Chap 3

3-1
Chapter Three
Cost determination: the costing of resource inputs
McGraw-Hill/Irwin
3-2
Manufacturing Costs
Direct Labor Direct Materials Manufacturing Overhead
The Product
McGraw-Hill/Irwin
3-33
Define Product Costing

A product-costing system productaccumulates the costs incurred in production & assigns those costs to the final products produced by the organization.
McGraw-Hill/Irwin
Discuss the Role of Product Costing

Used in Financial Accounting Used in Managerial Accounting Used in Cost Accounting Used in Reporting to Interested Organizations Used in Service Firms & Nonprofit Organizations
McGraw-Hill/Irwin
3-34
Review the Flow of Manufacturing Costs

Work-in-Process
Direct Materials
3-35
Finished Goods Inventory

Sell Product
Transfer Product Direct Labor Costs When Product Is Finished Manufact. Overhead
Cost of Goods Sold

Transfer Costs
Income Summary
Close Expense at the End of the Accounting Period
McGraw-Hill/Irwin
Identify, Define & Describe Different6 Cost Systems

JobJob-Order Costs are assigned to batches or job orders of production Process Costing Accumulates all the production costs for a large number of units of output & averages the costs over all units produced
3-36
McGraw-Hill/Irwin
How are Costs Accumulated in a Job-7 Order Cost System?

Recorded on a subsidiary ledger called a Job-Cost Record JobComprised of 3 major sections
1. Records direct materials, direct labor &
3-37
manufacturing overhead
2. Records total cost & average cost per
unit
3. Tracks units shipped to customers
McGraw-Hill/Irwin
3-38
Definitions Match
Materials Requisition Form Source Document Bill of Materials Time Record
McGraw-Hill/Irwin
Records employee time spent on each job Authorizes release of materials to production Provide the basis for an accounting entry A list of materials needed to make a component or product
Explain Overhead Application & Absorption

The process of assigning overhead to production jobs
3-39
Predetermined = overhead rate Budgeted Amount of Cost Driver (0r Activity Base)
Overhead
Budgeted Manufacturing Overhead Cost
is applied based upon actual quantity of cost driver used
McGraw-Hill/Irwin
10 Summarize Event Sequence in Job-Order Costing

CostAccounting Activities Provides basis for assigning costs to jobs Materials Requisition Direct labor time record Cost Driver Production Authorizes Process Production
McGraw-Hill/Irwin
3-310
Production Documents order for job
Predetermined Overhead Rate Production Takes Place
Authorizes Materials Release
3-311
Event Sequence Continued

Accumulate cost for job Transfers job costs from Work-in-Process Inventory to Finished Goods Inventory
11
Ledger Work-in-Process Direct material Direct labor Manufacturing Overhead
Ledger Finished Goods
Production of job is finished

McGraw-Hill/Irwin
3-312
12
Event Sequence Completed

Transfers job costs from Finished Goods Inventory to Cost of Goods Sold
Ledger Cost of Goods Sold
Sale of Goods
McGraw-Hill/Irwin
Summarize Overhead Accounting

Beginning of accounting period
3-313
13
End of accounting period
Time
Budgeted overhead Applied (& calculation of overhead predetermined overhead rate
McGraw-Hill/Irwin
Actual overhead
Illustrate the Manufacturing Overhead14 Account

Manufacturing Overhead
Actual MO costs are accumulated as incurred MO is applied to production jobs
3-314
Various Accounts
Associated credits to various accounts
McGraw-Hill/Irwin
Work-in-Process
MO is added to Work-inProcess Inventory
3-315
Definitions Match
Actual Overhead Rate Normalized Overhead Actual Costing Normal Costing
McGraw-Hill/Irwin
15
Overhead computed over a long period of time Actual DM, DL & Overhead using the Predetermined rate assigned to product Periods actual overhead divided by actual activity Actual DM, DL & overhead assigned to product
Complete Chart Highlighting Similarities & Differences

Work-in-Process Inventory Actual Costing Normal Costing
Uses Actual Direct Materials Uses Actual Direct Labor Uses Actual Overhead Rate X Actual Cost Driver, both from end of the period info
McGraw-Hill/Irwin
3-316
16
Uses Actual Direct Materials Uses Actual Direct Labor Uses Predetermined Overhead Rate X Actual Cost Driver
3-317
What are the guidelines for choosing a cost driver?

Using a single cost driver common practice Volume based Should vary Similar to Costs Correlation of Cost & Cost Driver the best because causation relationship
McGraw-Hill/Irwin
17
3-318
Definitions Match
Throughput Time Overhead rate used for only one department
18
Plantwide Rate
Average time to convert raw materials to finished goods Overhead rate used for entire factory
Departmental Rate
McGraw-Hill/Irwin
3-19
Acquisition and usage of materials

The Flow of Transactions
McGraw-Hill/Irwin
3-20

Buying -----------Purchase Order
McGraw-Hill/Irwin
3-21

Buying -----------Purchase Job Number Order
PURCHASE ORDER A - 143 No. 07961 Date : July 6, 2011
Name: NCCC Address: PuertoPrincesa City Description Qty 100 pcs arine Plywood 1/4 Unit 350 Total 35,000.00
Very Truly yours
______________
McGraw-Hill/Irwin
3-22

