18-1 chapter 18 m anagerial a ccounting c oncepts /j ob c osting
TRANSCRIPT
18-1
CHAPTER 18CHAPTER 18
MANAGERIALACCOUNTING
CONCEPTS/JOB COSTING
18-2
Compare Managerial andCompare Managerial and Financial Accounting Financial Accounting
Managerial accountingprovides information
for internal use.
Financial accountingprovides information
for external use.
Creditors and investors Managers
18-3
Financial Accounting
Uses historical data
Presents summary data
Complies with GAAP (Generally AcceptedAccounting Principles)
Managerial Accounting
May use estimates of future (e.g., budgeting)
More detailed data
Flexible format, cost/benefit analysis determines proper level of information
Compare Managerial andCompare Managerial and Financial Accounting Financial Accounting
18-4
Ethical IssuesEthical Issues
Integrity Objectivity
ConfidentialityCompetence
Institute of Management AccountantsStandards of Ethical Conduct
Institute of Management AccountantsStandards of Ethical Conduct
18-5
Manufacturing Cost ConceptsManufacturing Cost Concepts
Product costs are the costs acompany assigns to units produced.(i.e., costs which relate to or attach
to the product)
Product costs are the costs acompany assigns to units produced.(i.e., costs which relate to or attach
to the product)
Cost is a financial measure of resources
used or given up to achieve an objective.
Cost is a financial measure of resources
used or given up to achieve an objective.
18-6
Product Cost ComponentsProduct Cost Components
Product CostsProduct Costs
ManufacturingOverhead
DirectMaterial
DirectLabor
18-7
Direct Materials Materials that are clearly
and easily traced to a particular product
Example: Wood used to manufacture a high-quality dining room table
Direct Materials Materials that are clearly
and easily traced to a particular product
Example: Wood used to manufacture a high-quality dining room table
Product Cost ComponentsProduct Cost Components
18-8
Direct Labor Labor cost of
employees working to convert materials into finished goods
Labor cost clearly traceable to, or readily identifiable with, the finished product
Example: Wages paid to carpenter
Direct Labor Labor cost of
employees working to convert materials into finished goods
Labor cost clearly traceable to, or readily identifiable with, the finished product
Example: Wages paid to carpenter
Product Cost ComponentsProduct Cost Components
18-9
Manufacturing Overhead All manufacturing costs
except direct material and direct labor
Manufacturing costs that cannot be traced directly to specific units produced
Example: Indirect labor such as furniture designer
Manufacturing Overhead All manufacturing costs
except direct material and direct labor
Manufacturing costs that cannot be traced directly to specific units produced
Example: Indirect labor such as furniture designer
Product Cost ComponentsProduct Cost Components
18-10
Manufacturing Overhead - other examples- Indirect labor: Janitors, Supervisors, Materials
storeroom personnel, Cost accountant
- Indirect materials: Oil, Nails, GlueGlue- Other indirect costs:
– Repairs and maintenance on factory buildings and equipment
– Payroll taxes and fringe benefits for manufacturing employees
– Depreciation on factory buildings and equipment
– Insurance and taxes on factory property and inventories
– Utilities for factory buildings
Manufacturing Overhead - other examples- Indirect labor: Janitors, Supervisors, Materials
storeroom personnel, Cost accountant
- Indirect materials: Oil, Nails, GlueGlue- Other indirect costs:
– Repairs and maintenance on factory buildings and equipment
– Payroll taxes and fringe benefits for manufacturing employees
– Depreciation on factory buildings and equipment
– Insurance and taxes on factory property and inventories
– Utilities for factory buildings
Product Cost ComponentsProduct Cost Components
18-11
Why are productcosts often called
inventoriable costs?
Because the costs remainin inventory until the
product is sold, atwhich time they become
an expense calledcost of goods sold.
Product CostsProduct Costs
18-12
Period costs are expensed in theperiod incurred.
Period costs are expensed in theperiod incurred.
Period costs are never inventoriedwith the product.
Period costs are never inventoriedwith the product.
