Title: Managerial Accounting Concepts/Job Cost
1CHAPTER 18
MANAGERIAL ACCOUNTING CONCEPTS/JOB COSTING
2Compare Managerial and Financial Accounting
Managerial accounting provides information for
internal use.
Financial accounting provides information for
external use.
Creditors and investors
Managers
3Compare Managerial and Financial Accounting
- Financial Accounting
- Uses historical data
- Presents summary data
- Complies with GAAP (Generally AcceptedAccounting
Principles)
- Managerial Accounting
- May use estimates of future (e.g., budgeting)
- More detailed data
- Flexible format, cost/benefit analysis
determines proper level of information
4Ethical Issues
Confidentiality
Competence
Institute of Management AccountantsStandards of
Ethical Conduct
Integrity
Objectivity
5Manufacturing Cost Concepts
Cost is a financial measure of resourcesused or
given up to achieve an objective.
Product costs are the costs acompany assigns to
units produced. (i.e., costs which relate to or
attach to the product)
6Product Cost Components
Product Costs
7Product Cost Components
- Direct Materials
- Materials that are clearly and easily traced to a
particular product - Example Wood used to manufacture a high-quality
dining room table
8Product Cost Components
- Direct Labor
- Labor cost of employees working to convert
materials into finished goods - Labor cost clearly traceable to, or readily
identifiable with, the finished product - Example Wages paid to carpenter
9Product Cost Components
- Manufacturing Overhead
- All manufacturing costs except direct material
and direct labor - Manufacturing costs that cannot be traced
directly to specific units produced - Example Indirect labor such as furniture designer
10Product Cost Components
- Manufacturing Overhead - other examples
- - Indirect labor Janitors, Supervisors,
Materials
storeroom personnel, Cost
accountant - - Indirect materials Oil, Nails, Glue
- - Other indirect costs
- Repairs and maintenance on factory buildings
and equipment - Payroll taxes and fringe benefits for
manufacturing employees - Depreciation on factory buildings and
equipment - Insurance and taxes on factory property and
inventories - Utilities for factory buildings
11Product Costs
12Period Costs
- Nonmanufacturing costs which relate to or
attach to the period
- Can be classified as
- Selling costs
- Administrative costs
Period costs are expensed in theperiod incurred.
Period costs are never inventoriedwith the
product.
13Period Costs
Selling Costs Costs incurred to obtain customer
ordersand to deliver finished goods to
customers(e.g., advertising and shipping)
Administrative Costs Nonmanufacturing costs of
staff support andadministrative functions (e.g.,
accounting, dataprocessing, personnel, research
and development)
14Question
- The primary distinction between product and
period costs is . . . - a. Product costs are expensed in the period
incurred. - b. Product costs are directly traceable to
product units. - c. Product costs are inventoriable.
- d. Period costs are inventoriable.
15Question
- The primary distinction between product and
period costs is . . . - a. Product costs are expensed in the period
incurred. - b. Product costs are directly traceable to
product units. - c. Product costs are inventoriable.
- d. Period costs are inventoriable.
a.
b.
c.
d.
16Ways to Classify Costs
1 Product Costs Period Costs
2 Direct Materials Direct Labor Manufacturing
Overhead Selling Administrative
3 Manufacturing Costs Non-Manufacturing Costs
4 Either fixed or Variable Costs
17Financial Reporting by Manufacturing Companies
ManufacturingInventoryClassifications
18Financial Reporting by Manufacturing Companies
Work inProcess
RawMaterials
FinishedGoods
19Balance Sheet Presentation
- MERCHANDISER
- Current Assets
- Cash
- Receivables
- Prepaid Expenses
- Merchandise Inventory
- MANUFACTURER
- Current Assets
- Cash
- Receivables
- Prepaid Expenses
- Inventories
- Raw Materials
- Work in Process
- Finished Goods
20Question
- What type of account is the manufacturing work in
process account? - a. Income statement expense account.
- b. Balance sheet inventory account.
- c. Temporary clearing account for direct
material and direct labor. - d. Holding account for manufacturing
overhead and direct labor.
21Question
- What type of account is the manufacturing work in
process account? - a. Income statement expense account.
- b. Balance sheet inventory account.
- c. Temporary clearing account for direct
material and direct labor. - d. Holding account for manufacturing
overhead and direct labor.
a.
b.
c.
d.