Buying -----------Purchase Order Receiving --------------Receiving Report Quantity Control
McGraw-Hill/Irwin
3-23

Buying -----------Purchase Order
RECEIVING REPORT No. 7-00345 Date : July 8, 2011
Receiving SUPPLIER: NCCC Hilary --------------Received by: ____________________ Receiving Report nad Check Description Qty Unit Quantity Control Marine Plywood 1/4 100 pcs 350
Total 35,000.00
Verified by: ___Eunice____
Date: July 9,2011
McGraw-Hill/Irwin
3-24

Voucher Buying -----------Purchase Order Receiving -----------Receiving Report Quantity Control Vendors Invoice
Original Ist carbon 2nd Carbon
Vendor or Payee Voucher Register File with Vendor Invoice
Check Register Disbursing Officers File

McGraw-Hill/Irwin
3-25

Voucher Accrued and Current Cost Items to be paid ----------------------Rent Insurance Etc. Vendors Invoice
Original Ist carbon 2nd Carbon
Vendor or Payee Voucher Register File with Vendor Invoice
Check Register Disbursing Officers File

McGraw-Hill/Irwin
3-26
Issuance and usage of materials

The primary document for tracking the costs of issuances to production
Lets investigate
McGraw-Hill/Irwin
3-27

RoseCo Materials Requisition Form Requisition No. X7 - 6890 Job No. A - 143 Department B3 Description 2 x 4, 12 feet 1 x 6, 12 feet Quantity 12 3 Date 3-4-X2
Unit Cost Total Cost 3.00 $ 36.00 10.00 30.00 $ 66.00
Authorized Signature
Lets investigate
McGraw-Hill/Irwin
3-28

Cost of material Balance Units Unit Amt Units Unit Amt is charged to job Units Unit Amt Requisition No. X7 - 6890 Cost Date 3-4-X2 Cost of material Cost Cost Requisition No. X7 - 6890 Date 3-4-X2 A-143. 10 50 Job No. A - 143 1- an Job No. A - 143 is5 charged to job 3 10 30 2 10 20 The primary 220 Department B310- an Department B315- anls Requisition orm 200 20 10 22 10 RoseCo teri A-143.
Date Materials: ___________ te a in o. Location: ________ - -
Stock Cards
RoseCo Materials Requisition Form RoseCo Materials Requisition Form Received Issued
Description Requisition o. Description ob 2 x 4, 12 feet o. 2 x 4, 12 feet epartment 1 x 6, 12 feet 1 x 6, 12 feet

escription , feet , feet Quantit
The materials requisition form is the source document for Authorized recording material usage in the accounting records. Authorized Lets investigate The materials Signature requisition form is the source document for ut ori ed Signature i nature recording material usage in the accounting records.
McGraw-Hill/Irwin
charged to job A-143. total cost of material charged to job A-143.
document for Quantity Unit Cost Total Cost Quantity Unit Cost Total Cost the costs 12 $ tracking $ 3.00 $ 36.00 12 $ 3.00 36.00 20 20 4.00 80.00 to Type, quantity,of issuances 80.00 and 4.00 $ 116.00 $ 116.00 total cost of material production Type, quantity, and
te - Signature nit Cost . . Total Cost . . .
3-29

Materials: ___________ te a in o. Location: ________ Date - Received Units Unit Amt Cost Issued Units Unit Amt Cost 3 10 1- an 10- an 20 10 15- an RoseCo Materials Requisition orm 200 Requisition o. ob o. epartment escription , feet , feet ate - -
Stock Cards
Quantit
Signature nit Cost . .
Total Cost . . .
Balance Units Unit Amt Cost 5 10 50 30 2 10 20 22 10 220
Lets investigate
ut ori ed i nature
McGraw-Hill/Irwin
3-30
the following:

Materials: ___________ te a in o. Location: ________ - -
Stock Cards
Inventory, Sept 1 1,000 units at 1.00 each Received Issued Balance Date Purchased, Sept 5 500 unitsAmt.90 Units Unit Amt at each Units Unit Amt Units Unit Returned to vendor, Sept 6 50 units from Sept 5 purchase Cost Cost Cost 10 50 1- an Purchased, Sept 9 800 units at .80 each5 10- an 3 10 30 2 10 20 Issued, Sept 10 800 units 20 10 22 10 220 15- an RoseCo Materials Requisition orm 200 Purchased, Sept 16 1,200 units at .70 each ate - Requisition o. Issued, Sept 27 1,000 units ob o. epartment Excess returned from production area, Sept 28 50 units at the issue of Sept 27
escription , feet , feet Quantit Signature nit Cost . . Total Cost . . .
The primary document for tracking the costs of issuances to Cost of M aterials used and cost assigned to Sept 30 inventory following M oving Average production
Lets investigate
ut ori ed i nature
McGraw-Hill/Irwin
3-31 (1) Date Moving average

Received
Materials: ___________ te - a in o. Location: ________ Issued Date Received Units Unit Amt Cost
Stock Cards
Balance 1,000 Issued Units Unit Amt 1,500 Cost

3
1.000000 Balance 1 0.966667Cost 0.96666

300.968966 2 22 5 10 50 0.96666 10 20 10 220 Units Unit Amt
1,000.00 1,450.00 1,405.00 2,045.00 1,317.90 2,157.90 1,343.65 1,384.36
500 -50 800

