Job-Order, Process, and Hybrid Cost Systems

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CHAPTER 12

• Job-Order, Process, and Hybrid Cost Systems

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Chapter Opening
Job-order cost systems capturethe unique cost
of eachindividual inventoryitem.
Processcost systems distributecosts evenly
across thetotal number of unitsproduced
duringa period.
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Learning Objective
To distinguishbetween job-orderand processcost
systems
LO1
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Cost Systems andType of Product
Job-OrderCost System
ProcessCost System

• Job-order cost systems may be used by
• Walt Disney Production to determine the cost of a
  particular film.
• Rust Engineering to determine the cost of an
  office building constructed.
• Boeing to determine the cost of an airplane
  manufactured.

• Accumulates costs by individual products.
• Companies use job-order cost systems when they
  need to know the costs of individual products or
  batches of products.

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Cost Systems andType of Product
Job-OrderCost System
ProcessCost System

• Process cost systems may be used by
• Texaco in its oil refining operations.
• Dow Chemical in the manufacture of chemicals.
• General Mills in the manufacture of cereal.

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Cost Flows
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Job-Order Cost Flow
Finishedgoodsinventory
Incomestatement
Productcosts
Work in process inventory
Boat 101MaterialsLabor OH
MaterialsLaborOverhead
Cost ofgoodsavailablefor salekeptseparatelyf
or allboats
Boat 104MaterialsLabor OH
Cost ofgoodssold
Boat 103MaterialsLabor OH
Boat 105MaterialsLabor OH
Boat 102MaterialsLabor OH
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Process Cost Flow
Finishedgoodsinventory
Incomestatement
WIP WIPmixing packing
Productcosts
MaterialsLaborOverhead
Transferred-in costs
MaterialsLaborOverhead
Cost ofgoodsavailablefor sale
Cost ofgoodssold
MaterialsLaborOverhead
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Hybrid Accounting Systems
A hybrid accounting system uses some features
from both job-order and process cost systems.
Hybrid systems are commonly used in the
manufacture of personal computers. Many models
are mass produced and sold as a package. Other
systems are custom built to the specifications of
the customer. Custom built systems normally sell
at a premium compared to standard systems.
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Learning Objective
To identifydocumentationused in a job-order
cost system
LO2
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Documentation in aJob-Order Cost System

• The primary document for tracking the costs
  associated with a given job is thejob cost sheet.

