSTRATION 21-3FLOW OF COSTS IN JOB ORDER
COST ACCOUNTING
FINISHED GOODS
SoldSold
Finished Goods Inventory
ILLUSTRATION 21-3FLOW OF COSTS IN JOB ORDER
COST ACCOUNTING
ILLUSTRATION 21-3FLOW OF COSTS IN JOB ORDER
COST ACCOUNTING
Cost of Goods Sold
COST OF GOODS SOLD
ILLUSTRATION 21-4 JOB ORDER
COST ACCOUNTING SYSTEM
ILLUSTRATION 21-4 JOB ORDER
COST ACCOUNTING SYSTEMJob Order Cost AccountingJob Order Cost Accounting
Accum ulation Assignm ent1. Purchase raw m aterials 4. Raw m aterials are used2. Incur factory labor 5. Factory labor is used3. Incur m anufacuring 6. O verhead is applied
overhead 7. Com pleted goods arerecognized
8. Cost of goods sold isrecognized
Key to Entries:Key to Entries:
R a w M a te r ia ls In v e n t o r y( 1 ) P u r c h a s e s ( 4 ) M a t e r ia l s
u s e d
F a c t o r y L a b o r( 2 ) F a c t o r y l a b o r ( 5 ) F a c t o r y l a b o r
i n c u r r e d u s e d
M a n u f a c t u r i n g O v e r h e a dA c t u a l O v e r h e a d ( 6 ) O v e r h e a di n c u r r e d : a p p l i e d
( 3 ) D e p r e c i a t i o nI n s u r a n c eR e p a i r s
( 4 ) I n d i r e c tm a t e r i a l s u s e d
( 5 ) I n d i r e c tl a b o r u s e d
W o r k i n P r o c e s s I n v e n t o r y( 4 ) D i r e c t ( 7 ) C o s t o f
m a t e r i a l s u s e d c o m p l e t e d( 5 ) D i r e c t j o b s
l a b o r u s e d( 6 ) O v e r h e a d
a p p l i e d
F i n i s h e d G o o d s I n v e n t o r y( 7 ) C o s t o f ( 8 ) C o s t o f g o o d s
c o m p l e t e d s o l dj o b s
C o s t o f G o o d s S o l d( 8 ) C o s t o f g o o d s
s o l d
4 7
5
6
8
JOB ORDER COST FLOWJOB ORDER COST FLOW
In a job order cost system, manufacturing costs are recorded in the period in which they are incurred.
The costs of raw materials purchased are debited to Raw Materials Inventory when the materials are received.
No effort is made at this point to associate the cost of materials with specific jobs or orders.
Wallace Products Inc. 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.
D a t e A c c o u n t T i t l e s a n d E x p l a n a t i o n D e b i t C r e d i t( 1 )
J a n . 4 R a w M a t e r i a l s I n v e n t o r y A c c o u n t s P a y a b l e ( P u r c h a s e o f r a w m a t e r i a l s o n a c c o u n t )
42,00042,000
ILLUSTRATION 21-5 MATERIALS INVENTORY
CARD
ILLUSTRATION 21-5 MATERIALS INVENTORY
CARD
Item: Handles Part No: AA2746Receipts Issues Balance
Date Units Cost Total Units Cost Total Units Cost Total1/4 2,000 $5 $10,000 2,000 $5 $10,000
Raw Materials Inventory is a control account. The subsidiary ledger consists of individual records – in the form of
1 mechanically or manually prepared accounts or cards or
2 data files maintained electronically on disks or magnetic tape. The card for Stock No. AA2746 following the purchase is shown below.
JOB ORDER COST FLOWJOB ORDER COST FLOW
In a manufacturing company, the cost of factory labor consists of
1 gross earnings of factory workers,
2 employer payroll taxes on such earnings, and
3 fringe benefits incurred by the employer. Labor costs are debited to Factory Labor when they are incurred. Wallace Products 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. The entry is:
D a t e A c c o u n t T i t l e s a n d E x p l a n a t i o n D e b i t C r e d i t( 2 )
J a n . 3 1 F a c t o r y L a b o r F a c t o r y W a g e s P a y a b l e E m p l o y e r P a y r o l l T a x e s P a y a b l e ( T o r e c o r d f a c t o r y l a b o r c o s t s )
32,000 27,000 5,000
JOB ORDER COST FLOWJOB ORDER COST FLOW
Overhead costs may be recognized daily, as in the case of machinery repairs and the use of indirect materials and indirect labor.