Requisition o. ob o. epartment
0.9 0.9 0.8

-
450 -45 an 10640

1- an
20 10 15- an RoseCo Materials Requisition orm 200 ate - -
800 0.7 840 Quantit
0.90888
1,200 escription
, , feet feet
Signature nit Cost
1,000 -50
. 0.81425 .
Total Cost . . 814.25 .
The primary 2,250 0.908889 0.90888 document for tracking 0.908889 costs the 0.90888 1,450 727.10 of issuances to 2,650 0.814300 0.81425 production 1,650 0.814331 0.81425
1,450 10 1,700 0.814327 1.81425 1,384,225
0.81425
(40.71) 1,500.64
2,450.00
1,885.00
ut ori ed i nature
Lets investigate
McGraw-Hill/Irwin
3-32
Job-Order Cost Accounting

RoseCo Job-Cost Record Job Number A - 143 Department B3 Item Wooden cargo crate Date Initiated 3-4-X2 Date Completed Units Completed
Direct Materials Direct Labor Manufacturing Overhead Req. No. Amount Ticket Hours Amount Hours Rate Amount
Cost Summary
Product Costs Amount Date
Units Shipped
Number Balance
Direct Materials Direct Labor Manufacturing Overhead Total Cost Unit Cost
McGraw-Hill/Irwin
3-33

Direct Materials Direct Labor Manufacturing Overhead Req. No. Amount Ticket Hours Amount Hours Rate Amount
A materials requisition form is used to authorize the use of materials on a job.

Units Shipped
Amount Date Number
Cost Summary
Product Costs
Balance
McGraw-Hill/Irwin
Lets see one
3-34
Materials Requisition Form

RoseCo M erials Req isition Form Req isition No. X7 - 689 Job No. A - 143 Department B3 Description 2 x 4, 12 feet 1 x 6, 12 feet Q antity 12 20 Date 3-4-X
nit Cost 3. 4.00
Total Cost $ 36. 80.00 $ 116.00
Authorized Signature
McGraw-Hill/Irwin
Will E. Delite
3-35
Materials Requisition Form

RoseCo Materials Requisition Form RoseCo Materials Requisition Form Requisition No. X7 -- 6890 Requisition No. X7 6890 Job No. A -- 143 Job No. A 143 Department B3 Department B3 Description Description 2 x 4, 12 feet 2 x 4, 12 feet 1 x 6, 12 feet 1 x 6, 12 feet Quantity Quantity 12 12 20 20 Date 3-4-X2 Date 3- -X2
Cost of material Cost of material is charged to job is charged to job AA-143.
$ $
nit Cost Total Cost Unit Cost Total Cost 3.00 $ 36.00 3.00 $ 36.00 4.00 80.00 4.00 80.00 $ 116.00 $ 116.00
T e, quantity, and Type, quantity, and total cost of material total cost of material charged to job Acharged to job A-143.
The materials requisition form E. the source document for The materials requisition Will is the source document for form is Delite Signature Signature recording material usage in the accounting records. recording material usage in the accounting records.
McGraw-Hill/Irwin
Authorized Authorized
3-36

Direct Materials Direct Labor Manufacturing Overhead Req. No. Amount Ticket Hours Amount Hours Rate Amount X7-6890 $ 116
Cost Summary
Units Shipped
Number Balance
McGraw-Hill/Irwin
116
3-37

RoseCo Job-Cost Record Job Number A - 143 Department B3 Item Wooden cargo crate Date Initiated 3-4-X2 Date Completed Accumulate Units Completed
Direct Materials Direct Labor Req. No. Amount Ticket Hours Amount X7-6890 $ 116
Cost Summary
Product Costs Amount
McGraw-Hill/Irwin
116
direct labor Manufacturing Overhead costs by Hours Rate Amount means of a work record, such as a daily Units Shipped time record Date Number Balance and time ticket, for each employee.
Lets see one
3-38

DAILY TIM E RECORD
RoseCo Job-Cost Record

Day and Date
In Out In Out Hours Date Total Completed Deductions Name Clock - 26 Hrs Net M on Time Record 8.00 12.00 Rate/HR Earnings 1.00 5.30 8.00 Department B3 Units Completed No. M 27 W Th F S Reg O/T Reg O/T Reg5.03 O/T W-Tax SSS M edInsurance thersEarnings Tues - T 7.58 12.01 1.00 8.00 O Item Wooden cargo crate Wed - 28 8.00 12.00 1.00 5.02 8.00 Thur - 29 Materials 12.02 Direct Labor 8.00 1.00 5.01 8.00 Direct Manufacturing Overhead FriReq. No. Amount Ticket 12.58 - 30 8.00 12.01 5.00 Hours Amount 6.00 Hours 8.00 Rate 10.00 Amount Sat - 31 1.00 5.00 8.00 X7-6890 $ 8.00 116 12.00 Sun
Job Number A - 143
AM
Payroll Initiated Date