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Documentation in aJob-Order Cost System
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Documentation in aJob-Order Cost System
John Smyth
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Documentation in aJob-Order Cost System
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Documentation in aJob-Order Cost System
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Learning Objective
To explain howevents in ajob-order costsystem
affectfinancial statements
LO3
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Job-Order CostSystem Illustrated
Benchmore started the month of January,
2008,with the following account balances.
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Job-Order CostSystem Illustrated
Event 1Benchmore Boat Company paid 14,000cash
to purchase raw materials.
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Job-Order CostSystem Illustrated
Event 2Benchmore used 17,000 of raw
materialsin the process of making boats.
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Job-Order CostSystem Illustrated
Event 3Benchmore paid 1,200 cash topurchase
production supplies.
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Job-Order CostSystem Illustrated
Event 4Benchmore paid 8,000 cash to
productionemployees who worked on Boat 103.
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Job-Order CostSystem Illustrated
Event 5Benchmore applied estimated
manufacturingoverhead costs of 6,240 to the
Boat 103 job.
15,990 4,100 3.90 per direct labor hour
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Job-Order CostSystem Illustrated
Event 6Benchmore transferred 36,240 of product
costs for completed Boat 103 from work in process
inventory to finished goods inventory.
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Job-Order CostSystem Illustrated
Event 7Benchmore paid 24,500 cash for selling
and administrative expenses.
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Job-Order CostSystem Illustrated
Event 8Benchmore paid 12,000 cash to production
employees for work on Boats 104 and 105.
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Job-Order CostSystem Illustrated
Event 9Benchmore applied estimated manufacturing
overhead costs to boats 104 and 105.
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Job-Order CostSystem Illustrated
Event 10Benchmore paid 10,100 cash for
utilitiesand other indirect production costs.
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Job-Order CostSystem Illustrated
Event 11Benchmore recognized 4,000 of actual
manufacturing equipment depreciation.
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Job-Order CostSystem Illustrated
Event 12Benchmore counted the supplies on hand
at year-end and recognized actual overhead cost
for the supplies used.
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Job-Order CostSystem Illustrated
Event 13Benchmore sold Boat 101 for 91,000 cash.
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Job-Order CostSystem Illustrated
Event 14Benchmore recognized cost of goods sold
for Boat 101.
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Job-Order CostSystem Illustrated
Event 15Benchmore closed the Manufacturing
Overhead account, reducing cost of goods sold by
400.
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Job-Order CostSystem Illustrated
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Learning Objective
To explain how events in a process cost system
affect financial statements
LO4
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Process Cost System Illustrated
Janis Juice Company uses three distinct processes
to produce cans of apple juice. Raw materials
(whole apples) enter the Extraction Department
where juice concentrate is extracted from whole
fruit. The juice extract passes to the Mixing
Department where Janis adds water, sugar, food
coloring, and preservatives. The juice mixture
then moves to the Packaging Department where it
is canned and boxed for shipment.
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Process Cost System Illustrated
The companys trial balance as of January 1,
2008, is shown below
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Process Cost System Illustrated
Event 1Janis paid 84,000 cash to purchase raw
materials.
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Process Cost System Illustrated
Event 2Janis processed 26,720 of whole fruit to
produce juice extract.
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Process Cost System Illustrated
Event 3Janis paid 38,000 cash to production
employeeswho worked in the Extraction Department.
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Process Cost System Illustrated
Event 4Janis applied estimated manufacturing
overhead costs to the Extraction Department work
in process inventory.
96,000 120,000 0.80 per direct labor dollar
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Learning Objective
To calculateequivalent units andprepare a cost
ofproduction report
LO5
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Equivalent Units
Equivalent units are partially complete and are
part of work in process inventory. Partially
completed products are expressed in terms of a
smaller number of fully completed units.
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Equivalent Units
Two half completed products are equivalent to one
completed product.
So, 10,000 units 60 completeare equivalent to
6,000 complete units.
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Equivalent Units
A Janis engineer estimated the 85,000 units in
ending work in process inventory were 40 percent
complete. Janis computes the total equivalent
units processed in the extraction department as
follows
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Process Cost System Illustrated
Event 5Janis finished processing some of the
whole fruit and transferred the related cost from
the Extraction Department work in process
inventory account to the Mixing Department work
in process inventory account.
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Process Cost System Illustrated
Event 5Janis used the cost per equivalent unit
to allocate the total cost incurred in the
extraction department between the amount
transferred to the mixing department and the
amount in the extraction departments ending work
in process inventory as follows
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Process Cost System Illustrated
The allocation of costs between unitstransferred
and ending inventory can besummarized in a cost
of production report.
See next slidefor Janis cost ofproduction
report for theExtraction Department
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Extraction DepartmentCost ofProductionReport
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Process Cost System Illustrated
Event 6Janis mixed (used) 24,400 of additives
with the extract transferred from the Extraction
Department.
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Process Cost System Illustrated
Event 7Janis paid 48,000 cash to production
employees who worked in the Mixing Department.
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Process Cost System Illustrated
Event 8Janis applied estimated manufacturing
overhead costs to the Mixing Department work in
process inventory.
48,000 0.80 38,400
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Process Cost System Illustrated
Event 9Janis finished mixing some of the juice
extract with additives and transferred the
related cost from the Mixing Department Work in
Process Inventory account to the Packaging
Department Work in Process Inventory account.
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Process Cost System Illustrated
Event 10Janis added containers and other
packaging materials costing 32,000 to work in
process in the Packaging Department.
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Process Cost System Illustrated
Event 11Janis paid 43,000 cash to production
employees who worked in the Packaging Department.
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Process Cost System Illustrated
Event 12Janis applied estimated manufacturing
overhead costs to the Packaging Department work
in process inventory.
43,000 0.80 34,400
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Process Cost System Illustrated
Event 13Janis finished packaging some of the
juice and transferred the related cost from the
Packaging Department work in process inventory
account to the finished goods inventory account.
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Process Cost System Illustrated
Event 14Janis paid 106,330 cash for actual
overhead costs.
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Process Cost System Illustrated
Event 15Janis sold 490,000 cans of juice for 1
per can.
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Process Cost System Illustrated
Event 16Janis recognized cost of goods sold for
the 490,000 cans of juice sold.
490,000 0.69 338,100
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Process Cost System Illustrated
Event 17Janis paid 78,200 cash for selling and
administrative expenses.
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Process Cost System Illustrated
Event 18Janis closed the Manufacturing Overhead
account and increased the Cost of Goods Sold
account by 3,130.
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Process Cost System Illustrated
The ending trial balance for JanisJuice Company
is shown below
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End of Chapter 12