22Manufacturing Cost Flows
Direct Material
Direct Labor
ManufacturingOverhead
23Cost of Goods Manufactured
- Cost of all goods completed during a period and
transferred from work in process to finished
goods -
24Cost of Goods Manufactured
- Cost of all goods completed during a period and
transferred from work in process to finished
goods - Direct Materials Used
- Direct Labor
- Manufacturing Overhead
- Cost to Manufacture
- Beginning Work in Process
- Ending Work in Process
- Cost of Goods Manufactured
25Cost of Goods Sold
- Cost of the items sold to customers during a
period
26Cost of Goods Sold
- Cost of the items sold to customers during a
period - Beginning Finished Goods
- Cost of Goods Manufactured
- Cost of Goods Available for Sale
- Ending Finished Goods
- Cost of Goods Sold
27Income Statement Presentation
- Sales
- Cost of Goods Sold
- Gross Margin
- Operating Expenses
- Operating Income
p.688
28Types of Cost Systems
- Used for production of small, identical,
low-cost items - Mass produced in automated continuous
production process - Costs cannot be directly traced to each unit
of product
29Types of Cost Systems
- Typical process cost applications
- Petrochemical refinery
- Paint manufacturer
- Paper mill
30Types of Cost Systems
- Used for production of large, unique,
high-cost items - Built to order rather than mass produced
- Many costs can be directly traced to each job
31Types of Cost Systems
ProcessCosting
JobCosting
- Typical job order cost applications
- Custom furniture manufacturing
- Building construction
- Also used in service industry
- Hospitals
- Accounting and law firms
32Job Order Costing
33Job Order Costing
34Job Order Costing
ManufacturingOverhead (OH) Applied to eachjob
based onactivity causingthe OH
Synonyms for Applied Overhead Assigned Distribut
ed Allocated Absorbed
35Job Order Costing
36Job Order Costing
- Typical Accounting Entries(pp. 690 - 693)
- To record purchase of materials
- Raw Materials Inventory (Debit)
- Accounts Payable (Credit)
- To record use of materials
- Work in Process Inventory (Debit)
- Manufacturing Overhead (Debit)
- Materials Inventory (Credit)
37Job Order Costing
- Payroll Accounting Entry
- (Not discussed in text)
- To record payment to employees
- Payroll Summary (Debit)
- Wages Payable (Credit)
- Various Taxes Withheld (Credit)
38Job Order Costing
- Typical Accounting Entries(pp. 690 - 693)
- To record labor costs
- Work in Process Inventory (Debit)
- Manufacturing Overhead (Debit)
- Payroll Summary (Credit)
- To apply overhead to jobs
- Work in Process Inventory (Debit)
- Manufacturing Overhead (Credit)
39Job Order Costing
- Typical Accounting Entries(pp. 690 - 693)
- To record completion of jobs
- Finished Goods Inventory (Debit)
- Work in Process Inventory (Credit)
40Job Order Costing
- Typical Accounting Entries(pp. 690 - 693)
- To record sales
- Accounts Receivable (Debit)
- Sales (Credit)
- To record cost of goods sold
- Cost of Goods Sold (Debit)
- Finished Goods Inventory (Credit)
41Job Cost Flows
WIP
Raw Materials
FG
Mfg. O/H
CGS
42Job Cost Flows
Work in Process
Raw Materials
Material Purchases
Mfg. Overhead
43Job Cost Flows
Work in Process
Raw Materials
DirectMaterial
DirectMaterial
Material Purchases
Mfg. Overhead
44Job Cost Flows
Work in Process
Raw Materials
DirectMaterialIndirect Material
DirectMaterial
Material Purchases
Mfg. Overhead
ActualOverheadCosts
45Job Cost Flows
Work in Process
Payroll Summary
DirectMaterial
Incurred
Mfg. Overhead
ActualOverheadCosts
46Job Cost Flows
Work in Process
Payroll Summary
DirectLabor
DirectMaterialDirectLabor
Incurred
Mfg. Overhead
ActualOverheadCosts
47Job Cost Flows
Work in Process
Payroll Summary
DirectLaborIndirect Labor
DirectMaterialDirectLabor
Incurred
Mfg. Overhead
ActualOverheadCosts
48Job Cost Flows
Work in Process
Payroll Summary
DirectLaborIndirect Labor
DirectMaterialDirectLaborOverhead
Incurred
Mfg. Overhead
ActualOverheadCosts
OverheadApplied to Work inProcess
49Job Cost Flows
Work in Process
Finished Goods
DirectMaterialDirectLaborOverhead
Cost of Goods Sold
50Job Cost Flows
Work in Process
Finished Goods
DirectMaterialDirectLaborOverhead
Cost ofGoodsMfg.
Cost ofGoodsMfg.
Cost of Goods Sold
51Job Cost Flows
Work in Process
Finished Goods
DirectMaterialDirectLaborOverhead
Cost ofGoodsMfg.
Cost ofGoodsMfg.
Cost ofGoodsSold
Cost of Goods Sold
Cost ofGoodsSold
52Applying Overhead
A predetermined overhead rate (POHR)is used to
apply costs to jobs.
