Post on 01-Jan-2016
description
6-1
Product Costing Product Costing and the and the
Manufacturing Manufacturing EnvironmentEnvironment
Product Costing Product Costing and the and the
Manufacturing Manufacturing EnvironmentEnvironment
CChaptehapterr
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Prepared by Douglas Cloud
Pepperdine University
Prepared by Douglas Cloud
Pepperdine University
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1. Understand the inventory requirements and the related inventory measurement issues of service, merchandising, and manufacturing organizations.
2. Explain the basic conceptual framework of inventory costing for financial reporting.
3. Describe the manufacturing environment as it relates to product costing systems.
ObjectivesObjectivesObjectivesObjectives
After studying this After studying this chapter, you should chapter, you should
be able to:be able to:
After studying this After studying this chapter, you should chapter, you should
be able to:be able to:
ContinuedContinuedContinuedContinued
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4. Explain the operation of a basic job costing system.
5. Explain the operation of a basic process costing system.
ObjectivesObjectivesObjectivesObjectives
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Financial Financial AccountiAccounti
ngng
Financial reporting is the process of preparing a
firm’s financial statements in accordance with GAAP.
Financial reporting is the process of preparing a
firm’s financial statements in accordance with GAAP.
These financial reporting concepts include some fundamental techniques and
prototype approaches that managers can apply to a variety of manufacturing
settings and specific products.
These financial reporting concepts include some fundamental techniques and
prototype approaches that managers can apply to a variety of manufacturing
settings and specific products.
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INVENTORY COSTS IN VARIOUS ORGANIZATIONS
Organization Asset ExpenseOrganization Asset Expense
Service Supplies Inventory
Supplies Expense
Merchan-dising
Merchandise Inventory
Supplies Inventory
Cost of Goods Sold
Supplies Expense
ContinuedContinuedContinuedContinued
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INVENTORY COSTS IN VARIOUS ORGANIZATIONS
Organization Asset ExpenseOrganization Asset Expense
Manu- facturing
Raw Materials Inventory
Manufacturing Supplies Inventory
Office Supplies Expense
Office Supplies Inventory
Work-in Process
Inventory
Finished Goods
Inventory
Cost of Goods Sold
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Product Costs for Product Costs for Financial ReportingFinancial ReportingProduct Costs for Product Costs for
Financial ReportingFinancial Reporting
Raw materials used
Manufacturing supplies used
Production employees’ wages
Depreciation on plant
Expired insurance on plant
Production supervisors’ salaries
Plant maintenance
Plant utilities
Production equipment rent
Plant office supplies used
Raw materials used
Manufacturing supplies used
Production employees’ wages
Depreciation on plant
Expired insurance on plant
Production supervisors’ salaries
Plant maintenance
Plant utilities
Production equipment rent
Plant office supplies used
These costs are assigned
to the asset
inventory
These costs are expensed
when inventory
is sold
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Period Costs for Period Costs for Financial ReportingFinancial Reporting
Period Costs for Period Costs for Financial ReportingFinancial Reporting
Nonfactory office supplies used
General and administrative salaries
Depreciation on showroom
Expired insurance on showroom
President’s salary
Showroom maintenance
Nonfactory office utilities
Nonfactory office rent
Nonfactory office supplies used
General and administrative salaries
Depreciation on showroom
Expired insurance on showroom
President’s salary
Showroom maintenance
Nonfactory office utilities
Nonfactory office rent
These items are expensed as incurred
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THREE PRODUCT COSTS
Work-in-Process Inventory
Direct LaborDirect Labor Factory OverheadFactory OverheadFactory OverheadFactory Overhead
Cost of the primary raw materials used in
production
Wages earned by production employees
for the actual time spent working on the product
All other manufacturing costs
Finished Goods Inventory
Cost of Goods Sold
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A Closer Look At Manufacturing Overhead
A Closer Look At Manufacturing Overhead
Possibly the biggest challenge in measuring the cost of a product is
determining the amount of overhead incurred to produce it.