• Nonmanufacturing costs which relate to or attach to the period
• Can be classified as• Selling costs• Administrative costs
Period CostsPeriod Costs
18-13
Selling CostsCosts incurred to obtain customer orders
and to deliver finished goods to customers(e.g., advertising and shipping)
Selling CostsCosts incurred to obtain customer orders
and to deliver finished goods to customers(e.g., advertising and shipping)
Administrative CostsNonmanufacturing costs of staff support and
administrative functions (e.g., accountingaccounting, dataprocessing, personnel, research and development)
Administrative CostsNonmanufacturing costs of staff support and
administrative functions (e.g., accountingaccounting, dataprocessing, personnel, research and development)
Period CostsPeriod Costs
18-14
QuestionQuestion
The primary distinction between product and period costs is . . .
a. Product costs are expensed in the period incurred.
b. Product costs are directly traceable to product units.
c. Product costs are inventoriable.
d. Period costs are inventoriable.
The primary distinction between product and period costs is . . .
a. Product costs are expensed in the period incurred.
b. Product costs are directly traceable to product units.
c. Product costs are inventoriable.
d. Period costs are inventoriable.
18-15
QuestionQuestion
The primary distinction between product and period costs is . . .
a. Product costs are expensed in the period incurred.
b. Product costs are directly traceable to product units.
c. Product costs are inventoriable.
d. Period costs are inventoriable.
The primary distinction between product and period costs is . . .
a. Product costs are expensed in the period incurred.
b. Product costs are directly traceable to product units.
c. Product costs are inventoriable.
d. Period costs are inventoriable.
a.
b.
c.
d.
18-16
Ways to Classify CostsWays to Classify Costs
1
Product Costs
Period Costs
2
Direct Materials
Direct Labor
Manufacturing Overhead
Selling
Administrative
3
Manufacturing Costs
Non-Manufacturing
Costs
4
Either
fixed
or
Variable
Costs
18-17
RawMaterials
FinishedGoods
Work inProcess
Financial Reporting by Financial Reporting by Manufacturing CompaniesManufacturing Companies
ManufacturingInventory
Classifications
ManufacturingInventory
Classifications
18-18
Completedproductsfor sale
Materialswaiting to be
processed
Partially completeproducts
Material to whichsome labor and/or
overhead havebeen added
RawMaterials
FinishedGoods
Work inProcess
Financial Reporting by Financial Reporting by Manufacturing CompaniesManufacturing Companies
18-19
Balance Sheet PresentationBalance Sheet Presentation
MERCHANDISER
Current Assets Cash Receivables Prepaid Expenses Merchandise
Inventory
MANUFACTURER
Current Assets Cash Receivables Prepaid Expenses Inventories
Raw Materials
Work in Process
Finished Goods
18-20
QuestionQuestion
What type of account is the manufacturing work in process account?
a. Income statement expense account.
b. Balance sheet inventory account.
c. Temporary clearing account for direct material and direct labor.
d. Holding account for manufacturing overhead and direct labor.
What type of account is the manufacturing work in process account?
a. Income statement expense account.
b. Balance sheet inventory account.
c. Temporary clearing account for direct material and direct labor.
d. Holding account for manufacturing overhead and direct labor.
18-21
QuestionQuestion
What type of account is the manufacturing work in process account?
a. Income statement expense account.
b. Balance sheet inventory account.
c. Temporary clearing account for direct material and direct labor.
d. Holding account for manufacturing overhead and direct labor.
What type of account is the manufacturing work in process account?
a. Income statement expense account.
b. Balance sheet inventory account.
c. Temporary clearing account for direct material and direct labor.
d. Holding account for manufacturing overhead and direct labor.
a.
b.
c.
d.
