Post on 26-Dec-2015
Previous LecturerPrevious Lecturer• Ratio analysis• Working capital is the excess of current assets
over current liabilities• Current ratio measures the short-term debt-
paying ability of the company• Quick ratio is like the current ratio but
excludes current assets such as inventories that may be difficult to quickly convert into cash
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Previous LecturerPrevious Lecturer• Debt ratio is a measure of creditor’s long-term
risk• Uses and Limitations of Financial Ratios• Measures of Profitability • Return on Assets ratio is generally considered
the best overall measure of a company’s profitability
• This measure indicates how well the company employed the owners’ investments to earn income 2
• Sources of Financial Information• Accounts Receivable Turnover• Number of Days’ Sales in Receivables• Inventory turnover• Number of Days’ Sales in Inventory• Ratio of Fixed Assets to Long-Term Liabilities• Ratio of Liabilities to Stockholders’ Equity• Number of Times Interest Charges Earned
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Previous LecturerPrevious Lecturer
Previous LecturerPrevious Lecturer• Ratio of Net Sales to Assets• Rate Earned on Total Assets• Rate Earned on Stockholders’ Equity• Rate Earned on Common Stockholders’ Equity• Earnings Per Share on Common Stock• Price-Earnings Ratio• Dividend Yield on Common Stock
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Accounting Systems For Measuring Costs
Chapter
17
5
Planning andcontrol
functions.
Providingproducts or services tocustomers.
Assessing theefficiency andeffectivenessof operations.
Determining unitmanufacturing
costs.
Cost accounting systems provide information supporting decisions making the business successful.
Cost Accounting Systems
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Discloseinventoriesand cost ofgoods sold.
Track resourcesconsumed byproducts and
services.
Manage activitiesthat consume
resources.
Evaluate andreward
employeeperformance.
Cost accounting systems are the proceduresand techniques used by management.
Cost Accounting Systems
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ProcessCosting
Job OrderCosting
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.
Basic Cost Accounting Procedures
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Typical job order cost applications:
Special-order printing Building construction
Also used in service industry Hospitals Law firms
Basic Cost Accounting Procedures
ProcessCosting
Job OrderCosting
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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.
Basic Cost Accounting Procedures
ProcessCosting
Job OrderCosting
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Typical process cost applications:
Petrochemical refinery
Paint manufacturer
Paper mill
Basic Cost Accounting Procedures
ProcessCosting
Job OrderCosting
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THE JOB
Directmaterials
Direct labor
Traced directly to each job
Traced directly
to each job
Manufacturingoverhead (OH)
Applied to eachjob using a
predeterminedrate (POHR)
Job Order Costing
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Job Order Costing
The primary document for tracking the costs
associated with a given job is the job
cost sheet.
Let’s investigate
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The Job Cost SheetRoseCo Job Cost Sheet
Job Number A - 143 Date Initiated 3-4-X9Date Completed
Department B3 Units CompletedItem Wooden cargo crate
Direct Materials Direct Labor Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate Amount
Cost Summary Units ShippedDirect Materials Date Number BalanceDirect LaborManufacturing OverheadTotal CostUnit Cost
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The Job Cost SheetRoseCo Job Cost Sheet
Job Number A - 143 Date Initiated 3-4-X9Date Completed
Department B3 Units CompletedItem Wooden cargo crate
Direct Materials Direct Labor Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate AmountX7-6890 116$
Cost Summary Units ShippedDirect Materials 116$ Date Number BalanceDirect LaborManufacturing OverheadTotal CostUnit Cost
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The Job Cost SheetRoseCo Job Cost Sheet
Job Number A - 143 Date Initiated 3-4-X9Date Completed
Department B3 Units CompletedItem Wooden cargo crate
Direct Materials Direct Labor Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate AmountX7-6890 116$ 36 8 88$
Cost Summary Units ShippedDirect Materials 116$ Date Number BalanceDirect Labor 88$ Manufacturing OverheadTotal CostUnit Cost
Accumulate direct labor
costs by means of a
work record, such as a time ticket, for each
employee.