Possibly the biggest challenge in measuring the cost of a product is
determining the amount of overhead incurred to produce it.
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Problems Resulting From Measuring Problems Resulting From Measuring Product Cost Using Actual OverheadProduct Cost Using Actual Overhead Problems Resulting From Measuring Problems Resulting From Measuring Product Cost Using Actual OverheadProduct Cost Using Actual Overhead
Actual manufacturing overhead cost may not be
known until days or weeks after the end of the period,
delaying the calculation of unit product cost.
Actual manufacturing overhead cost may not be
known until days or weeks after the end of the period,
delaying the calculation of unit product cost.
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Also, some costs that are seasonal are not incurred each period, thus making the actual cost of product produced in one
month greater than that of another, even though nonseasonal costs may have been
identical for both months.
Also, some costs that are seasonal are not incurred each period, thus making the actual cost of product produced in one
month greater than that of another, even though nonseasonal costs may have been
identical for both months.
Problems Resulting From Measuring Problems Resulting From Measuring Product Cost Using Actual OverheadProduct Cost Using Actual Overhead Problems Resulting From Measuring Problems Resulting From Measuring Product Cost Using Actual OverheadProduct Cost Using Actual Overhead
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Another point… When there is a significant amount of fixed overhead, the costs assigned to products will vary from period
to period, depending on the overall volume of activity.
Another point… When there is a significant amount of fixed overhead, the costs assigned to products will vary from period
to period, depending on the overall volume of activity.
Problems Resulting From Measuring Problems Resulting From Measuring Product Cost Using Actual OverheadProduct Cost Using Actual Overhead Problems Resulting From Measuring Problems Resulting From Measuring Product Cost Using Actual OverheadProduct Cost Using Actual Overhead
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Using Predetermined Overhead RatesUsing Predetermined Overhead RatesUsing Predetermined Overhead RatesUsing Predetermined Overhead Rates
To overcome these problems, most firms use a
predetermined manufacturing overhead
rate to assign manufacturing overhead costs to products.
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Predetermined Predicted total manufacturingmanufacturing overhead cost for the yearoverhead rate Predicted total direct labor per direct hours for the year labor hour
=
Using Predetermined Overhead RatesUsing Predetermined Overhead RatesUsing Predetermined Overhead RatesUsing Predetermined Overhead Rates
A predetermined overhead rate based on direct labor hours
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Manufacturing Predetermined overhead Actual direct manufacturing assigned to labor hours overhead rateWork-In-Process per direct labor Inventory hour
= x
Using Predetermined Overhead RatesUsing Predetermined Overhead RatesUsing Predetermined Overhead RatesUsing Predetermined Overhead Rates
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Using a predetermined manufacturing overhead rate based on direct labor hours,
we can compute the assignment of overhead to Work-in-Process Inventory.
Using a predetermined manufacturing overhead rate based on direct labor hours,
we can compute the assignment of overhead to Work-in-Process Inventory.
Using Predetermined Overhead RatesUsing Predetermined Overhead RatesUsing Predetermined Overhead RatesUsing Predetermined Overhead Rates
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Late in 2004, Harmon Manufacturing Company Late in 2004, Harmon Manufacturing Company predicted a 2005 activity level of 25,000 direct labor predicted a 2005 activity level of 25,000 direct labor
hours with manufacturing overhead totaling $187,500.hours with manufacturing overhead totaling $187,500.
Predetermined Predicted total manufacturingmanufacturing overhead cost for the yearoverhead rate Predicted total direct labor per direct hours for the year labor hour
=
Using Predetermined Overhead RatesUsing Predetermined Overhead RatesUsing Predetermined Overhead RatesUsing Predetermined Overhead Rates
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$187,500 25,000 direct-labor hours=
Using Predetermined Overhead RatesUsing Predetermined Overhead RatesUsing Predetermined Overhead RatesUsing Predetermined Overhead Rates
Late in 2004, Harmon Manufacturing Company Late in 2004, Harmon Manufacturing Company predicted a 2005 activity level of 25,000 direct labor predicted a 2005 activity level of 25,000 direct labor
hours with manufacturing overhead totaling $187,500.hours with manufacturing overhead totaling $187,500.