PM
OVERTIM E 3-4-X2 In Out
Cost Summary
Product Costs Amount
McGraw-Hill/Irwin
116
Accumulate direct labor costs by means of a work record, such as a daily Units Shipped time record Date Number Balance and time ticket, for each employee.
Lets see one
- Overtime rate is time and a half. DAILY TIM E RECORD - Payroll deduction are as follows: Withholding taxes 3% on gross income Day and Date AM PM OVERTIM E SSS Graduated (see schedule on books of In Out In Out In Out Hours Vicente) M Contributions8.00 schedule on books 12.00 1.00 5.30 8.00 Philhealth on - 26 (see of Vicente)Tues - 27 7.58 12.01 1.00 5.03 8.00 RoseCo Job-Cost Record Pagibig Contributions (see schedule on books 1.00 of Wed - 28 8.00 12.00 5.02 8.00 Vicente) Job Number A - 143 Date Initiated 3-4-X2 Thur - 29 8.00 12.02 1.00 5.01 8.00 Date Completed 8.00 - The policy of- the company is to multiply the gross Fri 30 8.00 12.01 12.58 5.00 6.00 10.00 weekly earnings by four to 8.00 Department determine the B3 Units Completed Sat - 31 12.00 1.00 5.00 8.00 employees monthly earnings from which the SSS Item Wooden cargo crate Sun scheduled shall be applied. This amount is divided into four to arrive at the weekly contribution. Direct Materials Direct Labor Manufacturing Overhead
3-39
Accumulate direct labor costs by Payroll Req. No. Amount Ticket Hours Amount Hours Rate Amount means of a X7-6890 Record Name Clock Time $ 116 Hrs Rate/HR Earnings Total Deductions Net work record, No. M T W Th F S Reg O/T Reg O/T Reg O/T W-Tax SSSPhil HP-ibigOthersEarnings such as a daily Alan C. 209 8 8 8 8 10 8 62.5 0 0 0 0 Alfaro D 210 8 8 10 8 8Cost Summary 10 37.5 0 0 0 Units Shipped time record 0 Basbas c. 211 8 8 8 Product Costs 31.3 8 8 8 0 0 0 Amount 0Date Number Balance and time ticket, Dumlao P. 212 8 Materials 8 8 8 31.3 0 0 0 Direct $ 116 0 for each 0 laurel R. 213 8 8Labor 8 6 31.3 0 0 0 Direct 10 10 Manufacturing Overhead 31.3 Ople F. 214 8 8 10 8 10 0 0 0 employee. 0
PasionH.
Total Cost 215 8 8 10 10 8 12 Unit Cost
31.3
0 0
0 0
0 0
0 0 Lets0 see one 0 0 0
McGraw-Hill/Irwin
- Overtime rate is time and a half. DAILY TIM E RECORD - Payroll deduction are as follows: Withholding taxes 3% on gross income Day and Date AM PM OVERTIM E SSS Graduated (see schedule on books of In Out In Out In Out Hours Vicente) M Contributions8.00 schedule on books 12.00 1.00 5.30 8.00 Philhealth on - 26 (see of Vicente)Tues - 27 7.58 12.01 1.00 5.03 8.00 RoseCo Job-Cost Record Pagibig Contributions (see schedule on books 1.00 of Wed - 28 8.00 12.00 5.02 8.00 Vicente) Job Number A - 143 Date Initiated 3-4-X2 Thur - 29 8.00 12.02 1.00 5.01 8.00 Date Completed 8.00 - The policy of- the company is to multiply the gross Fri 30 8.00 12.01 12.58 5.00 6.00 10.00 weekly earnings by four to 8.00 Department determine the B3 Units Completed Sat - 31 12.00 1.00 5.00 8.00 employees monthly earnings from which the SSS Item Wooden cargo crate Sun scheduled shall be applied. This amount is divided into four to arrive at the weekly contribution. Direct Materials Direct Labor Manufacturing Overhead
3-40
Accumulate direct labor costs by Payroll Req. No. Amount Ticket Hours Amount Hours Rate Amount means of a X7-6890 Record Name Clock Time $ 116 Hrs Rate/HR Earnings Total Deductions Net work record, No. M T W Th F S Reg O/T Reg O/T Reg O/T W-Tax SSSPhil H P-ibigOthersEarnings such as a daily Alan C. 209 8 8 8 8 10 8 62.5 93.8 0 0 0 0 Alfaro D 210 8 8 10 8 8Cost Summary 56.3 10 37.5 0 0 0 Units Shipped time record 0 Basbas c. 211 8 8 8 Product Costs 31.3 46.9 8 8 8 0 0 0 Amount 0Date Number Balance and time ticket, Dumlao P. 212 8 Materials 8 8 8 31.3 46.9 0 0 0 Direct $ 116 0 for each 0 laurel R. 213 8 8Labor 8 6 31.3 46.9 0 0 0 Direct 10 10 Manufacturing Overhead 31.3 46.9 Ople F. 214 8 8 10 8 10 0 0 0 employee. 0
PasionH.
Total Cost 215 8 8 10 10 8 12 Unit Cost
31.3 46.9
0 0
0 0
0 0
0 0 Lets0 see one 0 0 0
McGraw-Hill/Irwin
DAILY TIM E RECORD
3-41
Day and Date In Out In Out M on - 26 8.00 12.00 1.00 5.30 Tues - 27 7.58 12.01 1.00 5.03 RoseCo Job-Cost Record Wed - 28 8.00 12.00 1.00 5.02 Job Number A - 143 Date Initiated 3-4-X2 Thur - 29 8.00 12.02 1.00 5.01 Date Completed 8.00 Fri - 30 8.00 12.01 12.58 5.00 6.00 Department8.00 B3 Units Completed Sat - 31 12.00 1.00 5.00 Item Wooden cargo crate Sun
AM
PM
OVERTIM E In Out
Accumulate direct labor Direct Materials Direct Labor Manufacturing Overhead costs by Payroll Req. No. Amount Ticket Hours Amount Hours Rate Amount means of a $ 116 Hrs a e C o X7-6890 e Re ord Ti Rate HR Earnin s Tota Dedu tions et work record, o. M T W Th F S Re O T Re O T Re O T W-Ta SSS Phi HP-ibi Others Earnin s 209 8 8 8 8 10 8 48 2 62.5 93.8 3000 188 3188 95.63 such as a daily 108 37.5 63.8 2,882.30 A an C. A faro D 210 8 8 10 8 8 10 48 2 37.5 56.3 1800 113 1913 57.38 62.5 21.9 38.3 1,732.50 Cost 48 Summary 46.9 1500 Units 50 18.8 record 1,356.25 Shipped 30 time Basbas . 211 8 8 8 8 8 8 31.3 0 1500 45 Amount 1000 Date 30 Number Balance Product Costs 31.3 46.9 1000 Du ao P. 212 8 8 8 8 32 0 33.3 time 904.18 and12.5 20 ticket, Direct 10 10 8 $ 188 aure R. 213 8 8Materials 6 46 4 31.3 46.9 1438 116 1625 48.75 54 18.8 32.5 1,471.00 Direct 10 Op e F. 214 8 8Labor 8 10 40 4 31.3 46.9 1250 188 1438 43.13 50 for 28.8 15.6 each 1,300.00 PasionH. 215 8 8 10 10 8 Overhead 31.3 46.9 1500 375 1875 56.25 62.5employee. 1,696.88 21.9 37.5 Manufacturing 12 48 8
Total Cost Unit Cost
11488 #### 12538 376.1 421 147 251 0 11,343.10
Hours 8.00 8.00 8.00 8.00 10.00 8.00
Lets see one
McGraw-Hill/Irwin
3-42
Employee Time Ticket