Overhead costs may also be recorded periodically through adjusting entries. Property taxes, depreciation, and insurance. Are recorded periodically for example
A summary entry for overhead in Wallace Products Company is:
D a te A c c o u n t T it le s a n d E x p la n a t io n D e b it C re d it(3 )
J a n . 3 1 M a n u fa c tu r in g O v e rh e a d U t i l i t ie s P a y a b le P re p a id In s u ra n c e A c c o u n ts P a y a b le ( fo r re p a irs ) A c c u m u la te d D e p re c ia t io n P ro p e r ty T a x e s P a y a b le (T o re c o rd o v e rh e a d c o s ts )
13,8004,8002,0002,6003,0001,400
STUDY OBJECTIVE 3STUDY OBJECTIVE 3
Explain the nature and importance of a job cost sheet.Explain the nature and importance of a job cost sheet.
ILLUSTRATION 21-6
JOB COST SHEETILLUSTRATION 21-6
JOB COST SHEETA job cost sheet is a form used to record the costs chargeable to a specific job and to determine the total and unit cost of the completed job. Postings to job cost sheets are made daily.
Job Cost SheetJob No. _________________________________ Quantity ________________________________Item ___________________________________ Date Requested __________________________For ____________________________________ Date Completed __________________________
Direct Direct ManufacturingDate Materials Labor Overhead
Cost of completed job Direct materials $ Direct labor Manufacturing overheadTotal cost $
Unit cost (total dollars ÷ quantity) $
ILLUSTRATION 21-7 MATERIALS REQUISITION
SLIP
ILLUSTRATION 21-7 MATERIALS REQUISITION
SLIPThe authorization for issuing raw materials is made on a prenumbered materials requisition slip. As shown below, the requisition should indicate whether (1) the quantity and type of materials (direct or indirect) withdrawn and (2) the amount to be charged.
Wallace Manufacturing CompanyMaterials Requisition Slip
Deliver to: Assembly Department Req. No. R247Charge to: Work in Process – Job No. 101 Date 1/6/02
Quantity Description Stock No. Cost Per Unit Total200 Handles AA2746 $5.00 $1,000
Requested by: Received by:
Approved by: Costed by:
JOB ORDER COST FLOWJOB ORDER COST FLOW
•The requisition is prepared in duplicate. A copy is retained in the storeroom as evidence of the materials released; the original is sent to accounting, where the cost per unit and total cost of the materials used are determined.
•If $24,000 of direct materials and $6,000 of indirect materials are used in Wallace Products in January, the entry is an shown below.
D a t e A c c o u n t T i t l e s a n d E x p l a n a t i o n D e b i t C r e d i t( 4 )
J a n . 3 1 W o r k i n P r o c e s s I n v e n t o r yM a n u f a c t u r i n g O v e r h e a d R a w M a t e r i a l s I n v e n t o r y ( T o a s s i g n m a t e r i a l s t o j o b s a n d o v e r h e a d )
24,000 6,000 30,000
ILLUSTRATION 21-8 JOB
COST SHEETS- DIRECT MATERIALS
ILLUSTRATION 21-8 JOB
COST SHEETS- DIRECT MATERIALSG e n e r a l L e d g e r
W o r k i n P r o c e s s I n v e n t o r y1 / 3 1 2 4 , 0 0 0
The requisition slips show total direct materials costs of $12,000 for Job No. 101, $7,000 for Job No. 102, and $5,000 for Job No. 103. The posting of requisition slip R247 and other postings to the job cost sheets are shown in this illustration.
