Ch02 Job Order Costing 2

Topics: Manufacturing, Inventory, Employment Pages: 63 (3129 words) Published: August 10, 2015
Chapter 2

Job Order Costing

Learning Objectives
After studying this chapter, you should be able to:
[1] Explain the characteristics and purposes of cost accounting. [2] Describe the flow of costs in a job order cost system.
[3] Explain the nature and importance of a job cost sheet.
[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. 2-1

Preview of Chapter 2

Managerial Accounting
Sixth Edition
Weygandt Kimmel Kieso
2-2

Cost Accounting Systems
Cost Accounting involves:
Measuring,
Recording, and
Reporting product costs.

2-3



Accounts are fully integrated into the general ledger.



Perpetual inventory system provides immediate, up-to-date
information.



Two basic types: (1) a job order cost system and (2) a
process cost system.
LO 1 Explain the characteristics and purposes of cost accounting.

Cost Accounting Systems
Job Order Cost System


Costs are assigned to each job or batch.



Key feature: Each job or batch has its own
distinguishing characteristics.



Objective: Compute the cost per job.



Measures costs for each job completed – not for set
time periods.

2-4

LO 1 Explain the characteristics and purposes of cost accounting.

Cost Accounting Systems
Illustration 2-1

2-5

LO 1 Explain the characteristics and purposes of cost accounting.

Cost Accounting Systems
Process Cost System


Used when a large volume of similar products are
manufactured - (cereal, refining of petroleum,
production of ice cream).



Costs are accumulated for a time period – (week or
month).



Costs are assigned to departments or processes for a
specified period of time.

2-6

LO 1 Explain the characteristics and purposes of cost accounting.

Cost Accounting Systems
Illustration 2-2

2-7

LO 1 Explain the characteristics and purposes of cost accounting.

Cost Accounting Systems
Review Question
Cost accounting involves the measuring, recording, and
reporting of:
a. Product costs.
b. Future costs.
c. Manufacturing processes.
d. Managerial accounting decisions.

2-8

LO 1 Explain the characteristics and purposes of cost accounting.

2-9

Job Order Cost Flow
The cost flow parallels the physical flow of the materials as they are converted into finished goods


Manufacturing costs are assigned to Work in Process
(WIP).



Cost of completed jobs is transferred to Finished
Goods.



2-10

When units are sold, the cost is transferred to Cost of
Goods Sold.

LO 2 Describe the flow of costs in a job order cost system.

Job Order Cost Flow
Illustration 2-3

2-11

LO 2 Describe the flow of costs in a job order cost system.

Job Order Cost Flow
Accumulating Manufacturing Costs
Raw Material Costs
Illustration: Wallace Company purchases 2,000 lithium
batteries (Stock No. AA2746) at $5 per unit ($10,000) and 800 electronic modules (Stock No. AA2850) at $40 per unit
($32,000) for a total cost of $42,000 ($10,000 + $32,000). The entry to record this purchase on January 4 is:
Jan. 4

Raw Materials Inventory
Accounts Payable

2-12

42,000
42,000

LO 2 Describe the flow of costs in a job order cost system.

Job Order Cost Flow
Factory Labor Costs
Consists of three costs:

2-13

1.

Gross earnings of factory workers,

2.

Employer payroll taxes on these earnings, and

3.

Fringe benefits incurred by the employer.

LO 2 Describe the flow of costs in a job order cost system.

Job Order Cost Flow
Factory Labor Costs
Illustration: Wallace incurs $32,000 of factory labor costs. Of that amount, $27,000 relates to wages payable and $5,000 relates to payroll taxes payable in February. The entry to record factory labor for the month is:

Jan. 31

Factory Labor

32,000

Factory Wages Payable
Employer Payroll Taxes...
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