Kế toán, kiểm toán - Chapter 2: Systems design: job - Order costing

Systems Design:Job-Order costing Chapter2Types of Costing Systems Used to Determine Product CostsProcessCostingJob-orderCosting Many different products are produced each period. Products are manufactured to order. Cost are traced or allocated to jobs. Cost records must be maintained for each distinct product or job.Chapter 3Types of Costing Systems Used to Determine Product CostsProcessCostingJob-orderCosting Typical job order cost applications: Special-order printing Building construction Also used in the service industry Hospitals Law firmsQuick Check  Which of the following companies would be likely to use job-order costing rather than process costing?a. Scott Paper Company for kleenex.b. Architects.c. Heinz for ketchup.d. Caterer for a wedding reception.e. Builder of commercial fishing vessels.Quick Check  Which of the following companies would be likely to use job-order costing rather than process costing?a. Scott Paper Company for kleenex.b. Architects.c. Heinz for ketchup.d. Caterer for a wedding reception.e. Builder of commercial fishing vessels.Job-Order CostingTHE JOBDirectmaterialTraced directly to each job Direct  labor Traced directly to each jobManufacturingoverhead (OH)Applied to eachjob using apredeterminedrateSequence of Events in a Job-Order Costing SystemReceive orders from customersSchedulejobsBegin productionOrdermaterialsManufacturing OverheadJob No. 1Job No. 2Job No. 3Charge direct material and direct labor costs to each job as work is performed.Sequence of Events in a Job-Order Costing SystemDirect MaterialsDirect LaborApply overhead to each job using a predeter-mined rate.Sequence of Events in a Job-Order Costing SystemDirect MaterialsDirect LaborJob No. 1Job No. 2Job No. 3Manufacturing OverheadJob-Order Cost Accounting The primary document for tracking the costs associated with a given job is the job cost sheet.Let’s investigatePearCo Job Cost SheetJob Number A - 143Date Initiated 3-4-01Date CompletedDepartment B3Units CompletedItem Wooden cargo crateDirect MaterialsDirect LaborManufacturing OverheadReq. No.AmountTicketHoursAmountHoursRateAmountCost SummaryUnits ShippedDirect MaterialsDateNumberBalanceDirect LaborManufacturing OverheadTotal CostUnit CostJob-Order Cost AccountingJob-Order Cost AccountingPearCo Job Cost SheetJob Number A - 143Date Initiated 3-4-01Date CompletedDepartment B3Units CompletedItem Wooden cargo crateDirect MaterialsDirect LaborManufacturing OverheadReq. No.AmountTicketHoursAmountHoursRateAmountCost SummaryUnits ShippedDirect MaterialsDateNumberBalanceDirect LaborManufacturing OverheadTotal CostUnit CostLet’s see oneA materials requisition form is used to authorize the use of materials on a job.Materials Requisition FormWill E. DeliteMaterials Requisition FormWill E. DeliteType, quantity, and total cost of material charged to job A-143.Cost of material is charged to job A-143.Note Why go to all the trouble to fill out a materials requisition form every time someone needs materials for a job?Maintain control of assets.Prevent pilferage, loss, and waste.Prevent supervisors from stockpiling materials “just in case the stockroom runs out.”Trace costs of materials to particular jobs.The materials requisition form, like all the others illustrated today, can be electronic rather than hardcopy.Job-Order Cost AccountingJob-Order Cost AccountingWorkers use time tickets to record the time spent on each job.Let’s see oneEmployee Time TicketJob-Order Cost AccountingJob-Order Cost AccountingApply manufacturing overhead to jobs using a predetermined overhead rate of $4 per direct labor hour (DLH).Let’s do itJob-Order Cost AccountingEstimated total manufacturingoverhead cost for the coming periodEstimated total units in theallocation base for the coming periodPOHR = The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the period begins.Application of Manufacturing OverheadIdeally, the allocation base is a cost driver that causes overhead.Application of Manufacturing OverheadOverhead applied = POHR × Actual activity Actual amount of the allocation base such as units produced, direct labor hours, or machine hours incurred during the period.Based on estimates, and determined before the period begins.Application of Manufacturing OverheadRecall the wooden crate example where:Overhead applied = $4 per DLH × 8 DLH = $32Overhead applied = POHR × Actual activity The Need for a Predetermined Manufacturing Overhead Rate Using a predetermined rate makes itpossible to estimate total job costs sooner. Actual overhead for the period is notknown until the end of the period.