Source documents for posting to job cost sheets: Materials requisition slips
J o b N o . 1 0 1 Q u a n t i ty 1 ,0 0 0 U n itsD ir e c t D ir e c t M a n u f a c tu r in g
D a te M a te r ia ls L a b o r O v e r h e a d1 /6 1 ,0 0 0
1 /1 2 7 ,0 0 01 /2 6 4 ,0 0 0
S u b s i d i a r y L e d g e rJ o b C o s t S h e e t s
J o b N o . 1 0 2 Q u a n t i ty 1 ,5 0 0 U n itsD ir e c t D ir e c t M a n u f a c tu r in g
D a te M a te r ia l s L a b o r O v e r h e a d1 /1 0 3 ,8 0 01 /1 7 3 ,2 0 0
J o b N o . 1 0 3 Q u a n t i ty 2 ,0 0 0 U n itsD ir e c t D ir e c t M a n u f a c tu r in g
D a te M a te r ia ls L a b o r O v e r h e a d1 /2 7 5 ,0 0 0
General Ledger
Work in Process Inventory1/31 24,000
ILLUSTRATION 21-9 MATERIALS INVENTORY CARD FOLLOWING ISSUANCES
ILLUSTRATION 21-9 MATERIALS INVENTORY CARD FOLLOWING ISSUANCES
The materials inventory record for Part No. AA2746, shows the posting of requisition slip R247 and an assumed requisition slip for 760 handles costing $3,800 on January 10 for Job 102, is shown below.
Item: Handles Part No: AA2746Receipts Issues Balance
Date Units Cost Total Units Cost Total Units Cost Total1/4 2,000 $5 $10,000 2,000 $5 $10,0001/6 200 $5 $1,000 1,800 $5 9,0001/10 760 $5 3,800 1,040 $5 5,200
ILLUSTRATION 21-10
TIME TICKETILLUSTRATION 21-10
TIME TICKETFactory labor costs are assigned to jobs on the basis of time tickets prepared when the work is performed. The time ticket should indicate the employee, the hours worked, the account and job to be charged, and the total labor cost. Work in Process Inventory is debited for direct labor and Manufacturing Overhead is debited for indirect labor.
Bob Kadler M.Cher
JOB ORDER COST FLOWJOB ORDER COST FLOW
If the $32,000 total factory labor cost incurred consists of $28,000 of direct labor and $4,000 of indirect labor, the entry is as shown below.
D a t e A c c o u n t T i t l e s a n d E x p l a n a t i o n D e b i t C r e d i t( 5 )
J a n . 3 1 W o r k i n P r o c e s s I n v e n t o r yM a n u f a c t u r i n g O v e r h e a d F a c t o r y L a b o r ( T o a s s i g n l a b o r t o j o b s a n d o v e r h e a d )
28,000 4,000 32,000
STUDY OBJECTIVE 4STUDY OBJECTIVE 4
Indicate how the predetermined overhead rate is determined and used.Indicate how the predetermined overhead rate is determined and used.
ILLUSTRATION 21-11 JOB
COST SHEETS - DIRECT LABOR
ILLUSTRATION 21-11 JOB
COST SHEETS - DIRECT LABOR S u b s i d i a r y L e d g e r
J o b C o s t S h e e t s
J o b N o . 1 0 1 Q u a n t i t y 1 ,0 0 0 U n i t sD i r e c t D i r e c t M a n u f a c t u r i n g
D a t e M a t e r i a l s L a b o r O v e r h e a d1 / 6 1 ,0 0 0
1 / 1 0 9 ,0 0 01 / 1 2 7 ,0 0 01 / 2 6 4 ,0 0 01 / 3 1 6 ,0 0 0
J o b N o . 1 0 2 Q u a n t i ty 1 ,5 0 0 U n itsD ir e c t D ir e c t M a n u f a c tu r in g
D a te M a te r ia ls L a b o r O v e r h e a d1 /1 0 3 ,8 0 01 /1 5 4 ,0 0 01 /1 7 3 ,2 0 01 /2 2 5 ,0 0 0
J o b N o . 1 0 3 Q u a n tity 2 ,0 0 0 U n itsD ir e c t D ir e c t M a n u fa c tu r in g
D a te M a te r ia ls L a b o r O v e r h e a d1 /2 7 5 ,0 0 01 /2 9 4 ,0 0 0
G e n e r a l L e d g e r
W o r k i n P r o c e s s I n v e n t o r y1 / 3 1 2 4 , 0 0 01 / 3 1 2 8 , 0 0 0
The labor costs chargeable to the three jobs are $15,000, $9,000, and $4,000. The postings to the direct labor columns of the job cost sheets should equal the posting of direct labor to Work in Process Inventory.
