Documente Academic
Documente Profesional
Documente Cultură
Prepared by
Karleen Nordquist..
The College of St. Benedict...
and St. John’s University...
with contributions by
Marianne Bradford..
The University of Tennessee...
Gregory K. Lowry….
Macon Technical Institute…..
JOB ORDER
COST Under- or Overapplied
ACCOUNTING Manufacturing Overhead
• Interim Balances
• Year-End Balances
Study Objective 1
Black ink
$ Vellum stock Typesetting
Typesetting
$ $
White stock $
$
225 225 Lamination $
Invitations $ Envelopes $ 50 Copies $
Materials
Overhead
Illustration 2-3
Job Order Cost Flow
There are 2 major steps in the flow of costs:
– accumulating the manufacturing costs
incurred and
– assigning the accumulated costs to the work
done.
Manufacturing costs incurred are accumulated in
entries by debits to Raw Materials Inventory,
Factory Labor, and Manufacturing Overhead.
The remaining entries pertain to the assignment
of manufacturing costs incurred.
Job Order Cost Accounting
System
Flow of Costs
Raw Materials Inventory Work in Process Inventory Finished Goods Inventory
(1) 42,000 (4) 30,000 4 (4) 24,000 (7) 39,000 7 (7) 39,000 (8) 39,000 8
Bal. 12,000 (5) 28,000
(6) 22,400
Bal. 35,400
Key to Entries:
Manufacturing Overhead
(3) 13,800 (6) 22,400 6 Accumulation Assignment
(4) 6,000 1. Purchase raw materials 4. Raw materials are used
(5) 4,000 2. Incur factory labor 5. Factory labor is used
Bal. 1,400
3. Incur manufacuring 6. Overhead is applied
overhead 7. Completed goods are
recognized
8. Cost of goods sold is
recognized
Illustration 2-4
Accumulating
Manufacturing Costs
In a job order cost system, manufacturing costs are recorded
in the period in which they are incurred.
No effort is made at this point to associate the cost of
materials with specific jobs or orders.
The costs of raw materials purchased are debited to Raw
Materials Inventory when materials are received.
Wallace Manufacturing Company, which makes tools and dies,
purchases handles and 800 modules for a total cost of $42,000.
Date Account Titles and Explanation Debit Credit
(1)
Jan. 4 Raw Materials Inventory 42,000
Accounts Payable 42,000
(Purchase of raw materials on account)
Materials Inventory Card
Raw Materials Inventory is a control account. The
subsidiary ledger consists of individual records for each item
of raw materials in the form of
– mechanically or manually prepared accounts (or cards)
or
– computer data files.
The inventory card for Stock No. AA2746 following the purchase
is shown below.
Item: Handles Part No: AA2746
Receipts Issues Balance
Date Units Cost Total Units Cost Total Units Cost Total
1/4 2,000 $5 $10,000 2,000 $5 $10,000
Accumulating
Manufacturing Costs
In a manufacturing company, the cost of factory labor consists of
– gross earnings of factory workers,
– employer payroll taxes on such earnings, and
– fringe benefits incurred by the employer.
Labor costs are debited to Factory Labor when they are incurred.
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. The entry is:
Date Account Titles and Explanation Debit Credit
(2)
Jan. 31 Factory Labor 32,000
Factory Wages Payable 27,000
Employer Payroll Taxes Payable 5,000
(To record factory labor costs)
Accumulating
Manufacturing Costs
The accumulation of overhead costs may be recognized daily, as
in the case of machinery repairs and the use of indirect
materials and indirect labor.
Overhead costs may also be recorded periodically through
adjusting entries, as in the case of property taxes, depreciation,
and insurance.
A summary entry for overhead in Wallace Manufacturing Company
is:
Date Account Titles and Explanation Debit Credit
(3)
Jan. 31 Manufacturing Overhead 13,800
Utilities Payable 4,800
Prepaid Insurance 2,000
Accounts Payable (for repairs) 2,600
Accumulated Depreciation 3,000
Property Taxes Payable 1,400
(To record overhead costs)
Study Objective 3
Illustration 2-7
Materials Requisition Slip
The requisition is prepared in duplicate.
– A copy is retained in the storeroom as evidence of the
materials released.
– The original is sent to accounting, where the cost per
unit and total cost of the materials used are
determined.
Wallace Manufacturing Company
Materials Requisition Slip
Date: 1/6/99
Employee John Nash Employee No. 124
Charge to: Work in Process Job No. 101
Illustration 2-12
is
Activity Base Predetermined
X Overhead Rate assigned
to
Job 1 Job 2 Job 3
Illustration 2-13
Manufacturing Overhead
Journalizing
At Wallace Manufacturing Company, direct labor cost is
the activity base.