RoseCo Em loyee Time Ti ket Time Ti ket No. Em loyee Starting Time I. M. 6 killed Hours Com leted 8. D te tation Hourly Rate . 3-5-X2 42
Ending Time 6
Amount 88.
Job No. A-143
Totals
8.
11.
88.
A-143
Supervisor
McGraw-Hill/Irwin
C . M . W or k m an
3-43

Direct Materials Direct Labor Manufacturing Overhead Req. No. Amount Ticket Hours Amount Hours Rate Amount X7-6890 $ 116 36 8 $ 88
Cost Summary
Units Shipped
Number Balance
McGraw-Hill/Irwin
$ $
116 88
3-44

Cost Summary
Units Shipped
Number Balance
Direct Materials $ predetermined overhead Direct Labor $ Manufacturing Overhead labor hours Total Cost Unit Cost
McGraw-Hill/Irwin
Apply manufacturing overhead to jobs using a 116 rate based on direct 88 (DLH). Lets do it
3-45

RoseCo Job-Cost Record Job Number A - 143 Department B3 Item Wooden cargo crate Date Initiated 3-4-X2 Date Completed 3-5-X2 Units Completed 2
Direct Materials Direct Labor Manufacturing Overhead Req. No. Amount Ticket Hours Amount Hours Rate Amount X7-6890 $ 116 36 8 $ 88 8 $ 4 $ 32
Cost Summary
Units Shipped
Number Balance
McGraw-Hill/Irwin
$ $ $ $ $
116 88 32 236 118
3-46
Manufacturing Overhead Costs

Overhead is applied to jobs using a predetermined overhead rate (POHR) based on estimates made at the beginning of the accounting period.
POH =
Budgeted manufacturing overhead cost Budgeted amount of cost driver (or activity base)
Overhead applied = POH

Based on estimates, and determined before the period begins
McGraw-Hill/Irwin
Actual activity
Actual amount of the allocation base, such as direct labor hours, incurred during the period
3-47
Manufacturing Overhead Costs

Overhead is applied to jobs using a predetermined overhead rate (POHR) based on estimates made at the beginning of the accounting period.
POH =
Overhead applied = POH
Actual activity
Recall the wooden crate example where: Overhead applied = $4 per DLH 8 DLH = $32
McGraw-Hill/Irwin
3-48
Overhead Application Example

RoseCo applies overhead based on directdirectlabor hours. Total estimated overhead for the year is $640,000. Total estimated labor cost is $1,400,000 and total estimated labor hours are 160,000. What is RoseCos predetermined overhead rate?
McGraw-Hill/Irwin
3-49

POHR =
POHR =
$640,000 160,000 direct-labor hours (DLH)
POHR = $4.00 per DLH
For each direct labor hour wor ed on a job, $4.00 of factory overhead will be applied to the job.
McGraw-Hill/Irwin
3-50