Source documents for posting to job cost sheets: Time tickets
ILLUSTRATION 21-12 FORMULA FOR
PREDETERMINED OVERHEAD RATE
ILLUSTRATION 21-12 FORMULA FOR
PREDETERMINED OVERHEAD RATE
Estimated Annual Overhead Costs
Expected Annual Operating Activity÷ = Predetermined
Overhead Rate
Manufacturing overhead is estimated and assigned to work in process and to specific jobs on an estimated bases through a predetermined overhead rate
This rate is established by the beginning of the year and is based on the relationship between estimated annual overhead costs and expected annual operating activity.
This relationship is expressed in terms of a common activity base such as direct labor costs, direct labor hours, machine hours, or any other measure that will provide an equitable basis for applying overhead costs to jobs.
The predetermined overhead rate. The formula for a predetermined overhead rate is shown below.
JOB ORDER COST FLOWJOB ORDER COST FLOW
At Wallace Products, direct labor cost is the activity base. Annual overhead costs are expected to be $280,000 and
$350,000 of direct labor costs are anticipated. The overhead rate is 80% ($280,000 ÷ $350,000). Overhead applied for January is $22,400 ($28,000 X
80%) This application is recorded through the entry below.
D a t e A c c o u n t T i t l e s a n d E x p l a n a t i o n D e b i t C r e d i t( 6 )
J a n . 3 1 W o r k i n P r o c e s s I n v e n t o r y M a n u f a c t u r i n g O v e r h e a d ( T o a s s i g n o v e r h e a d t o j o b s )
22,400 22,400
ILLUSTRATION 21-13 USING
PREDETERMINED OVERHEAD RATES
ILLUSTRATION 21-13 USING
PREDETERMINED OVERHEAD RATES
XActivity Base
Predetermined Overhead Rate
is assigned
to
Work in Process
and specific
jobs
Job 1 Job 2 Job 3
ILLUSTRATION 21-14 JOB COST SHEETS
MANUFACTURING OVERHEAD APPLIED
ILLUSTRATION 21-14 JOB COST SHEETS
MANUFACTURING OVERHEAD APPLIED
G e n e r a l L e d g e r
W o r k i n P r o c e s s I n v e n t o r y1 / 3 1 2 4 , 0 0 01 / 3 1 2 8 , 0 0 01 / 3 1 2 2 , 4 0 0
The debit of $22,400 to Work in Process Inventory equals the sum of the overhead assigned to jobs: Job 101 $12,000
Job 102 $7,200
Job 103 $3,200.
Source documents for posting to job cost sheets: Predetermined overhead rate (80% of direct labor cost)
S u b s i d i a r y L e d g e rJ o b C o s t S h e e t s
J o b N o . 1 0 1 Q u a n t i ty 1 ,0 0 0 U n itsD ir e c t D ir e c t M a n u f a c tu r in g
D a te M a te r ia ls L a b o r O v e r h e a d1 /6 1 ,0 0 0
1 /1 0 9 ,0 0 0 7 ,2 0 01 /1 2 7 ,0 0 01 /2 6 4 ,0 0 01 /3 1 6 ,0 0 0 4 ,8 0 0
J o b N o . 1 0 2 Q u a n t i ty 1 ,5 0 0 U n i tsD ir e c t D ir e c t M a n u f a c t u r in g
D a t e M a t e r ia l s L a b o r O v e r h e a d1 /1 0 3 ,8 0 01 /1 5 4 ,0 0 0 3 ,2 0 01 /1 7 3 ,2 0 01 /2 2 5 ,0 0 0 4 ,0 0 0
J o b N o . 1 0 3 Q u a n tity 2 ,0 0 0 U n itsD ir e c t D ir e c t M a n u fa c tu r in g
D a te M a te r ia ls L a b o r O v e r h e a d1 /2 7 5 ,0 0 01 /2 9 4 ,0 0 0 3 ,2 0 0
ILLUSTRATION 21-15 PROOF OF JOB COST SHEETS TO
WORK IN PROCESS INVENTORY
ILLUSTRATION 21-15 PROOF OF JOB COST SHEETS TO
WORK IN PROCESS INVENTORY At the end of each month, the balance in Work in
Process Inventory should equal the sum of the costs shown on the job cost sheets of unfinished jobs.
