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Systems Design: Job-Order Costing

Learning Objectives. Define Job Costing vs. Process, documents usedCompute/Explain OH ratesUnderstand cost flows in Job Costing in related accountsApply OH rates to WIPPrepare COGM and COGS. Types of Costing Systems Used to Determine Product Costs. Process Costing. Job-order Costing. . Many different products Manufactured to order. Cost are tracked to a job. Each job has a cost recorda..

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Systems Design: Job-Order Costing

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    1. Systems Design: Job-Order Costing

    2. Learning Objectives Define Job Costing vs. Process, documents used Compute/Explain OH rates Understand cost flows in Job Costing in related accounts Apply OH rates to WIP Prepare COGM and COGS

    3. Types of Costing Systems Used to Determine Product Costs

    4. Types of Costing Systems Used to Determine Product Costs

    5. 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.

    6. Job-Order Costing

    7. Sequence of Events in a Job-Order Costing System

    8. Sequence of Events in a Job-Order Costing System

    9. Sequence of Events in a Job-Order Costing System

    10. Job-Order Cost Accounting The primary document for tracking the costs associated with a given job is the job cost sheet.

    11. Job-Order Cost Accounting

    12. Job-Order Cost Accounting

    13. Materials Requisition Form

    14. Materials Requisition Form

    15. Job-Order Cost Accounting

    16. Job-Order Cost Accounting

    17. Employee Time Ticket – FYI automated

    18. Job-Order Cost Accounting

    19. Job-Order Cost Accounting

    20. Job-Order Cost Accounting

    21. The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the period begins. Application of Manufacturing Overhead

    22. Application of Manufacturing Overhead

    23. Application of Manufacturing Overhead

    24. Using a predetermined rate makes it possible to estimate total job costs sooner. Actual overhead for the period is not known until the end of the period. The Need for a Predetermined Manufacturing Overhead Rate

    25. 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 Example

    26. Overhead Application Example

    27. Overhead Application Example

    28. Overhead Application Example

    29. Overhead Application Example

    30. 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.

    31. Quick Check ?: Job WR53 at NW Fab, Inc. required: $200 of direct materials 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.

    32. Job-Order Costing Document Flow Summary

    33. Job-Order Costing Document Flow Summary

    34. Job-Order Costing Document Flow Summary

    35. Job-Order Costing Document Flow Summary

    36. Job-Order System Cost Flows

    37. Job-Order System Cost Flows

    38. Job-Order System Cost Flows

    39. Job-Order System Cost Flows

    40. Job-Order System Cost Flows

    41. Job-Order System Cost Flows

    42. Job-Order System Cost Flows

    43. 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 Example

    44. Overapplied and Underapplied Manufacturing Overhead

    45. Overapplied and Underapplied Manufacturing Overhead

    46. Quick Check ? What effect will the overapplied overhead have on PearCo’s cost of goods sold (after adjustment)? a. Cost of goods sold will increase. b. Cost of goods sold will be unaffected. c. Cost of goods sold will decrease.

    47. Quick Check ? What effect will the overapplied overhead have on PearCo’s net operating income (after adjustments)? a. Net operating income will increase. b. Net operating income will be unaffected. c. Net operating income will decrease.

    48. End of Chapter 3

    49. The Predetermined Overhead Rate & Capacity

    50. Quick Check ? Crest Winery in Woodinville leases an automatic corking machine for $100,000 per year. If run at full capacity, it can cork 50,000 cases of wine per year. The company has estimated 40,000 cases of wine will be produced and sold next year. What is the predetermined overhead rate if it is based on the estimated number of cases of wine? a. $2.00 per case. b. $2.50 per case. c. $4.00 per case.

    51. Quick Check ? Crest Winery in Woodinville leases an automatic corking machine for $100,000 per year. If run at full capacity, it can cork 50,000 cases of wine per year. The company has estimated 40,000 cases of wine will be produced and sold next year. What is the predetermined overhead rate if it is based on the number of cases of wine at capacity? a. $2.00 per case. b. $2.50 per case. c. $4.00 per case.

    52. Quick Check ? Crest Winery in Woodinville leases an automatic corking machine for $100,000 per year. If run at full capacity, it can cork 50,000 cases of wine per year. The company has estimated 25,000 cases of wine will be produced and sold next year. What is the predetermined overhead rate if it is based on the estimated number of cases of wine? a. $2.00 per case. b. $2.50 per case. c. $4.00 per case.

    53. Quick Check ? Crest Winery in Woodinville leases an automatic corking machine for $100,000 per year. If run at full capacity, it can cork 50,000 cases of wine per year. The company has estimated 25,000 cases of wine will be produced and sold next year. What is the predetermined overhead rate if it is based on the number of cases of wine at capacity? a. $2.00 per case. b. $2.50 per case. c. $4.00 per case.

    54. Quick Check ? When capacity is used in the denominator in the predetermined rate, what happens to the predetermined overhead rate as estimated activity decreases? a. The predetermined overhead rate goes up when activity goes down. b. The predetermined overhead rate stays the same; it is not affected by changes in activity. c. The predetermined overhead rate goes down when activity goes down.

    55. Quick Check ? When estimated activity is used in the denominator in the predetermined rate, what happens to the predetermined overhead rate as estimated activity decreases? a.The predetermined overhead rate goes up when activity goes down. b.The predetermined overhead rate stays the same; it is not affected by changes in activity. c.The predetermined overhead rate goes down when activity goes down.

    56. Basing the rate on capacity

    57. Basing the rate on expected volume

    59. Overapplied and Underapplied Manufacturing Overhead - Summary

    60. 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 ?

    61. Job-Order Costing – Typical Accounting Entries

    63. Cost Flows – Material Purchases Raw material purchases are recorded in an inventory account.

    64. Cost Flows – Material Usage 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.

    65. Cost Flows – Labor The cost of direct labor incurred increases Work in Process and the cost of indirect labor increases Manufacturing Overhead.

    66. 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.

    67. Cost Flows – Overhead Applied Work in Process is increased when Manufacturing Overhead is applied to jobs.

    68. Cost Flows – Period Expenses Nonmanufacturing costs (period expenses) are charged to expense as they are incurred.

    69. Cost Flows – Cost of Goods Manufactured As jobs are completed, the Cost of Goods Manufactured is transferred to Finished Goods from Work in Process.

    70. Cost Flows – Sales When finished goods are sold, two entries are required: (1) to record the sale; & (2) to record COGS and reduce Finished Goods.

    71. 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.

    72. 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.

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