$7.50 per direct
labor hour
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If 2,000 direct labor hours were used in September, If 2,000 direct labor hours were used in September, what would be the applied overhead?what would be the applied overhead?
2,000 x $7.50 = $15,000
Using Predetermined Overhead RatesUsing Predetermined Overhead RatesUsing Predetermined Overhead RatesUsing Predetermined Overhead Rates
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The Manufacturing EnvironmentThe Manufacturing EnvironmentThe Manufacturing EnvironmentThe Manufacturing Environment
In process manufacturing, a
single product (or a closely related set of
products) is produced on a
continuous basis
In process manufacturing, a
single product (or a closely related set of
products) is produced on a
continuous basis
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In job order production, products are
manufactured in singles units or in
batches of identical units.
In job order production, products are
manufactured in singles units or in
batches of identical units.
The Manufacturing EnvironmentThe Manufacturing EnvironmentThe Manufacturing EnvironmentThe Manufacturing Environment
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The production order contains a job’s
unique identification number and assigns a unique identification
number to a job
The production order contains a job’s
unique identification number and assigns a unique identification
number to a job
The Manufacturing EnvironmentThe Manufacturing EnvironmentThe Manufacturing EnvironmentThe Manufacturing Environment
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A job-cost sheet is a document used to
accumulate the cost for a specific job in a
job-cost system
A job-cost sheet is a document used to
accumulate the cost for a specific job in a
job-cost systemJob Cost Sheet
Direct Materials
Direct Labor
Factory Overhead
July 1 100 lbs. @ $ 0.25 = $ 25
3 75 oz. @ $1.40 = 105
July 1 3 hrs. @ $10.00 = $ 30
3 7 hrs @ $10.00 = 70
July 7 10 dlh x $2 = $ 20
The Manufacturing EnvironmentThe Manufacturing EnvironmentThe Manufacturing EnvironmentThe Manufacturing Environment
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Production Files and RecordsProduction Files and RecordsProduction Files and RecordsProduction Files and Records
A file is simply a collection of
related records.
A file is simply a collection of
related records.
A record is a related set of
alphabetic and/or numeric data items.
A record is a related set of
alphabetic and/or numeric data items.
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Basic Production RecordsBasic Production RecordsBasic Production RecordsBasic Production Records
Raw Materials Inventory Record
Part No________________ Description_________________
Purchased Issued Balance Unit Total Unit Total Unit Total
Date Units Cost Cost Units Cost Cost Units Cost Cost
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Finished Goods Inventory Record
Product No________________ Description____________________
Received From Factory Sold Balance Unit Total Unit Total Unit Total
Date Units Cost Cost Units Cost Cost Units Cost Cost
Basic Production RecordsBasic Production RecordsBasic Production RecordsBasic Production Records
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Bill of Materials
Raw Materials Requirements Per Unit of Product
Product No________________ Description___________________
Part Quantity Number Description Per Unit
Basic Production RecordsBasic Production RecordsBasic Production RecordsBasic Production Records
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Operations List
Production Operations and Times Per Unit of Product
Product No_______________ Description___________________
Department Operation Machine/Labor Set-up Operating Number Description Requirements Time Time
Basic Production RecordsBasic Production RecordsBasic Production RecordsBasic Production Records
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Job Cost System RecordsJob Cost System Records(Production Order)(Production Order)
Job Cost System RecordsJob Cost System Records(Production Order)(Production Order)
Production Order
Job No.___________________ Start Date __________________
Product No_________ Description_________________ Quantity_____
Raw Materials
Total Part Number Description Quantity
ContinuedContinuedContinuedContinued
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Operations
