Chapter 20-1

Chapter 20

Job Order

Costing

Accounting Principles, Ninth Edition

Chapter 20-2

1. Explain the characteristics and purposes of cost accounting.

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

Study ObjectivesStudy ObjectivesStudy ObjectivesStudy Objectives

Chapter 20-3

Accurate product costing is critical to a company’s success

For accurate bids on new jobs

For determining potential profitability of new jobs

For identifying profitability of completed jobs

Preview of ChapterPreview of ChapterPreview of ChapterPreview of Chapter

Chapter 20-4

Job Order Cost AccountingJob Order Cost AccountingJob Order Cost AccountingJob Order Cost Accounting

Job Order Cost Job Order Cost SystemSystem

Process Cost Process Cost System System

Accumulating Accumulating Manufacturing Manufacturing CostsCosts

Assigning Assigning Manufacturing Manufacturing Costs to Work in Costs to Work in ProcessProcess

Assigning Costs to Assigning Costs to Finished GoodsFinished Goods

Assigning Costs to Assigning Costs to Cost of Goods SoldCost of Goods Sold

SummarySummary

Cost of goods Cost of goods manufactured manufactured scheduleschedule

Income statement Income statement presentationpresentation

Under-or Under-or overapplied overapplied manufacturing manufacturing overheadoverhead

Cost Accounting Cost Accounting SystemsSystems

Cost Accounting Cost Accounting SystemsSystems

Job Order Cost Job Order Cost FlowFlow

Job Order Cost Job Order Cost FlowFlow

Reporting Job Reporting Job Cost DataCost Data

Reporting Job Reporting Job Cost DataCost Data

Chapter 20-5

Cost accounting involves:Measuring,Measuring,

Recording,Recording, and Reporting of product costsReporting of product costs

Consists of the various manufacturing costs that are fully integrated into the general ledger system.

An important feature is the use of a perpetual inventory system to provide immediate, up-to-date information on

the cost of a product.

LO 1: Explain the characteristics and purposes of cost accounting.LO 1: Explain the characteristics and purposes of cost accounting.

Cost Accounting SystemsCost Accounting SystemsCost Accounting SystemsCost Accounting Systems

Chapter 20-6

Cost Accounting SystemsCost Accounting SystemsCost Accounting SystemsCost Accounting Systems

There are two basic types of cost accounting systems.

SO 1: Explain the characteristics and purposes of cost accounting.SO 1: Explain the characteristics and purposes of cost accounting.

Chapter 20-7

Costs are assigned to each job or batch

A job may be for a specific order or inventory

A key feature:Each job or batch has its own distinguishing characteristics

The objective: to compute the cost per job

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

SO 1: Explain the characteristics and purposes of cost SO 1: Explain the characteristics and purposes of cost accounting.accounting.

Job Order Cost SystemJob Order Cost SystemJob Order Cost SystemJob Order Cost System

Chapter 20-8 SO 1: Explain the characteristics and purposes of cost accounting.SO 1: Explain the characteristics and purposes of cost accounting.

Job Order Cost SystemJob Order Cost SystemJob Order Cost SystemJob Order Cost System

Illustration 20-1

Chapter 20-9

Process Cost SystemProcess Cost SystemProcess Cost SystemProcess Cost System

Used when a large volume of similar products are manufactured -

Cereal, Automobiles, Compact Discs, Paint

Costs are accumulated for a specific time period –

A week or a month

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

SO 1 Explain the characteristics and purposes of cost accounting.SO 1 Explain the characteristics and purposes of cost accounting.

Chapter 20-10

Process Cost SystemProcess Cost SystemProcess Cost SystemProcess Cost System

SO 1 Explain the characteristics and purposes of cost accounting.SO 1 Explain the characteristics and purposes of cost accounting.

Illustration 20-2

Chapter 20-11

Cost accounting involves the measuring, Cost accounting involves the measuring, recording, and reporting of:recording, and reporting of:

a.a. Product costsProduct costs.

b. Future costs.

c. Manufacturing processes.

d. Managerial accounting decisions.