$Note If we wait until the end of the period, we will know the actual TOTAL overhead cost. However, still we won’t know the actual overhead cost of a particular job. Why?Overhead consists of costs that are either difficult or impossible to trace to particular jobs.Difficult-to-trace costs include the cost of indirect materials like glue in a furniture factory.Impossible-to-trace costs include fixed common costs like the property taxes on the factory building and land. PearCo applies overhead based on direct labor hours. Total estimated overhead for the year is $640,000. Total estimated labor cost is $1,400,000 and total estimated labor hours are 160,000.What is PearCo’s predetermined overhead rate per hour? Overhead Application ExampleFor each direct labor hour worked on a job, $4.00 of factory overhead will be applied to the job.Overhead Application ExamplePOHR = $4.00 per DLH$640,000160,000 direct labor hours (DLH)POHR =Estimated total manufacturingoverhead cost for the coming periodEstimated total units in theallocation base for the coming periodPOHR =Overhead Application ExampleWhat amount of overhead willPearCo apply to Job X-32?Overhead Application ExampleOverhead Application ExampleQuick Check  If the number of wooden crates in the order on the previous page is increased or decreased by one unit, what would you expect to happen to the total spending of PearCo?a. Total spending would probably change by less than $105.b. Total spending would probably change by about $105.c. Total spending would probably change by more than $105.Quick Check  If the number of wooden crates in the order on the previous page is increased or decreased by one unit, what would you expect to happen to the total spending of PearCo?a. Total spending would probably change by less than $105.b. Total spending would probably change by about $105.c. Total spending would probably change by more than $105.Total spending would change by $105 only if all of the costs were variable with respect to the number of units produced. Direct materials is variable, but much of the overhead and perhaps even direct labor may be fixed.Quick Check  Job WR53 at NW Fab, Inc. required $200 of direct materials and 10 direct labor hours at $15 per hour. Estimated total overhead for the year was $760,000 and estimated direct labor hours were 20,000. What would be recorded as the cost of job WR53?a. $200.b. $350.c. $380.d. $730.Quick Check  Job WR53 at NW Fab, Inc. required $200 of direct materials and 10 direct labor hours at $15 per hour. Estimated total overhead for the year was $760,000 and estimated direct labor hours were 20,000. What would be recorded as the cost of job WR53?a. $200. b. $350.c. $380.d. $730.Quick Check  Job WR53 at NW Fab, Inc. required $200 of direct materials and 10 direct labor hours at $15 per hour. Estimated total overhead for the year was $760,000 and estimated direct labor hours were 19,000. What would be recorded as the cost of job WR53?a. $200. b. $350.c. $750.d. $730.Quick Check  Job WR53 at NW Fab, Inc. required $200 of direct materials and 10 direct labor hours at $15 per hour. Estimated total overhead for the year was $760,000 and estimated direct labor hours were 19,000. What would be recorded as the cost of job WR53?a. $200. b. $350.c. $750.d. $730.Quick Check  If overhead contains fixed costs, what will happen to the predetermined overhead rate if lower unit sales volume is expected?a. The predetermined overhead rate will likely increase.b. The predetermined overhead rate would be unaffected.c. The predetermined overhead rate will likely