Assuming that all jobs are unfinished, proof of the agreement of the control and subsidiary accounts in Wallace Products is shown below.
STUDY OBJECTIVE 5STUDY OBJECTIVE 5
Prepare entries for jobs completed and sold.Prepare entries for jobs completed and sold.
ILLUSTRATION 21-16 COMPLETED JOB COST
SHEET
ILLUSTRATION 21-16 COMPLETED JOB COST
SHEETWhen a job is completed, the costs are summarized and the lower portion of the applicable job cost sheet is completed. If Job No. 101 is completed on January 31, the job cost sheet will show the following:
JOB ORDER COST FLOWJOB ORDER COST FLOW
When a job is finished, an entry is made to transfer its total cost to Finished Goods Inventory. The entry for Wallace Products is:
D a t e A c c o u n t T i t l e s a n d E x p l a n a t i o n D e b i t C r e d i t( 7 )
J a n . 3 1 F i n i s h e d G o o d s I n v e n t o r y W o r k i n P r o c e s s I n v e n t o r y ( T o r e c o r d c o m p l e t i o n o f J o b N o . 1 0 1 )
39,00039,000
ILLUSTRATION 21-17 FINISHED GOODS RECORDILLUSTRATION 21-17 FINISHED GOODS RECORD
Finished Goods Inventory is a control account. Itcontrols individual finished goods records in a
finished goods subsidiary ledger. Postings to the receipts columns are made directly from
completed job cost sheets. The finished goods inventory record for Job No. 101 is
shown below.
Item: Magnetic Sensors Job No: 101Receipts Issues Balance
Date Units Cost Total Units Cost Total Units Cost Total1/31 1,000 $39 $39,000 1,000 $39 $39,0002/2 1,000 $39 $39,000 –0–
ASSIGNING COSTS TO COST OF GOODS SOLDASSIGNING COSTS TO COST OF GOODS SOLD
•Recognition of the cost of goods sold is made when each sale occurs.
•On January 31 Wallace Products sells Job No. 101, costing $39,000, for $50,000. The entries are:
Date Account Titles and Explanation Debit Credit(8)
Jan. 31 Accounts Receivable Sales (To record sale of Job No. 101)
31 Cost of Goods Sold Finished Goods Inventory (To record cost of Job No. 101)
50,00050,000
39,00039,000
ILLUSTRATION 21-18 JOB ORDER COST SYSTEM
FLOW OF COSTS
ILLUSTRATION 21-18 JOB ORDER COST SYSTEM
FLOW OF COSTS
Flow of CostsFlow of Costs
Accum ulation Assignm ent1. Purchase raw m aterials 4. Raw m aterials are used2. Incur factory labor 5. Factory labor is used3. Incur m anufacuring 6. O verhead is applied
overhead 7. Com pleted goods arerecognized
8. Cost of goods sold isrecognized
Key to Entries:Key to Entries:
F a c to r y L a b o r( 2 ) 3 2 ,0 0 0 ( 5 ) 3 2 ,0 0 0
R a w M a t e r ia ls In v e n t o r y( 1 ) 4 2 ,0 0 0 ( 4 ) 3 0 ,0 0 0B a l . 1 2 ,0 0 0
M a n u f a c t u r i n g O v e r h e a d( 3 ) 1 3 , 8 0 0 ( 6 ) 2 2 , 4 0 0( 4 ) 6 , 0 0 0( 5 ) 4 , 0 0 0B a l . 1 , 4 0 0
F in is h e d G o o d s In v e n to r y( 7 ) 3 9 ,0 0 0 ( 8 ) 3 9 ,0 0 0
W o r k i n P r o c e s s I n v e n t o r y( 4 ) 2 4 , 0 0 0 ( 7 ) 3 9 , 0 0 0( 5 ) 2 8 , 0 0 0( 6 ) 2 2 , 4 0 0B a l . 3 5 , 4 0 0
C o s t o f G o o d s S o ld(8 ) 3 9 ,0 0 0
7
5
84
6
ILLUSTRATION 21-19 FLOW OF DOCUMENTS IN A JOB ORDER COST SYSTEM
ILLUSTRATION 21-19 FLOW OF DOCUMENTS IN A JOB ORDER COST SYSTEM
Flow of DocumentsFlow of Documents
Materials Requisition Slips
Labor Time Tickets
Predetermined Overhead Rate
Job Cost Sheet
Jobs Are Charged Through
Cost of Jobs is Summarized on a
The job cost sheet summarizes the cost of jobs completed and not completed at the end of the accounting period. Jobs completed are transferred to finished goods to await sale.