53Applying Overhead
Establishedbefore theperiod begins
Based on estimated OH costand
estimatedactivity level
54Applying Overhead
Establishedbefore theperiod begins
Based on estimated OH costand
estimatedactivity level
55Applying Overhead
This activityis called thecost driver
56Applying Overhead
The cost driver is assumed to be a causal
factor in overhead incurrence. Examples Units
produced Direct labor hours Direct labor
cost Machine hours
This activityis called thecost driver
57Applying Overhead
58Applying Overhead
59Applying Overhead
60Applying Overhead Example
If FishCo budgets overhead at 200,000
andestimates its cost driver activity to be
25,000 direct labor hours for 1999, what is the
POHR per direct labor hour? a. 10.00 per
hour b. 6.00 per hour c. 8.00 per
hour d. 12.00 per hour
61Applying Overhead Example
If FishCo budgets overhead at 200,000
andestimates its cost driver activity to be
25,000 direct labor hours for 1999, what is the
POHR per direct labor hour? a. 10.00 per
hour b. 6.00 per hour c. 8.00 per
hour d. 12.00 per hour
Estimated Overhead Estimated Activity
200,000 25,000 hours
POHR 8.00 per hour
62Applying Overhead Example
If FishCo actually worked 24,000 direct labor
hours for 1999, what amount of overhead would be
applied to jobs in work in process? a.
200,000 b. 192,000 c. 208,000 d.
196,000
63Applying Overhead Example
If FishCo actually worked 24,000 direct labor
hours for 1999, what amount of overhead would be
applied to jobs in work in process? a.
200,000 b. 192,000 c. 208,000 d.
196,000
64Applying Overhead
Reasons for using apredetermined overhead rate
Overhead is notincurred uniformlyduring the
year.
Actual overhead ratemight vary from month to
month.
Predetermined ratemakes it possible toestimate
job costs sooner.
65Applying Overhead
66Applying Overhead
67Applying Overhead
Overhead is overapplied
68Applying Overhead
Overhead is underapplied
69Applying Overhead
Adjustments for underapplied or overapplied
overhead
Theoretically, we should adjust all accounts
affected by misapplied overhead
70Applying Overhead
Adjusting Cost of Goods Sold for underapplied or
overapplied overhead
71Applying Overhead
Manufacturing Overhead
ActualOverheadCostsIncurred
OverheadApplied toWork in Process
(Debit bal.) UnderappliedOverhead
(Credit bal.) OverappliedOverhead
72Applying Overhead
Manufacturing Overhead
Cost of Goods Sold
Actual
Applied
Underapplied Balance
73Applying Overhead
Manufacturing Overhead
Cost of Goods Sold
Actual
Applied
Underapplied Balance
Underapplied Balance
74Applying Overhead
Manufacturing Overhead
Cost of Goods Sold
Actual
Applied
Overapplied Balance
75Applying Overhead
Manufacturing Overhead
Cost of Goods Sold
Actual
Applied
Overapplied Balance
Overapplied Balance
76Applying Overhead Question
FishCo had actual manufacturing overhead costs of
180,000. FishCo applied 192,000 of
manufacturing overhead to jobs based on a POHR of
8.00 per direct labor hour. FishCos
manufacturing overhead is a. 12,000
overapplied. b. 12,000 underapplied. c.
96,000 overapplied. d. 96,000 underapplied.
77Applying Overhead Question
FishCo had actual manufacturing overhead costs of
180,000. FishCo applied 192,000 of
manufacturing overhead to jobs based on a POHR of
8.00 per direct labor hour. FishCos
manufacturing overhead is a. 12,000
overapplied. b. 12,000 underapplied. c.
96,000 overapplied. d. 96,000 underapplied.
a.
b.
c.
d.
78Applying Overhead Question
FishCo had actual manufacturing overhead costs of
180,000. FishCo applied 192,000 of
manufacturing overhead to jobs based on a POHR of
8.00 per direct labor hour. FishCos
manufacturing overhead is a. 12,000
overapplied. b. 12,000 underapplied. c.
96,000 overapplied. d. 96,000 underapplied.
79Applying Overhead Question
- Assume that FishCo's overhead was 10,000
overapplied. This amount would result in an
adjustment that would decrease cost of goods
soldby 10,000. - a. True
- b. False
80Applying Overhead Question
- Assume that FishCo's overhead was 10,000
overapplied. This amount would result in an
adjustment that would decrease cost of goods
soldby 10,000. - a. True
- b. False
a.
b.
81Applying Overhead Question
Assume that FishCo's overhead was 10,000
overapplied. This amount would result in an
adjustment that would decrease cost of goods
soldby 10,000. a. True b. False
If overhead is overapplied, cost of goods sold is
too high. The adjustment will decrease cost of
goods sold.
82Have a great spring break!
(One more slide)
83THE END