Chapter 2: Job Order Costing Flashcards Preview

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Flashcards in Chapter 2: Job Order Costing Deck (19):
1

Prepare the entries for manufacturing/service jobs

1. completed and

1. sold 

1. When Job is completed: 

Finished Goods Inventory 

   Work in Process Inventory 

2. When sold: 

Acc. Receivable 

   Sales Revenue 

 

COGS 

   Finished Goods Inventory 

2

Höhe der Activity Base wird entnommen aus ???

  • Direct labor cost
  • Direct material cost 

  • Direct material Cost: Material requisition slip 
  • Direct labor Cost: Time Tickets

 

Achtung: 

  • Enthält auch Overhead Cost (diese sind nicht mit einzubeziehen) 

3

Manufacturing Overhead Rate and

Predetermined Overhead Rate

 

Issue with Manufacturing Overhead Cost:

  • Cannot be assigned to a specific job based on actual costs incurred

Solution:

  • Companies assign them to Work in Process and to specific jobs on an estimate basis through the use of a Predetermined Overhead Rate 

4

Job Order Cost Flow:

Raw Materials

The physical flow of the materials as they are converted into finished goods 

  • Manufacturing Costs are assigned to Work in Process (WIP) Inventory account
  • Cost of completed jobs is transferred to the Finishied Goods Inventory account 
  • When units are sold, the cost ist transferred to the Cost of Goods Sold account 

5

Accumulating Manufacturing Cost

Factory Labor Cost

 

Consists of three costs: 

  1. Gross earnings of factory workers
  2. Employer payroll taxes on these earnings 
  3. Fringe benefits 
    • sick pay
    • pensions 
    • ...

Assigend to jobs on the basis of a time ticket

6

Job Cost Sheet 

  • Used to record costs chargeables to specific jobs 
  • Summarizes the cost of jobs completed and not completed at the end of the accounting period

 

7

Predetermined Overhead Rate 

Large Companys vs. Small Companies

1. Large Companies: 

  • use a diffrent rate for each department 
  • each department may even have a diffrent Activty Base

 

2. Small Companies:

  • often use a single, company-wide predetermined rate

8

Process Cost System

  • Costs are accumulated for a time period  (week or month)
  • Costs are assigned to departmens or processes for a specific period of time 
  • Used when a large volume of similar products are manufactured (Müsli, Eis,...)

9

Raw Matieral Cost

Direct Materials and Indirect Materials 

  • Assigned to a Job, hence for to WiP or Manufacturing Overhead, when materials are issued in response of a request via the Materials requisition slip
  • Direct Materials are charged to WiP 
  • Indirect Materials are charged to Manufacturing Overhead 

10

Job Cost Sheet and WiP relationship

Each entry to WiP MUST be accompanied by a corresponding posting to one or more job cost sheets

11

Work in Process Account under Job Order Costing

  • Only ONE WiP Account under Job Order Costing
  • NO distinction between Jobs! Every Job is recorded to WiP

12

Predetermined Overhead Rate:

 

  • Based on the relationship between estimated annual overhead costs and expected annual operation activity 
  • Expressed in terms of an ACTIVY BASE such as: 
    • Direct labor costs
    • Direct labor hours
    • Machine hours 
  • Formula:

13

Under- or Overapplied in Manufacturing Overhead

  • Debit Balance in Manufacturing overhead means that overhead is UNDERAPPLIED
  • Credit Balance ... is OVERAPPLIED

 

Any year-end Balance in manufacturing overhead is eliminated by adjusting COGS: 

  • UNDERAPPLIED Overhead is debited to COGS
  • OVERAPPLIED Overhead is credited to COGS 

14

Job Order Cost System

  • Products have a UNIQUE CHARATERISTIC
  • Costs are assigned to EACH JOB/BATCH
  • Objective is to compute the cost per job
  • Measures costs for each job completed                    (NOT for a set of time periods !!!!)

 

Important feature: 

  • Each Job/Batch has its own distinguishing characteristics 

15

Advantages and Disadvantages of Job Order Costing compared to Process Costing

Advantge:

  • More precise in assignment of costs to projects than process costing 
  • Provides more useful information for determining the profitability of particular projects and for estimating costs when bids on future jobs

 

Disadvantage: 

  • Requires a significant amount of data entry 

16

Raw Material Costs

  • Assigned to a job when materials are issued -> by using a Material requisition slip 

 

Material requisition slip: 

  • Direct Materials:
    • Directly issued to use on a job
    • Charged to Work in Process Inventory 
  • Indirect Materials:
    • Charged to Manufacturing Overhead 

 

Buchungsatz:

WiP Inventory XXX                                       Manufactoring Overhead YYY

     Raw Materials ZZZ

17

Accumulating Manufacturing Cost

Manufactoring Overhead 

 

  • Ex: Propertay taxes, depreciation, insurance,...

 

  • Cost UNRELATED to manufactoring process are expensed 
  • Costs RELATED to manufactoring process are accumlated in Manufactoring Overhead account

 

  -> Manufactoring Overhead subsequently assignd to work in process  

18

1. Einbuchung der Manufacturing Overhead 

2. Assigning manufacturing cost to work in process

1. Einbuchung: -> DEBIT eingebucht 

(Dr.) Manufacturing Overhead 

    (Cr.) Utilie Payable 

           Prepaid Insurane etc. 

2. Assigning: -> CREDIT ausgebucht

(Dr.) Work in Process 

   (Cr.) Manufacturing Overhead 

          

19

Factory Labor Costs

  • Assigned to jobs on the basis of time tickets 
    • ​Buchung auf Basis des Time Tickets durchführen für Factory Labor 
    • Achtung: Enthält auch Manufactoring Overhead Cost

 

Buchung: 

Wip Inventory      

Manufactoring Overhead 

             Factory Labor