ILLUSTRATION 21-20 COST OF GOODS MANUFACTURED
SCHEDULE
ILLUSTRATION 21-20 COST OF GOODS MANUFACTURED
SCHEDULE
The cost of goods manufactured schedule in job order costing is the same as in Chapter 20 with one exception: Manufacturing overhead applied, rather than actual overhead costs, is added to direct materials and direct labor to determine total manufacturing costs. The schedule is prepared directly from the Work in Process Inventory account.
ILLUSTRATION 21-21
PARTIAL INCOME STATEMENTILLUSTRATION 21-21
PARTIAL INCOME STATEMENT
The cost of goods manufactured ($39,000) agrees with the amount transferred from Work in Process Inventory to Finished Goods Inventory in journal entry No. 7 in Illustration 21-18.
STUDY OBJECTIVE 6STUDY OBJECTIVE 6
Distinguish between under- and overapplied manufacturing overhead.Distinguish between under- and overapplied manufacturing overhead.
UNDER- OR OVERAPPLIED MANUFACTURING OVERHEAD
UNDER- OR OVERAPPLIED MANUFACTURING OVERHEAD
Underapplied overhead means that
1 manufacturing overhead has a debit balance and
2 the overhead assigned to work in process is less than the overhead incurred.
Overapplied overhead means that
1 manufacturing overhead has a credit balance and
2 the overhead assigned to work in process is greater than the overhead incurred.
UNDER- OR OVERAPPLIED MANUFACTURING OVERHEAD
UNDER- OR OVERAPPLIED MANUFACTURING OVERHEAD
The existence of under- or overapplied overhead at the end of a month usually does not require corrective action by management.
Under- or overapplied overhead is on the monthly balance sheet:
1) underapplied overhead is a prepaid expense (current asset) and
2) overapplied overhead is unearned revenue (current liability).
ILLUSTRATION 21-22 UNDER- AND
OVERAPPLIED OVERHEAD
ILLUSTRATION 21-22 UNDER- AND
OVERAPPLIED OVERHEAD
MANUFACTURING OVERHEAD
Manufacturing Overhead
Actual
(Costs Incurred)
Applied
(Costs Assigned)
If actual is greater than applied, manufacturing overhead is underapplied.
If actual is less than applied, manufacturing overhead is overapplied.
UNDER- OR OVERAPPLIED MANUFACTURING OVERHEAD
UNDER- OR OVERAPPLIED MANUFACTURING OVERHEAD
• Any year-end balance in Manufacturing Overhead is eliminated by an adjusting entry.
• Under- or overapplied overhead is usually considered to be an adjustment to cost of goods sold.
• Thus, underapplied overhead is debited to Cost of Goods Sold and overapplied overhead is credited to Cost of Goods Sold.
• Wallace Products has a $2,500 credit balance in Manufacturing Overhead at December 31. The adjusting entry for the overapplied overhead is shown below.
D a te A c c o u n t T it le s a n d E x p la n a t io n D e b it C re d itD e c . 3 1 M a n u fa c tu r in g O v e rh e a d
C o s t o f G o o d s S o ld (T o t ra n s fe r o v e ra p p lie d o v e rh e a d to c o s t o f g o o d s s o ld )
2,500 2,500
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Copyright © 2002 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written consent of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.
Copyright © 2002 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written consent of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.
CHAPTER 21 JOB ORDER COST ACCOUNTINGCHAPTER 21 JOB ORDER COST ACCOUNTING