RoseCo Job-Cost Record Job Number X - 32 Department B3 Item Wooden cargo crate Date Initiated 3-9-X2 Date Completed Units Completed
Cost Summary
Units Shipped
Number Balance
Direct Materials $ 240 Direct Labor What amount of$ overhead will 286 Manufacturing Overhead RoseCo apply to Job X-32? Total Cost Unit Cost
McGraw-Hill/Irwin
3-51

RoseCo Job-Cost Record Job Number X - 32 Department B3 Item Wooden cargo crate Date Initiated 3-9-X2 Date Completed 3-11-X2 Units Completed 6
Direct Materials Direct Labor Manufacturing Overhead Req. No. Amount Ticket Hours Amount Hours Rate Amount X7-7456 $ 240 23 26 $ 286 26 $ 4 $ 104
Cost Summary
Product Costs
SOLUTION Amount
Units Shipped
Date Number Balance
Direct Materials $ 240 Overhead applied = POHR $ 286 Direct Labor Hours Actual Direct Labor Manufacturing Overhead $ 104 Total Cost Overhead applied = $4.00 per DLH 26 DLH = $104 Unit Cost
McGraw-Hill/Irwin
Job-Order Costing Document Flow Summary
3-52
Lets summarize the document flow we have been discussing in a job-order costing system.
McGraw-Hill/Irwin

The materials requisition indicates the cost of direct material to charge to jobs and the cost of indirect material to charge to overhead.
McGraw-Hill/Irwin
3-53
Direct material s Materials Materials Ledger Cards Materials Ledger Cards Materials Ledger Cards Requisition
Job Cost JobCost Job Cost Sheets Job-Cost Sheets Sheets Records
Indirect materials
Manufacturing Overhead Account

Direct Employee time Labor tickets indicate the cost of Employee Time direct labor Employee Time Ticket Employee Time to charge to Employee Time Ticket Ticket jobs Ticket and the cost of indirect labor to charge to Indirect Labor overhead.
McGraw-Hill/Irwin
3-54
Job Cost Job Cost Job Cost Sheets Job-Cost Sheets Sheets Records

Employee Time Ticket Indirect Labor Overhead Applied with POHR
3-55
Other Actual OH Charges
Job-Cost Records
Materials Requisition
McGraw-Hill/Irwin
Indirect Material
3-56
Job-Order System Cost Flows
Lets examine the cost flows in a job-order costing system. We will use T-accounts and start with materials.
McGraw-Hill/Irwin
3-57

Raw Materials
Material Direct Purchases Material Indirect Material
Work in Process (Job-Cost Record)

Direct Material
Mfg. Overhead
Indirect Material
McGraw-Hill/Irwin
3-58
Next lets add labor costs and applied manufacturing overhead to the job-order cost flows. Are you with me?
McGraw-Hill/Irwin
3-59

Wages Payable
Direct Labor Indirect Labor

Direct Material Direct Labor
Mfg. Overhead
Indirect Material Indirect Labor
McGraw-Hill/Irwin
3-60

Wages Payable
Direct Labor Indirect Labor

Direct Material Direct Labor Overhea d Applied and applied If actual
manufacturing overhead are not equal, a year-end adjustment is required. We will look at the procedure to accomplish this later.
Mfg. Overhead
Indirect Overhead Material Applied to Work in Indirect Process Labor
McGraw-Hill/Irwin
3-61
Now lets complete the goods and sell them. Still with me?
McGraw-Hill/Irwin
3-62

Direct Material Direct Labor Overhea d Applied Cost of Goods Mfd.
Finished Goods
Cost of Goods Mfd. Cost of Goods Sold
Cost of Goods Sold

Cost of Goods Sold
McGraw-Hill/Irwin
3-63
Lets return to RoseCo and see what we will do if actual and applied overhead are not equal.
McGraw-Hill/Irwin
3-64

RoseCos actual overhead for the year was $650,000 and a total of 170,000 direct-labor hours were worked. directUsing RoseCos predetermined overhead rate of $4.00 per direct-labor hour, how much overhead was directapplied to all of RoseCos jobs during the year? year?
McGraw-Hill/Irwin
3-65

RoseCos actual overhead for the year was $650,000 and a total of 170,000 direct-labor hours were worked. directUsing RoseCos predetermined overhead rate of $4.00 per direct-labor hour, how much overhead was directapplied to all of RoseCos jobs during the year? year?
SOL TION
Applied Overhead = POHR Actual Direct Labor Hours Applied Overhead = $4.00 per DLH 170,000 DLH = $680,000
McGraw-Hill/Irwin
3-66

RoseCos actual overhead for the year was $650,000 and a total of 170,000 direct-labor hours were worked. directUsing RoseCos predetermined overhead rate of $4.00 RoseCo has overapplied per direct-labor hour, how much overhead was directoverhead to all of RoseCos jobs during the year? applied for the year year? by $30,000. What will RoseCo do?
SOL TION
Applied Overhead = POHR Actual Direct Labor Hours Applied Overhead = $4.00 per DLH 170,000 DLH = $680,000
McGraw-Hill/Irwin
Overapplied and Underapplied Manufacturing Overhead

$30,000 may be allocated to these accounts. $30,000 may be closed directly to cost of goods sold.
3-67
OR
Work in Process Finished Goods Cost of Goods Sold RoseCos Method
Cost of Goods Sold