18-22
Manufacturing Cost FlowsManufacturing Cost Flows
Direct Labor
ManufacturingOverhead
Direct Material
Work in Process
FinishedGoods
Cost of GoodsSold
18-23
Cost of Goods ManufacturedCost of Goods Manufactured Cost of all goods completed during a period and transferred from work in process to finished goods
18-24
Cost of Goods ManufacturedCost of Goods Manufactured Cost of all goods completed during a
period and transferred from work in process to finished goods
Direct Materials Used + Direct Labor + Manufacturing Overhead = Cost to ManufactureCost to Manufacture + Beginning Work in Process – Ending Work in Process = Cost of Goods Manufactured
18-25
Cost of Goods SoldCost of Goods Sold
Cost of the items sold to customers during a period
18-26
Cost of Goods SoldCost of Goods Sold
Cost of the items sold to customers during a period
Beginning Finished Goods
+ Cost of Goods Manufactured
= Cost of Goods Available for Sale
– Ending Finished Goods
= Cost of Goods Sold
18-27
Income Statement PresentationIncome Statement Presentation
Sales
– Cost of Goods Sold
= Gross Margin
– Operating Expenses
= Operating Income
Sales
– Cost of Goods Sold
= Gross Margin
– Operating Expenses
= Operating Income
p.688
18-28
Types of Cost SystemsTypes of Cost Systems
ProcessCosting
JobCosting
Used for production of small, identical, low-cost items Mass produced in automated continuous production process Costs cannot be directly traced to each unit of product
Used for production of small, identical, low-cost items Mass produced in automated continuous production process Costs cannot be directly traced to each unit of product
18-29
ProcessCosting
JobCosting
Types of Cost SystemsTypes of Cost Systems
Typical process cost applications:
Petrochemical refinery
Paint manufacturer
Paper mill
Typical process cost applications:
Petrochemical refinery
Paint manufacturer
Paper mill
18-30
ProcessCosting
JobCosting
Used for production of large, unique, high-cost items
Built to order rather than mass produced
Many costs can be directly traced to each job
Used for production of large, unique, high-cost items
Built to order rather than mass produced
Many costs can be directly traced to each job
Types of Cost SystemsTypes of Cost Systems
18-31
ProcessCosting
JobCosting
Typical job order cost applications Custom furniture manufacturing Building construction
Also used in service industry Hospitals Accounting and law firms
Typical job order cost applications Custom furniture manufacturing Building construction
Also used in service industry Hospitals Accounting and law firms
Types of Cost SystemsTypes of Cost Systems
18-32
Job Order CostingJob Order Costing
THE JOB
Directmaterial
Direct labor
Traced directly to each job
Traced directly
to each job
18-33
Job Order CostingJob Order Costing
THE JOB
Directmaterial
Direct labor
Traced directly to each job
Traced directly
to each job
ManufacturingOverhead (OH)
Applied to eachjob based on
activity causingthe OH
18-34
ManufacturingOverhead (OH)
Applied to eachjob based on
activity causingthe OH
Job Order CostingJob Order Costing
Synonyms for “Applied” Overhead
Assigned
Distributed
Allocated
Absorbed
18-35
I see some journalentries for job costing
on the horizon!
Job Order CostingJob Order Costing
18-36
Typical Accounting Entries(pp. 690 - 693)
To record purchase of materials Raw Materials Inventory (Debit)
Accounts Payable (Credit)
To record use of materialsWork in Process Inventory (Debit)
Manufacturing Overhead (Debit)
Materials Inventory (Credit)
Job Order CostingJob Order Costing
18-37
Payroll Accounting Entry
(Not discussed in text) To record payment to employees
Payroll Summary (Debit)
Wages Payable (Credit)
Various Taxes Withheld (Credit)
Job Order CostingJob Order Costing
18-38
Typical Accounting Entries(pp. 690 - 693)
To record labor costsWork in Process Inventory (Debit)
Manufacturing Overhead (Debit)
Payroll Summary (Credit)