Department Operation Labor/Machine Start Stop Total Number Description Requirements Time Time Time
Authorized by ___________________ Date ________________
Job Cost System RecordsJob Cost System Records(Production Order)(Production Order)
Job Cost System RecordsJob Cost System Records(Production Order)(Production Order)
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Job-Cost Sheet
Job No.___________________ Start Date __________________
Product No_________ Description_________________ Quantity_____
Raw Materials Cost
Requisition TotalDate Department Number Description Cost
ContinuedContinuedContinuedContinued
Job Cost System RecordsJob Cost System Records(Job Cost Sheet)(Job Cost Sheet)
Job Cost System RecordsJob Cost System Records(Job Cost Sheet)(Job Cost Sheet)
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Conversion Costs: Direct Labor or Machine
Work Ticket Total TotalDate Department Number Description Time Cost
ContinuedContinuedContinuedContinued
Job Cost System RecordsJob Cost System Records(Job Cost Sheet)(Job Cost Sheet)
Job Cost System RecordsJob Cost System Records(Job Cost Sheet)(Job Cost Sheet)
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Applied Overhead
TotalDate Department Basis of Application Cost
Total Cost of Job Unit Cost
Job Cost System RecordsJob Cost System Records(Job Cost Sheet)(Job Cost Sheet)
Job Cost System RecordsJob Cost System Records(Job Cost Sheet)(Job Cost Sheet)
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Materials Requisition Form
Requisition No. _________ Job No. _______ Date _______________
Department __________________
Part Total Unit Total Number Description Quantity Cost Cost
Issued by________________ Received by __________________
Job Cost System RecordsJob Cost System Records(Material Requisition Form)(Material Requisition Form)
Job Cost System RecordsJob Cost System Records(Material Requisition Form)(Material Requisition Form)
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Work Ticket
Work Ticket No. _________ Date_________________
Department______________________ Job. No. _____
Time Started _________ Time Completed __________
Employee/Machine Operator _____________________
Office Use
Total Time ______ Rate ______ Total Cost ________
Job Cost System RecordsJob Cost System Records(Work Ticket)(Work Ticket)
Job Cost System RecordsJob Cost System Records(Work Ticket)(Work Ticket)
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Impact of Computers on Impact of Computers on ManufacturingManufacturing
Impact of Computers on Impact of Computers on ManufacturingManufacturing
Automatic identification systems (AIS) allow inventory
and production information to be
entered into a computer without writing or keying.
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Computer-aided design (CAD)
involves the use of computers to
design products.
Impact of Computers on Impact of Computers on ManufacturingManufacturing
Impact of Computers on Impact of Computers on ManufacturingManufacturing
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Computer-aided manufacturing Computer-aided manufacturing (CAM) (CAM) involves the use of computers involves the use of computers
to control machine operations.to control machine operations.
Impact of Computers on Impact of Computers on ManufacturingManufacturing
Impact of Computers on Impact of Computers on ManufacturingManufacturing
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Flexible manufacturing systems (FMS) are an extension
of computer-aided manufacturing techniques
through a series of manufacturing operations.
Flexible manufacturing systems (FMS) are an extension
of computer-aided manufacturing techniques
through a series of manufacturing operations.
Computer-integrated manufacturing (CIM) is the
ultimate extension of CAD, CAM, and FMS concepts to a completed
automated and computer-controlled factory.
Computer-integrated manufacturing (CIM) is the
ultimate extension of CAD, CAM, and FMS concepts to a completed
automated and computer-controlled factory.
Impact of Computers on Impact of Computers on ManufacturingManufacturing
Impact of Computers on Impact of Computers on ManufacturingManufacturingIn their advanced stages, factories
utilizing flexible manufacturing systems and computer-integrated
manufacturing are sometimes referred to as “lights-out factories”
because they can be operated in the dark.