McGraw-Hill/Irwin

RoseCos Cost of Goods Sold for the year
nadjusted Balance
3-68
RoseCos Mfg. Overhead for the year

Actual Overhead overhead Applied costs to jobs $650,000 $680,000 $30,000 overapplied
McGraw-Hill/Irwin

RoseCos Cost of Goods Sold for the year
nadjusted Balance $30,000 Adjusted Balance
McGraw-Hill/Irwin
3-69
RoseCos Mfg. Overhead for the year

Actual Overhead overhead Applied costs to jobs $650,000 $30,000 $680,000 $30,000 overapplied
Overapplied and Underapplied Manufacturing Overhead - Summary

Alternative 1 If anufacturing Overhead is . . . U D RA LI D Allocation I CR AS Work in rocess Finished Goods Cost of Goods Sold D CR AS Work in rocess Finished Goods Cost of Goods Sold Alternative 2 Close to Cost of Goods Sold I CR AS Cost of Goods Sold
3-70
(Applied OH is less than actual OH) OV RA LI D
D CR AS Cost of Goods Sold
(Applied OH is greater than actual OH)
McGraw-Hill/Irwin
3-71
Actual and Normal Costing

Actual direct material and direct labor combined with actual overhead. Actual direct material and direct labor combined with predetermined overhead.
Using a predetermined rate makes it possible to estimate total job costs sooner. Actual overhead for the period is not known until the end of the period.
McGraw-Hill/Irwin
The Concept of Activity-Based Costing (ABC)

One of the most difficult tasks in computing accurate unit costs lies in determining the proper amount of overhead cost to assign to each job.
Assigning overhead is sure difficult.
3-72
I agree!
McGraw-Hill/Irwin
The Concept of Activity-Based Costing (ABC)

Activity-Based Costing Departmental Overhead Rates Plantwide Overhead Rate
3-73
Overhead Allocation
McGraw-Hill/Irwin
3-74
Plantwide Overhead Rate
Companies tend to use direct labor as the overhead allocation base.

McGraw-Hill/Irwin
3-75
Departmental Overhead Rates
Finishing Department Painting Department Shipping Department
A two-stage process is necessary because different departments may have different cost drivers.
McGraw-Hill/Irwin
3-76

Stage One: Costs assigned to pools Cost pools Indirect Labor Indirect Materials Other Overhead
Department 1
Department 2
Department 3
McGraw-Hill/Irwin
3-77

Department 1
Department 2
Department 3
McGraw-Hill/Irwin
3-78

Department 1
Department 2
Department 3
McGraw-Hill/Irwin
3-79

Stage One: Costs assigned to pools Cost pools Stage Two: Costs applied to products Indirect Labor Indirect Materials Other Overhead
Department 1
Direct Labor Hours
Department 2
Machine Hours
Department 3
Raw Materials Cost
Products
Departmental Allocation Bases
McGraw-Hill/Irwin
3-80
Activity-Based Costing
In the ABC method, we recognize that many activities within a department drive overhead costs.
McGraw-Hill/Irwin
Assigning Costs to Activity Centers

Assign costs to the activity centers where they are accumulated while waiting to be applied to products.
McGraw-Hill/Irwin
3-81
3-82
Selecting Cost Drivers

Assign costs from the activity center to the product using appropriate cost drivers.
When selecting a cost driver consider:
The ease of obtaining data. The degree to which the cost driver measures actual consumption by products.
McGraw-Hill/Irwin
Job-Order Costing in Nonmanufacturing Organizations

THE JOB
3-83
Cases Programs
McGraw-Hill/Irwin
Missions Contracts
Changing Technology in Manufacturing Operations

Computerized data interchange has eliminated much of the paperwork associated with job-order jobcost systems. Scanning devices have simplified data entry to record material and labor use.
McGraw-Hill/Irwin
3-84
Job-Order Costing Typical Accounting Entries
3-85
Lets look at summary journal entries for a joborder costing system. Well omit the numbers so that we can focus on accounts.
McGraw-Hill/Irwin
3-86
Material Purchases
Raw material purchases are recorded in an inventory account.
GENERAL
a te De scri ti
RNAL
Post. Re f.
Page
De bit Cre dit
Raw ate rial I e ntory Accounts Payable
XXXXX
McGraw-Hill/Irwin
3-87
Material Use
Direct materials issued to a job increase Work in Process and decrease Raw Materials. Indirect materials used on a job are charged to Manufacturing Overhead and also decrease Raw Materials.
GENERAL
Da te
RNAL
Post. Re f.
Page
De bit Cre dit
De scri tion
Work-in-Proce ss Inv e ntory M anufacturing v e rhe ad Raw M ate rial Inv e ntory
XXXXX XXXXX XXXXX
McGraw-Hill/Irwin
3-88
Labor
The cost of direct labor incurred on a job increases Work in Process and the cost of indirect labor on a job increases Manufacturing Overhead.
GENERAL
Da te
RNAL
Post. Re f.
Page
De bit Cre dit
De scri tion
Work-in-Proce ss Inv e ntory M anufacturing v e rhe ad Wage s Payable
XXXXX XXXXX XXXXX
McGraw-Hill/Irwin
Other Actual Manufacturing Overhead
3-89
In addition to indirect materials and indirect labor, other manufacturing overhead costs are charged to the Manufacturing Overhead account as they are incurred.
GENERAL
Da te
RNAL
Post. Re f.
Page
De bit Cre dit
De scri tion
M anufacturing v e rhe ad Pre paid Re nt Accumulate d De pre ciation Accounts Payable Pre paid Insurance
McGraw-Hill/Irwin
XXXXX XXXXX XXXXX XXXXX XXXXX
3-90
Applying Manufacturing Overhead