To apply overhead to jobs Work in Process Inventory (Debit)
Manufacturing Overhead (Credit)
Job Order CostingJob Order Costing
18-39
Job Order CostingJob Order Costing
Typical Accounting Entries(pp. 690 - 693)
To record completion of jobsFinished Goods Inventory (Debit)
Work in Process Inventory (Credit)
18-40
Typical Accounting Entries(pp. 690 - 693)
To record salesAccounts Receivable (Debit)
Sales (Credit)
To record cost of goods sold Cost of Goods Sold (Debit)
Finished Goods Inventory(Credit)
Job Order CostingJob Order Costing
18-41
Job Cost FlowsJob Cost FlowsWIPRaw Materials
Mfg. O/H
FG
CGS
18-42
Work in ProcessRaw MaterialsMaterial
Purchases
Mfg. Overhead
Job Cost FlowsJob Cost Flows
18-43
Work in ProcessRaw MaterialsMaterial
PurchasesDirect
MaterialDirect
Material
Mfg. Overhead
Job Cost FlowsJob Cost Flows
18-44
Work in ProcessRaw MaterialsMaterial
PurchasesDirect
MaterialIndirect Material
DirectMaterial
Mfg. OverheadActual
OverheadCosts
Job Cost FlowsJob Cost Flows
18-45
Work in ProcessPayroll SummaryIncurred Direct
Material
Mfg. OverheadActual
OverheadCosts
Job Cost FlowsJob Cost Flows
18-46
Work in ProcessPayroll SummaryIncurred Direct
LaborDirect
MaterialDirectLabor
Mfg. OverheadActual
OverheadCosts
Job Cost FlowsJob Cost Flows
18-47
Work in ProcessPayroll SummaryIncurred Direct
LaborIndirect
Labor
DirectMaterialDirectLabor
Mfg. OverheadActual
OverheadCosts
Job Cost FlowsJob Cost Flows
18-48
Work in ProcessPayroll SummaryIncurred Direct
LaborIndirect
Labor
DirectMaterialDirectLabor
Overhead
Mfg. OverheadActual
OverheadCosts
OverheadApplied to
Work inProcess
Job Cost FlowsJob Cost Flows
18-49
Work in ProcessDirect
MaterialDirectLabor
Overhead
Finished Goods
Cost of Goods Sold
Job Cost FlowsJob Cost Flows
18-50
Work in ProcessDirect
MaterialDirectLabor
Overhead
Cost ofGoodsMfg.
Finished Goods
Cost ofGoodsMfg.
Cost of Goods Sold
Job Cost FlowsJob Cost Flows
18-51
Work in ProcessDirect
MaterialDirectLabor
Overhead
Cost ofGoodsMfg.
Finished Goods
Cost ofGoodsSold
Cost ofGoodsMfg.
Cost of Goods Sold
Cost ofGoodsSold
Job Cost FlowsJob Cost Flows
18-52
Applying OverheadApplying Overhead
A predetermined overhead rate (POHR)is used to apply costs to jobs.
A predetermined overhead rate (POHR)is used to apply costs to jobs.
18-53
Applying OverheadApplying Overhead
A predetermined overhead rate (POHR)is used to apply costs to jobs.
A predetermined overhead rate (POHR)is used to apply costs to jobs.
Establishedbefore the
period begins
Based on estimated OH cost
and estimatedactivity level
18-54
Applying OverheadApplying Overhead
A predetermined overhead rate (POHR)is used to apply costs to jobs.
A predetermined overhead rate (POHR)is used to apply costs to jobs.
POHR = Estimated total overhead for the periodEstimated total activity for the period
Establishedbefore the
period begins
Based on estimated OH cost
and estimatedactivity level
18-55
Applying OverheadApplying Overhead
POHR = Estimated total overhead for the periodEstimated total activity for the period
This activityis called thecost driver
18-56
Applying OverheadApplying Overhead
POHR = Estimated total overhead for the periodEstimated total activity for the period
This activityis called thecost driver
The cost driver is assumed to be a causal factor in overhead incurrence.
Examples:Units producedDirect labor hoursDirect labor costMachine hours
The cost driver is assumed to be a causal factor in overhead incurrence.
Examples:Units producedDirect labor hoursDirect labor costMachine hours
18-57
Tell me again how we use the POHR to
apply overhead to jobs.
Applying OverheadApplying Overhead
18-58
We multiply the POHRtimes the number of
cost driver activity unitsincurred for the job.
Tell me again how we use the POHR to
apply overhead to jobs.
Applying OverheadApplying Overhead
18-59
We multiply the POHRtimes the number of
cost driver activity unitsincurred for the job.
I don’t get it!Show me an
example.