Annual overhead costs are expected to be $280,000, and
$350,000 of direct labor costs are anticipated.
Thus, the overhead rate is 80% ($280,000 ÷ $350,000).
Overhead applied for January is $22,400 ($28,000 X
80%), and the application is recorded through the entry
shown below.
Date Account Titles and Explanation Debit Credit
(6)
Jan. 31 Work in Process Inventory 22,400
Manufacturing Overhead 22,400
(To assign overhead to jobs)
Proof of Job Cost Sheets to
Work in Process Inventory
At the end of each month, the balance in Work in Process
Inventory should equal the sum of the costs shown on
the job cost sheets of unfinished jobs.
Assuming that all jobs are unfinished, proof of the
agreement of the control and subsidiary accounts in
Wallace Manufacturing Company is shown below.
Work in Process Inventory Job Cost Sheets
Jan. 31 24,000 No. 101 $ 39,000
Jan. 31 28,000 102 23,200
Jan. 31 22,400 103 12,200
74,400 $ 74,400
Illustration 2-15
Study Objective 5
When a job is
finished, an entry is
made to transfer its
total cost from Work
in Process Inventory
to Finished Goods
Inventory.
Completed Job Cost Sheet
When a job is
completed, the
Job Cost Sheet
manufacturing Job No. _______________101_______________ Quantity _________________1,000__________
costs are Item ___________Magnetic Sensors_________ Date Requested ________February 5________
For ____________Tanner Company_________ Date Completed ________January 31________
summarized and
Direct Direct Manufacturing
the lower portion Date Materials Labor Overhead
1/8 $ 1,000
of the applicable 1/10 $ 9,000 $ 7,200
1/12 7,000
job cost sheet is 1/26 4,000
completed. 1/31
$ 12,000
6,000
$ 15,000
4,800
$ 12,000
If Job No. 101 Cost of completed job
is completed on Direct materials $ 12,000
Direct labor 15,000
January 31, the Manufacturing overhead 12,000
Total cost $ 39,000
job cost sheet Unit cost ($39,000 ÷ 1,000) $ 39.00
will be as shown
to the right. Illustration 2-16
Journalizing Finished
Goods
The entry to transfer the cost of the completed
job from Work in Process Inventory to Finished
Goods Inventory for Wallace Manufacturing
Company is:
Recognition of Cost of
Goods Sold is made
when each sale
occurs.
Journalizing
Cost of Goods Sold
On January 31 Wallace Manufacturing
Company sells Job No. 101 (costing $39,000)
for $50,000 on account. The entries are:
Key to Entries:
Manufacturing Overhead
(3) 13,800 (6) 22,400 6 Accumulation Assignment
(4) 6,000 1. Purchase raw materials 4. Raw materials are used
(5) 4,000 2. Incur factory labor 5. Factory labor is used
Bal. 1,400 3. Incur manufacuring 6. Overhead is applied
overhead 7. Completed goods are
recognized
8. Cost of goods sold is
recognized
Illustration 2-18a
Job Order Cost System
Flow Of Documents
Flow of Documents The job cost sheet summarizes
the cost of jobs completed and
not completed at the end of the
Materials accounting period. Jobs
Requisition Slips completed are transferred to
Finished Goods to await sale.
Cost of Jobs
Jobs Are
Labor Time is Job Cost
Charged
Tickets Summarized Sheet
Through
on a
Predetermined
Overhead Rate
Illustration 2-18b
Cost of Goods
Manufactured
At the end of a period, financial statements are
prepared that present aggregate data on all jobs
manufactured and sold. The Cost of Goods
Manufactured Schedule in job order costing is
prepared the same as in Chapter 1 except that
manufacturing overhead applied, rather than
actual overhead costs is added to direct
materials and direct labor in determining
total manufacturing costs.
Cost Of Goods
Manufactured Schedule
A condensed Cost of Goods Manufactured Schedule for
Wallace Manufacturing Company is shown below.
Note that the cost of goods manufactured ($39,000) agrees with
the amount transferred from Work in Process to Finished
Goods. WALLACE MANUFACTURING COMPANY
Cost of Goods Manufactured Schedule
For the Month Ended January 31, 1999
Sales $ 50,000
Less: Cost of goods sold
Finished goods inventory, January 1 $ –0–
Cost of goods manufactured 39,000
Cost of goods available for sale 39,000
Finished goods inventory, January 31 –0–
Cost of goods sold 39,000
Illustration 2-20 Gross profit $ 11,000
Study Objective 6