Work in Process is increased when Manufacturing Overhead is applied to jobs.
GENERAL
Da te
RNAL
Post. Re f.
Page
De bit Cre dit
De scription
Work-in-Proce ss Inv e ntory M anufacturing v e rhe ad
XXXXX XXXXX
McGraw-Hill/Irwin
Selling and Administrative Expenses

Nonmanufacturing costs (period e penses are period penses) charged to e pense as they are incurred.
3-91
GENERAL
Da te
RNAL
Post. Re f.
Page
De bit Cre dit
De scription
Se lling and Admin. Expe nse s Wage s Payable Accounts Payable Pre paid Re nt ffice Supplie s Inv e ntory
McGraw-Hill/Irwin
XXXXX XXXXX XXXXX XXXXX XXXXX
3-92
Cost of Goods Manufactured

As jobs are completed, the cost of goods manufactured is transferred to Finished Goods from Work in Process.
GENERAL
Da te
RNAL
Post. Re f.
Page
De bit Cre dit
De scription
Finishe d-G oods Inv e ntory Work-in-Proce ss Inv e ntory
XXXXX XXXXX
McGraw-Hill/Irwin
3-93
Sales
When finished goods are sold, two entries are required: (1) to record the sale; and (2) to record Cost of Goods Sold and reduce Finished Goods.
GENERAL
Da te
RNAL
Post. Re f.
Page
De bit Cre dit
De scription
Accounts Re ce iv able Sale s Cost of G oods Sold Finishe d-G oods Inv e ntory
McGraw-Hill/Irwin
XXXXX XXXXX XXXXX XXXXX
Underapplied Manufacturing Overhead
3-94
Underapplied manufacturing overhead is closed into Cost of Goods Sold.
GENERAL
Da te
RNAL
Post. Re f.
Page
De bit Cre dit
De scription
Cost of G oods Sold M anufacturing v e rhe ad
XXXXX XXXXX
McGraw-Hill/Irwin
3-95
End of Chapter 3
McGraw-Hill/Irwin

Chap 3

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chap 3

Uploaded by

Copyright:

Available Formats

3-1

Define Product Costing

Discuss the Role of Product Costing

Review the Flow of Manufacturing Costs

Finished Goods Inventory

Cost of Goods Sold

Close Expense at the End of the Accounting Period

Identify, Define & Describe Different6 Cost Systems

How are Costs Accumulated in a Job-7 Order Cost System?

Explain Overhead Application & Absorption

Budgeted Manufacturing Overhead Cost

is applied based upon actual quantity of cost driver used

10 Summarize Event Sequence in Job-Order Costing

Production Documents order for job

Predetermined Overhead Rate Production Takes Place

Authorizes Materials Release

Event Sequence Continued

Ledger Work-in-Process Direct material Direct labor Manufacturing Overhead

Ledger Finished Goods

Production of job is finished

Event Sequence Completed

Ledger Cost of Goods Sold

Summarize Overhead Accounting

End of accounting period

Illustrate the Manufacturing Overhead14 Account

Complete Chart Highlighting Similarities & Differences

What are the guidelines for choosing a cost driver?

Acquisition and usage of materials

Acquisition and usage of materials

Acquisition and usage of materials

Very Truly yours

Acquisition and usage of materials

Acquisition and usage of materials

Verified by: ___Eunice____

Date: July 9,2011

Acquisition and usage of materials

Vendor or Payee Voucher Register File with Vendor Invoice

Check Register Disbursing Officers File

Acquisition and usage of materials

Vendor or Payee Voucher Register File with Vendor Invoice

Check Register Disbursing Officers File

Issuance and usage of materials

Issuance and usage of materials

Unit Cost Total Cost 3.00 $ 36.00 10.00 30.00 $ 66.00

The primary document for tracking the costs of issuances to production

Issuance and usage of materials

Description Requisition o. Description ob 2 x 4, 12 feet o. 2 x 4, 12 feet epartment 1 x 6, 12 feet 1 x 6, 12 feet

charged to job A-143. total cost of material charged to job A-143.

Issuance and usage of materials

Signature nit Cost . .

The primary document for tracking the costs of issuances to production

Balance Units Unit Amt Cost 5 10 50 30 2 10 20 22 10 220

Issuance and usage of materials

3-31 (1) Date Moving average

Issuance and usage of materials

Balance 1,000 Issued Units Unit Amt 1,500 Cost

1.000000 Balance 1 0.966667Cost 0.96666

1,000.00 1,450.00 1,405.00 2,045.00 1,317.90 2,157.90 1,343.65 1,384.36

500 -50 800

0.9 0.9 0.8

450 -45 an 10640

20 10 15- an RoseCo Materials Requisition orm 200 ate - -

800 0.7 840 Quantit

Verified by: _Eunice__