Applying OverheadApplying Overhead
18-60
If FishCo budgets overhead at $200,000 andestimates its cost driver activity to be 25,000 direct labor hours for 1999, what is the POHR
per direct labor hour?
a. $10.00 per hour
b. $ 6.00 per hour
c. $ 8.00 per hour
d. $12.00 per hour
If FishCo budgets overhead at $200,000 andestimates its cost driver activity to be 25,000 direct labor hours for 1999, what is the POHR
per direct labor hour?
a. $10.00 per hour
b. $ 6.00 per hour
c. $ 8.00 per hour
d. $12.00 per hour
Applying Overhead Applying Overhead ExampleExample
18-61
If FishCo budgets overhead at $200,000 andestimates its cost driver activity to be 25,000 direct labor hours for 1999, what is the POHR
per direct labor hour?
a. $10.00 per hour
b. $ 6.00 per hour
c. $ 8.00 per hour
d. $12.00 per hour
If FishCo budgets overhead at $200,000 andestimates its cost driver activity to be 25,000 direct labor hours for 1999, what is the POHR
per direct labor hour?
a. $10.00 per hour
b. $ 6.00 per hour
c. $ 8.00 per hour
d. $12.00 per hour
Estimated Overhead Estimated Activity
$200,000 25,000 hours
POHR = $8.00 per hour
Applying Overhead Applying Overhead ExampleExample
18-62
If FishCo actually worked 24,000 direct labor hours for 1999, what amount of overhead
would be applied to jobs in work in process?
a. $200,000
b. $192,000
c. $208,000
d. $196,000
If FishCo actually worked 24,000 direct labor hours for 1999, what amount of overhead
would be applied to jobs in work in process?
a. $200,000
b. $192,000
c. $208,000
d. $196,000
Applying Overhead Applying Overhead ExampleExample
18-63
If FishCo actually worked 24,000 direct labor hours for 1999, what amount of overhead
would be applied to jobs in work in process?
a. $200,000
b. $192,000
c. $208,000
d. $196,000
If FishCo actually worked 24,000 direct labor hours for 1999, what amount of overhead
would be applied to jobs in work in process?
a. $200,000
b. $192,000
c. $208,000
d. $196,000
24,000 hours × $8.00 per hour = $192,000
Applying Overhead Applying Overhead ExampleExample
18-64
Applying OverheadApplying Overhead
Reasons for using apredetermined overhead rate
Reasons for using apredetermined overhead rate
Overhead is notincurred uniformly
during the year.
Actual overhead ratemight vary from month to month.
Predetermined ratemakes it possible to
estimate job costs sooner.
18-65
Applying OverheadApplying OverheadThe POHR is based
on estimates.
What happens ifactual results differfrom the estimates?
18-66
The result will be either underapplied or overapplied
overhead and wewill adjust Cost of Goods
Sold at the end of the period.
Here, let me show you.
Applying OverheadApplying OverheadThe POHR is based
on estimates.
What happens ifactual results differfrom the estimates?
18-67
Applying OverheadApplying Overhead
Overhead is overapplied
Overhead is overapplied
Actualoverhead
costsincurred
Overheadapplied to
Work in Process
(POHR × Activity)
18-68
Applying OverheadApplying Overhead
Overhead is underapplied
Overhead is underapplied
Actualoverhead
costsincurred
Overheadapplied to
Work in Process
(POHR × Activity)
18-69
Applying OverheadApplying Overhead
Adjustments for underapplied or overapplied overhead
Adjustments for underapplied or overapplied overhead
Theoretically, we should adjust all accounts affected by misapplied overhead:
Work in Process
FinishedGoods
Cost of Goods Sold
18-70
Applying OverheadApplying Overhead
Cost of GoodsOverhead is: Sold is: Adjustment will:
Applied overhead < actual overhead
Underapplied Too lowIncrease Cost
of Goods Sold
Applied overhead > actual overhead
Overapplied Too highDecrease Cost of Goods Sold
Adjusting Cost of Goods Sold for underapplied or overapplied overhead
Adjusting Cost of Goods Sold for underapplied or overapplied overhead
18-71
Manufacturing Overhead
ActualActualOverhead
CostsIncurred
OverheadAppliedApplied to
Work in Process
(Debit bal.)
UnderappliedOverhead
(Credit bal.)