decrease.Quick Check  If overhead contains fixed costs, what will happen to the predetermined overhead rate if lower unit sales volume is expected?a. The predetermined overhead rate will likely increase.b. The predetermined overhead rate would be unaffected.c. The predetermined overhead rate will likely decrease.Quick Check  If overhead contains fixed costs, what will happen to product costs computed by the accounting system if lower unit sales volume is expected?a. Product costs will likely increase.b. Product costs would be unaffected.c. Product costs will likely decrease.Quick Check  If overhead contains fixed costs, what will happen to product costs computed by the accounting system if lower unit sales volume is expected?a. Product costs will likely increase.b. Product costs would be unaffected.c. Product costs will likely decrease.Quick Check  If overhead contains fixed costs and management set prices by marking up product costs by a preset percentage, what will happen to selling prices if lower unit sales volume is expected?a. Selling prices will likely increase.b. Selling prices would be unaffected.c. Selling prices will likely decrease.Quick Check  If overhead contains fixed costs and management set prices by marking up product costs by a preset percentage, what will happen to selling prices if lower unit sales volume is expected?a. Selling prices will likely increase.b. Selling prices would be unaffected.c. Selling prices will likely decrease.Quick Check  If selling prices increase, what will happen to unit sales volume?a. Unit sales volume will likely increase.b. Unit sales volume would be unaffected.c. Unit sales volume will likely decrease.Quick Check  If selling prices increase, what will happen to unit sales volume?a. Unit sales volume will likely increase.b. Unit sales volume would be unaffected.c. Unit sales volume will likely decrease.Let’s summarize the document flow we have been discussing in a job-order costing system. Job-Order CostingDocument Flow SummaryJob-Order CostingDocument Flow SummaryJob Cost SheetsMaterialsRequisitionManufacturing Overhead AccountDirect materialsIndirect materialsMaterials usedmay be eitherdirect orindirect.Job-Order CostingDocument Flow SummaryJob Cost SheetsEmployee Time TicketManufacturing Overhead AccountDirect LaborIndirect LaborAn employee’stime may be eitherdirect or indirect.Job-Order CostingDocument Flow SummaryManufacturing Overhead AccountOtherActual OHChargesJob Cost SheetsAppliedOverheadMaterialsRequisitionIndirectMaterialEmployeeTime TicketIndirectLaborLet’s examine the cost flows in a job-order costing system. We will use T-accounts and start with materials.Job-Order System Cost FlowsRaw MaterialsMaterialPurchasesMfg. OverheadJob-Order System Cost FlowsWork in Process(Job Cost Sheet)Direct MaterialsDirect MaterialsIndirect MaterialsIndirect MaterialsActualAppliedNext let’s add labor costs and applied manufacturing overhead to the job-order cost flows. Are you with me?Job-Order System Cost FlowsJob-Order System Cost FlowsMfg. OverheadSalaries and Wages PayableWork in Process(Job Cost Sheet)Direct MaterialsOverhead AppliedOverheadApplied to Work inProcessDirect LaborDirect LaborIndirectLaborIndirectLaborIndirect MaterialsActualAppliedIf actual and applied manufacturing overheadare not equal, a year-end adjustment is required.Now let’s complete the goods and sell them. Still with me? Job-Order System Cost FlowsFinished GoodsCost ofGoodsMfd. Cost ofGoodsMfd. Cost of Goods SoldCost ofGoodsSold Cost ofGoodsSold Job-Order System Cost FlowsWork in Process(Job Cost Sheet)Direct MaterialsDirect LaborOverhead AppliedLet’s return to PearCo and see what we will do if actual and applied overhead are not equal. Job-Order System Cost FlowsOverhead Application Example PearCo’s actual overhead for the year was $650,000 for a total of 170,000 direct labor hours.How much total overhead was applied to PearCo’s jobs during the year? Use PearCo’s predetermined overhead rate of $4.00 per direct labor hour. Overhead Application ExampleSOLUTIONApplied Overhead = POHR × Actual Direct Labor HoursApplied Overhead = $4.00 per DLH × 170,000 DLH = $680,000 PearCo’s actual overhead for the year was $650,000 for a total of 170,000 direct labor hours.How much total overhead was applied to PearCo’s jobs during the year? Use PearCo’s predetermined overhead rate of $4.00 per direct labor hour. SOLUTIONApplied Overhead = POHR × Actual Direct Labor HoursApplied Overhead = $4.00 per DLH × 170,000 DLH = $680,000 PearCo’s actual overhead for the year was $650,000 for a total of 170,000 direct labor hours.How much total overhead was applied to PearCo’s jobs during the year? Use PearCo’s predetermined overhead rate of $4.00 per direct labor hour, Overhead Application ExamplePearCo has overappliedoverhead for the yearby $30,000. What willPearCo do?Work inProcessFinishedGoods Cost of Goods Sold$30,000may be allocatedto these accounts.Overapplied and Underapplied Manufacturing Overhead$30,000 may beclosed directly to cost of goods sold.Cost of Goods SoldPearCo’s MethodOROverapplied and Underapplied Manufacturing Overhead PearCo’sMfg. OverheadActualoverheadcosts$650,000$30,000 overapplied PearCo’s Costof Goods SoldUnadjusted Balance$30,000$30,000AdjustedBalanceOverheadAppliedto jobs $680,000Quick Check  What effect will the overapplied overhead have on PearCo’s cost of goods sold?a. Cost of goods sold will increase.b. Cost of goods sold will be unaffected.c. Cost of goods sold will decrease.Quick Check  What effect will the overapplied overhead have on PearCo’s cost of goods sold?a. Cost of goods sold will increase.b. Cost of goods sold will be unaffected.c. Cost of goods sold will decrease.Quick Check  What effect will the overapplied overhead have on PearCo’s net income?a. Net income will increase.b. Net income will be unaffected.c. Net income will decrease.Quick Check  What effect will the overapplied overhead have on PearCo’s net income?a. Net income will increase.b. Net income will be unaffected.c. Net income will decrease.Overapplied and Underapplied Manufacturing Overhead - Summary Tiger, Inc. had actual manufacturing overhead costs of $1,210,000 and a predetermined overhead rate of $4.00 per machine hour. Tiger, Inc. worked 290,000 machine hours during the period. Tiger’s manufacturing overhead is a. $50,000 overapplied.b. $50,000 underapplied.c. $60,000 overapplied.d. $60,000 underapplied.Quick Check  Tiger, Inc. had actual manufacturing overhead costs of $1,210,000 and a predetermined overhead rate of $4.00 per machine hour. Tiger, Inc. worked 290,000 machine hours during the period. Tiger’s manufacturing overhead is a. $50,000 overapplied.b. $50,000 underapplied.c. $60,000 overapplied.d. $60,000 underapplied.Quick Check Overhead Applied $4.00 per hour × 290,000 hours = $1,160,000Underapplied Overhead $1,210,000 - $1,160,000 = $50,000Let’s look at summary journal entries for a job-order costing system. We’ll omit the numbers so that we can focus on accounts. Job-Order Costing – Typical Accounting EntriesCost Flows – Material Purchases Raw material purchases are recorded in aninventory account. Direct materials issued to a job increase Work in Process and decrease Raw Materials. Indirect materials used are charged to Manufacturing Overhead and also decrease Raw Materials. Cost Flows – Material UsageCost Flows – Labor The cost of direct labor incurred increases Work in Process and the cost of indirect labor increases Manufacturing Overhead. Cost Flows – Actual Overhead In addition to indirect materials and indirect labor, other manufacturing overhead costs are charged to the Manufacturing Overhead account as they are incurred. Cost Flows – Overhead Applied Work in Process is increased when Manufacturing Overhead is applied to jobs. Cost Flows – Period Expenses Nonmanufacturing costs (period expenses) are charged to expense as they are incurred. Cost Flows – Cost of Goods Manufactured As jobs are completed, the Cost of Goods Manufactured is transferred to Finished Goods from Work in Process. Cost Flows – Sales When finished goods are sold, two entries are required: (1) to record the sale; and (2) to record Cost of Goods Sold and reduce Finished Goods. End of Chapter 2