In their advanced stages, factories utilizing flexible manufacturing systems and computer-integrated
manufacturing are sometimes referred to as “lights-out factories”
because they can be operated in the dark.
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Basic Manufacturing Cost FlowsBasic Manufacturing Cost FlowsBasic Manufacturing Cost FlowsBasic Manufacturing Cost Flows
Beginning balance $ xx(1) Purchases xxTotal available xx
Raw MaterialsStep 1Step 1: The cost of purchased : The cost of purchased
raw materials and raw materials and manufacturing supplies manufacturing supplies are recorded in are recorded in Raw Raw MaterialsMaterials and and Manufacturing Manufacturing SuppliesSupplies, respectively., respectively.(1) Increase $ xx
Accounts Payable
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Work-in-Process Inventory
Beginning balance $ xxCurrent manufacturing costs:
Work-in-Process Inventory
Beginning balance $ xxCurrent manufacturing costs:
Beginning balance $ xx(1) Purchases xxTotal available xx
Raw Materials
(2) Direct materials xx
Step 2Step 2: As primary raw : As primary raw materials are materials are requisitioned to the requisitioned to the factory, direct factory, direct materials are materials are transferred from transferred from Raw MaterialsRaw Materials to to Work-in-Process.Work-in-Process.
Basic Manufacturing Cost FlowsBasic Manufacturing Cost FlowsBasic Manufacturing Cost FlowsBasic Manufacturing Cost Flows
Beginning balance $ xx(1) Purchases xxTotal available xx(2) Direct materials -xxEnding balance $ xx
Raw Materials
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Work-in-Process Inventory
Beginning balance $ xxCurrent manufacturing costs:
(2) Direct materials $xx
Work-in-Process Inventory
Beginning balance $ xxCurrent manufacturing costs:
(2) Direct materials $xx
(3) Current employee earnings $ xx
Wages Payable
(3) Direct labor xx
Indirect labor to Manufacturing Overhead
(NEXT SLIDE)
Step 3Step 3: Direct labor costs are assigned to : Direct labor costs are assigned to Work-in-ProcessWork-in-Process on the basis of on the basis of time devoted to processing raw time devoted to processing raw materials. Other labor costs materials. Other labor costs associated with production associated with production employees are initially assigned employees are initially assigned to to Manufacturing Overhead.Manufacturing Overhead.
Basic Manufacturing Cost FlowsBasic Manufacturing Cost FlowsBasic Manufacturing Cost FlowsBasic Manufacturing Cost Flows
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Manufacturing Overhead
Beginning balance $ xxCurrent:
(3) Indirect labor $xx
Manufacturing Overhead
Beginning balance $ xxCurrent:
(3) Indirect labor $xx
Basic Manufacturing Cost FlowsBasic Manufacturing Cost FlowsBasic Manufacturing Cost FlowsBasic Manufacturing Cost Flows
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Manufacturing Overhead
Beginning balance $ xxCurrent:
(3) Indirect materials $xx(4) Manufacturing. Supplies xx(5) Depreciation xx(6) Miscellaneous xx -xx
Total $ xx
Manufacturing Overhead
Beginning balance $ xxCurrent:
(3) Indirect materials $xx(4) Manufacturing. Supplies xx(5) Depreciation xx(6) Miscellaneous xx -xx
Total $ xx
Manufacturing Supplies
Beginning balance $ xx(1) Purchases xxTotal available xx(4) Issued -xxEnding balance $ xx
Accumulated Depreciation: Factory Assets
(5) Increase +xx
Other Payables
(6) Increase +xx
Steps 4, 5, and 6Steps 4, 5, and 6: Other production : Other production related costs are also assigned to related costs are also assigned to Manufacturing OverheadManufacturing Overhead..