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The Job Cost SheetRoseCo Job Cost Sheet
Job Number A - 143 Date Initiated 3-4-X9Date Completed 3-5-X9
Department B3 Units Completed 2Item Wooden cargo crate
Direct Materials Direct Labor Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate AmountX7-6890 116$ 36 8 88$ 8 4$ 32$
Cost Summary Units ShippedDirect Materials 116$ Date Number BalanceDirect Labor 88$ Manufacturing Overhead 32$ Total Cost 236$ Unit Cost 118$
Apply manufacturing overhead to jobs using a predetermined overhead rate (POHR) based on
direct labor hours (DLH).
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Let’s summarize the document flow we have
been discussing in a job order
costing system.
Job Order CostingDocument Flow Summary
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Materials Ledger CardsMaterials
Ledger CardsMaterials Ledger CardsMaterialsRequisition
Direct materials
The materials requisition
indicates the cost of direct
materialto charge to
jobsand the cost of
indirect material to charge to overhead.
Indirect materials
Job Cost Sheets
Job Cost Sheets
Job Cost Sheets
Job Cost Sheets
Manufacturing Overhead Account
Job Order CostingDocument Flow Summary
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Employee time tickets indicate
the cost of direct labor
to charge tojobs
and the cost of indirect labor
to charge to overhead.
Job Cost Sheets
Manufacturing Overhead Account
Job Cost Sheets
Job Cost Sheets
Job Cost Sheets
Direct Labor
Indirect Labor
Employee Time TicketEmployee Time
TicketEmployee Time TicketEmployee Time
Ticket
Job Order CostingDocument Flow Summary
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EmployeeTime Ticket
MaterialsRequisition
OtherActual OHCharges
IndirectMaterial
IndirectLabor
OverheadApplied
withPOHR
Manufacturing Overhead Account
Job Cost Sheets
Job Order CostingDocument Flow Summary
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Let’s examine the cost flows in a
job order costing system. We will use T-accounts and start with
materials.
Flow of Costs in Job CostingFlow of Costs in Job CostingFlow of Costs in Job Costing
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•MaterialPurchases
•Direct Material
•Direct Material
Mfg. Overhead•Indirect Material
Work in Process(Job Cost Sheet)
•Indirect Material
Materials Inventory
Flow of Costs in Job Costing
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Next let’s add labor costs and
applied manufacturing overhead to the job order cost flows. Are you
with me?
Flow of Costs in Job Costing
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•Direct Labor
Mfg. Overhead
Work in Process(Job Cost Sheet)
•Indirect Material
•Direct Material
•OverheadApplied to
Work inProcess
•IndirectLabor
•Direct Labor
•Overhead Applied
•IndirectLabor
the difference is closed to cost of goods sold.
When Actual Applied factory factoryoverhead overhead
=/
Labor
Flow of Costs in Job Costing
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If Manufacturing Effect of Closing toOverhead is . . . Cost of Goods Sold
UNDERAPPLIED INCREASE(Applied OH is less Cost of Goods Sold
than actual OH)
OVERAPPLIED DECREASE(Applied OH is greater Cost of Goods Sold
than actual OH)
Closing Under- or OverappliedManufacturing Overhead
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Now let’s complete the
goods and sell them. Still with
me?
Flow of Costs in Job Costing
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•Cost ofGoodsMfd.
Finished Goods
•Cost ofGoodsSold
•Cost ofGoodsMfd.
Cost of Goods Sold
•Cost ofGoodsSold
Work in Process(Job Cost Sheet)•Direct
Material•Direct Labor
•Overhead Applied
Flow of Costs in Job Costing
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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.
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.
Process Costing
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Comparing Job and Process Costing
Job Costing
• Custom orders
• Heterogeneous products
• Low production volume
• High product flexibility
• Low to medium standardization
Process Costing
• Repetitive production
• Homogeneous products
• High production volume
• Low product flexibility
• High standardization
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DirectMaterials
FinishedGoods
Cost per unit for
each job
DirectLabor
FactoryOverhead
Jobs
The Work in Process account consists of
individual jobs in job costing.
Job and Process Costing
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DirectMaterials
FinishedGoods
DirectLabor
FactoryOverhead
Processes
The Work in Process account consists of specific processes in
process costing.