Review Review QuestionQuestion

Cost Accounting SystemsCost Accounting SystemsCost Accounting SystemsCost Accounting Systems

SO 1 Explain the characteristics and purposes of cost SO 1 Explain the characteristics and purposes of cost accounting.accounting.

Chapter 20-12

Job Order Cost FlowJob Order Cost FlowJob Order Cost FlowJob Order Cost Flow

The cost flow parallels the physical flow of thematerials as they are converted into finished

goods

Manufacturing costs are assigned to Work in Process

Cost of completed jobs is transferred to Finished Goods

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

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

Chapter 20-13

Job Order Cost Flow - OverviewJob Order Cost Flow - OverviewJob Order Cost Flow - OverviewJob Order Cost Flow - Overview

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

Illustration 20-3

Chapter 20-14

Job Order Cost FlowJob Order Cost FlowJob Order Cost FlowJob Order Cost Flow

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

Illustration 20-4

Chapter 20-15

Job Order Cost FlowJob Order Cost FlowJob Order Cost FlowJob Order Cost Flow

Accumulate the manufacturing costs incurred

Raw MaterialsFactory Labor

Manufacturing Overhead

Assign the accumulated costs to the work done

Two Major Steps in Flows of Costs

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

Chapter 20-16

Accumulating Manufacturing CostAccumulating Manufacturing CostAccumulating Manufacturing CostAccumulating Manufacturing Cost

Raw Materials are debited to Raw Materials Inventory when purchased.

At this point, the cost of materials are not assigned to specific jobs or orders.

Raw Materials Costs

SO 2 Explain the flow of costs in a job order cost accounting system.SO 2 Explain the flow of costs in a job order cost accounting system.

Example:

On January 4, Wallace Manufacturing Company 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.

Chapter 20-17

Accumulating Manufacturing Cost Accumulating Manufacturing Cost Accumulating Manufacturing Cost Accumulating Manufacturing Cost

Procedures for accumulating factory labor costs similar to those for computing the payroll for a merchandising company

Consists ofGross earnings of factory workersEmployer payroll taxes on such earnings,

andFringe benefits incurred by the employer

Factory Labor Costs

SO 2: Explain the flow of costs in a job order cost accounting system.SO 2: Explain the flow of costs in a job order cost accounting system.

Chapter 20-18

Accumulating Manufacturing Cost Accumulating Manufacturing Cost Accumulating Manufacturing Cost Accumulating Manufacturing Cost

Factory Labor Costs - Continued

SO 2: Explain the flow of costs in a job order cost accounting systems.SO 2: Explain the flow of costs in a job order cost accounting systems.

Debited to Factory Labor when incurred

Example:Wallace Manufacturing 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.

Chapter 20-19

Accumulating Manufacturing Cost Accumulating Manufacturing Cost Accumulating Manufacturing Cost Accumulating Manufacturing Cost

Many types of overhead costsFor example, machinery repairs, indirect

materials, and indirect labor

Debit to Manufacturing Overhead Daily as incurred orPeriodically through adjusting entries

Manufacturing overhead is a control accountSubsidiary ledger consists of individual

accounts for each type of cost

Manufacturing Overhead Costs

SO 2 Explain the flow of costs in a job order cost accounting system.SO 2 Explain the flow of costs in a job order cost accounting system.

Chapter 20-20

Accumulating Manufacturing Cost Accumulating Manufacturing Cost Accumulating Manufacturing Cost Accumulating Manufacturing Cost

Example:The following is a summary entry to record the totals from multiple transactions that occurred during January for the Wallace Manufacturing Company.

Manufacturing Overhead Costs - Continued

SO 2 Explain the flow of costs in a job order cost accounting system.SO 2 Explain the flow of costs in a job order cost accounting system.

Chapter 20-21

When incurred, factory labor costs are When incurred, factory labor costs are debited to:debited to:

a.a. Work in ProcessWork in Process.

b. Factory Wages Expense.

c. Factory Labor.

d. Factory Wages Payable.

Review Review QuestionQuestion

Accumulating Manufacturing CostsAccumulating Manufacturing CostsAccumulating Manufacturing CostsAccumulating Manufacturing Costs

SO 2 Explain the flow of costs in a job order cost accounting SO 2 Explain the flow of costs in a job order cost accounting system.system.