OverappliedOverhead
Applying OverheadApplying Overhead
18-72
Manufacturing Overhead Cost of Goods SoldActual Applied
Underapplied
Balance
Applying OverheadApplying Overhead
18-73
Manufacturing Overhead Cost of Goods SoldActual Applied
Underapplied
Balance
Underapplied
Balance
Applying OverheadApplying Overhead
18-74
Manufacturing Overhead Cost of Goods SoldActual Applied
Overapplied
Balance
Applying OverheadApplying Overhead
18-75
Manufacturing Overhead Cost of Goods SoldActual Applied
Overapplied
Balance
Overapplied
Balance
Applying OverheadApplying Overhead
18-76
FishCo had actual manufacturing overhead costs of $180,000. FishCo applied $192,000 of manufacturing overhead to jobs based on
a POHR of $8.00 per direct labor hour. FishCo’s manufacturing overhead is:
a. $12,000 overapplied.
b. $12,000 underapplied.
c. $96,000 overapplied.
d. $96,000 underapplied.
FishCo had actual manufacturing overhead costs of $180,000. FishCo applied $192,000 of manufacturing overhead to jobs based on
a POHR of $8.00 per direct labor hour. FishCo’s manufacturing overhead is:
a. $12,000 overapplied.
b. $12,000 underapplied.
c. $96,000 overapplied.
d. $96,000 underapplied.
Applying Overhead Applying Overhead QuestionQuestion
18-77
FishCo had actual manufacturing overhead costs of $180,000. FishCo applied $192,000 of manufacturing overhead to jobs based on
a POHR of $8.00 per direct labor hour. FishCo’s manufacturing overhead is:
a. $12,000 overapplied.
b. $12,000 underapplied.
c. $96,000 overapplied.
d. $96,000 underapplied.
FishCo had actual manufacturing overhead costs of $180,000. FishCo applied $192,000 of manufacturing overhead to jobs based on
a POHR of $8.00 per direct labor hour. FishCo’s manufacturing overhead is:
a. $12,000 overapplied.
b. $12,000 underapplied.
c. $96,000 overapplied.
d. $96,000 underapplied.
Applying Overhead Applying Overhead QuestionQuestion
a.
b.
c.
d.
18-78
FishCo had actual manufacturing overhead costs of $180,000. FishCo applied $192,000 of manufacturing overhead to jobs based on
a POHR of $8.00 per direct labor hour. FishCo’s manufacturing overhead is:
a. $12,000 overapplied.
b. $12,000 underapplied.
c. $96,000 overapplied.
d. $96,000 underapplied.
FishCo had actual manufacturing overhead costs of $180,000. FishCo applied $192,000 of manufacturing overhead to jobs based on
a POHR of $8.00 per direct labor hour. FishCo’s manufacturing overhead is:
a. $12,000 overapplied.
b. $12,000 underapplied.
c. $96,000 overapplied.
d. $96,000 underapplied.
Applied overhead 192,000$
Less actual overhead 180,000
Overapplied overhead 12,000$
Applying Overhead Applying Overhead QuestionQuestion
18-79
Assume that FishCo's overhead was $10,000 overapplied. This amount would result in an adjustment that would decrease cost of goods sold
by $10,000.
a. True
b. False
Assume that FishCo's overhead was $10,000 overapplied. This amount would result in an adjustment that would decrease cost of goods sold
by $10,000.
a. True
b. False
Applying Overhead Applying Overhead QuestionQuestion
18-80
Assume that FishCo's overhead was $10,000 overapplied. This amount would result in an adjustment that would decrease cost of goods sold
by $10,000.
a. True
b. False
Assume that FishCo's overhead was $10,000 overapplied. This amount would result in an adjustment that would decrease cost of goods sold
by $10,000.
a. True
b. False
Applying Overhead Applying Overhead QuestionQuestion
a.
b.
18-81
Assume that FishCo's overhead was $10,000 overapplied. This amount would result in an adjustment that would decrease cost of goods sold
by $10,000.
a. True
b. False
Assume that FishCo's overhead was $10,000 overapplied. This amount would result in an adjustment that would decrease cost of goods sold
by $10,000.
a. True
b. False
If overhead is overapplied, cost of goods sold is too high. The
adjustment will decrease cost of goods sold.
Applying Overhead Applying Overhead QuestionQuestion
18-82
Have a great spring break! (One more slide)
18-83
THE ENDTHE END