Cost per unit
processed
Job and Process Costing
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Same objective: to determine the cost of products
Same inventory accounts: raw materials, work in process, and finished goods
Same overhead assignment method:predetermined rate times actual activity
Job and ProcessCosting Similarities
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Work in Process
Assembly
Labor
Materials
Ind
irec
tIn
dir
ect
FinishedGoods
FactoryOverhead
Direct
Direct
Deliveredto
Customers
AppliedOverhead
Work in Process
Packaging
Work in Process Accounts — The Key to Process Costing
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Computing Unit Cost
Costs are accumulated for a period of time by process or department.
Costs are accumulated for a period of time by process or department.
Unit cost is computed by dividing the accumulated costs by the number of
units produced in the period.
Unit cost is computed by dividing the accumulated costs by the number of
units produced in the period.
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Unit cost is computed by dividing the accumulated costs by the number of
units produced in the period.
Unit cost is computed by dividing the accumulated costs by the number of
units produced in the period.
If partially complete units remain in process, we must use equivalent units
as the divisor to obtain unit costs.
If partially complete units remain in process, we must use equivalent units
as the divisor to obtain unit costs.
Computing Unit Cost
Costs are accumulated for a period of time by process or department.
Costs are accumulated for a period of time by process or department.
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Computing and Using Equivalent Units of Production
Equivalent units is a concept expressing a number of partially completed units as a smaller number of
fully completed units.
Equivalent units is a concept expressing a number of partially completed units as a smaller number of
fully completed units.
Two one-half full pitchers are equivalent to one full pitcher.
+ = 1
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Question
For the current period, PencilCo started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of
production did PencilCo have for the period?
a. 10,000
b. 11,500
c. 1,500
d. 15,000
For the current period, PencilCo started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of
production did PencilCo have for the period?
a. 10,000
b. 11,500
c. 1,500
d. 15,000
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For the current period, PencilCo started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of
production did PencilCo have for the period?
a. 10,000
b. 11,500
c. 1,500
d. 15,000
For the current period, PencilCo started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of
production did PencilCo have for the period?
a. 10,000
b. 11,500
c. 1,500
d. 15,000
10,000 units + (5,000 units × .30) = 11,500 equivalent units
Question
39
Cost perequivalent
unit
= Product costs for the periodEquivalent units for the period
Cost Per Equivalent Unit
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Now assume that PencilCo incurred $27,600 in production costs. What was PencilCo’s cost per unit for the period?
a. $1.84
b. $2.40
c. $2.76
d. $2.90
Now assume that PencilCo incurred $27,600 in production costs. What was PencilCo’s cost per unit for the period?
a. $1.84
b. $2.40
c. $2.76
d. $2.90
Question
41
Now assume that PencilCo incurred $27,600 in production costs. What was PencilCo’s cost per unit for the period?
a. $1.84
b. $2.40
c. $2.76
d. $2.90
Now assume that PencilCo incurred $27,600 in production costs. What was PencilCo’s cost per unit for the period?
a. $1.84
b. $2.40
c. $2.76
d. $2.90
$27,600 ÷ 11,500 equivalent units
= $2.40 per equivalent unit
Question
42
Equivalent units may be different for material and labor
and overhead at different stages of a process.
Equivalent units may be different for material and labor
and overhead at different stages of a process.
At completion of Stage 1 of the process, materialis 40% complete, but labor and overhead are only
25% complete.
At completion of Stage 1 of the process, materialis 40% complete, but labor and overhead are only
25% complete.
Stage 1
40% ofMaterial
25% ofLabor andOverhead
Equivalent Units
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Stage 2
25% ofLabor andOverhead
60% ofMaterial
Stage 1
40% ofMaterial
25% ofLabor andOverhead
+
+
=
=
100%
50%
Equivalent Units
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Stage 3
50% ofLabor andOverhead
The process is now complete. The process is now complete.
Stage 2
25% ofLabor andOverhead
60% ofMaterial
Stage 1
40% ofMaterial
25% ofLabor andOverhead
Equivalent Units
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End of Todays Session
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