Basic Manufacturing Cost FlowsBasic Manufacturing Cost FlowsBasic Manufacturing Cost FlowsBasic Manufacturing Cost Flows
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Manufacturing Overhead
Beginning balance $ xxCurrent:
(3) Indirect materials $xx(4) Manufacturing. Supplies xx(5) Depreciation xx(6) Miscellaneous xx -xx
Total $ xx(7) Applied overhead -xx
Ending balance $ xx
Manufacturing Overhead
Beginning balance $ xxCurrent:
(3) Indirect materials $xx(4) Manufacturing. Supplies xx(5) Depreciation xx(6) Miscellaneous xx -xx
Total $ xx(7) Applied overhead -xx
Ending balance $ xx
Work-in-Process Inventory
Beginning balance $ xxCurrent manufacturing costs:
(2) Direct materials $xx(3) Direct labor xx(7) Applied overhead xx
Work-in-Process Inventory
Beginning balance $ xxCurrent manufacturing costs:
(2) Direct materials $xx(3) Direct labor xx(7) Applied overhead xx
Steps 7Steps 7: Costs assigned to : Costs assigned to Manufacturing Manufacturing OverheadOverhead are periodically are periodically reassigned (applied) to reassigned (applied) to Work-in-Work-in-Process.Process.
Basic Manufacturing Cost FlowsBasic Manufacturing Cost FlowsBasic Manufacturing Cost FlowsBasic Manufacturing Cost Flows
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Work-in-Process Inventory
Beginning balance $ xxCurrent manufacturing costs:
(2) Direct materials $xx(3) Direct labor xx(7) Applied overhead xx +xx
Total work-in-process $ xx(8) Cost of goods mfg. -xx
Ending balance $ xx
Work-in-Process Inventory
Beginning balance $ xxCurrent manufacturing costs:
(2) Direct materials $xx(3) Direct labor xx(7) Applied overhead xx +xx
Total work-in-process $ xx(8) Cost of goods mfg. -xx
Ending balance $ xx
Steps 8Steps 8: When products are completed, : When products are completed, their accumulated production their accumulated production costs are totaled on a job cost costs are totaled on a job cost sheet and transferred from sheet and transferred from Work-in-ProcessWork-in-Process to to Finished Finished Goods Inventory.Goods Inventory.
Basic Manufacturing Cost FlowsBasic Manufacturing Cost FlowsBasic Manufacturing Cost FlowsBasic Manufacturing Cost Flows
Finished Goods Inventory
Beginning balance $ xx(8) Cost of goods mfg. -xxTotal available xx
Finished Goods Inventory
Beginning balance $ xx(8) Cost of goods mfg. -xxTotal available xx
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Finished Goods Inventory
Beginning balance $ xx(8) Cost of goods mfg. -xxTotal available xx(9) Cost of goods sold -xxEnding balance $ xx
Finished Goods Inventory
Beginning balance $ xx(8) Cost of goods mfg. -xxTotal available xx(9) Cost of goods sold -xxEnding balance $ xx
Cost of Goods Sold
(9) Cost of goods sold $xx
Steps 9Steps 9: Later when the products are : Later when the products are sold, their costs are transferred sold, their costs are transferred from from Finished Goods InventoryFinished Goods Inventory to to Cost of Goods Sod.Cost of Goods Sod.
Basic Manufacturing Cost FlowsBasic Manufacturing Cost FlowsBasic Manufacturing Cost FlowsBasic Manufacturing Cost Flows
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Exhibit 6-7
Examine Exhibit 6-6 in the textbook for a possible pattern of cost flows for a factory containing
only machine-intensive manufacturing operations.
Examine Exhibit 6-6 in the textbook for a possible pattern of cost flows for a factory containing
only machine-intensive manufacturing operations.
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Job CostingJob CostingJob CostingJob Costing
A critical concept in job costing is the relationship between the job cost sheets
and the account Work-in-Process
Job Cost Sheet
Led
ger
Job Cost Sheet
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When costs are assigned to work-in-process the costs are also assigned to job cost sheets
When jobs are completed the costs are determined by looking at the sheet for the completed job. That amount is transferred from work-in-process to finished goods inventory
The balance in work-in-process is equal to the costs assigned to the jobs in process
Job CostingJob CostingJob CostingJob Costing
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Job 425 Job 426 Job 427 Total
Beginning balance $58,600 $51,300 $ 0 $109,900
Current costs:
Direct materials 4,800 3,600 23,500 31,900
Direct labor 6,000 9,000 10,000 25,000
Applied overhead 2,400 3,600 4,000 10,000Total $71,800 $67,500 $37,500 $176,800
This information is used to determine the total cost of goods manufactured.
Job CostingJob CostingJob CostingJob Costing
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Job 428 Job 429 Job 430 Total
Beginning balance $ 0 $ 0 $ 0 $ 0
Current costs:
Direct materials 22,400 10,000 8,200 40,600
Direct labor 9,450 3,800 2,800 16,050
Applied overhead 3,780 1,520 1,120 6,420Total $35,630 $15,320 $12,120 $63,070
This information indicates ending balance in Work in Process Inventory
Job CostingJob CostingJob CostingJob Costing
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The job-cost sheets for completed jobs provide the cost of each job, allowing management to properly cost and price the job.
The job-cost sheets for incomplete jobs should sum to the ending balance in the Work-in-Process Inventory account.
ReviewReview
Job CostingJob CostingJob CostingJob Costing
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Fox Brothers, Inc.Statement of Cost of Goods Manufactured
For the Month Ending August 31, 2004Current manufacturing costs:
Cost of materials placed in production:Raw materials, 8/1/04 $36,000Purchases 30,000Total available $66,100Raw materials, 8/31/04 -11,800 $54,300
Direct labor 34,450Manufacturing overhead 13,780 $102,530
Work-in-Process, 8/1/04 109,900Total costs in process $212,430Work-in-Process, 8/31/04 - 35,630Cost of goods manufactured $176,800
Transfer to the income statement
STATEMENT OF COST OF GOODS MANUFACTURED
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Fox Brothers, Inc.Income Statement
For the Month Ending August 31, 2004
Sales $400,000Cost of goods sold:
Finished goods inventory, 8/1/04 $75,000Cost of goods manufactured 176,800Total goods available for sale $251,800Finished goods inventory, 8/31/04 -37,500 214,300
Gross profit $185,700Selling and administrative expenses - 90,000Net income $ 95,700
From the From the statement of statement of cost of goods cost of goods manufacturedmanufactured
From the From the statement of statement of cost of goods cost of goods manufacturedmanufactured
INCOME STATEMENT
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If products are produced in a continuous manufacturing
environment, where production does not have a distinct beginning
and end, it is necessary to use a process costing system.
If products are produced in a continuous manufacturing
environment, where production does not have a distinct beginning
and end, it is necessary to use a process costing system.
Process CostingProcess CostingProcess CostingProcess Costing
The cost of a single unit is equal to the total product costs assigned a “process” or “department” during an
accounting period divided by the number of units produced.
The cost of a single unit is equal to the total product costs assigned a “process” or “department” during an
accounting period divided by the number of units produced.
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Cost of Production ReportCost of Production ReportCost of Production ReportCost of Production Report
A cost of production report is the key document. It is a useful
way of organizing and accounting for costs in a process
costing environment.
A cost of production report is the key document. It is a useful
way of organizing and accounting for costs in a process
costing environment.A cost of production report contains--A cost of production report contains--A cost of production report contains--A cost of production report contains--
Summary of units in process Equivalent units Total costs to be account for
and cost per equivalent unit Accounting for total cost
Summary of units in process Equivalent units Total costs to be account for
and cost per equivalent unit Accounting for total cost
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Assume 90 units in the ending inventory are 40 percent
complete. The equivalent units are determined as follows:
Assume 90 units in the ending inventory are 40 percent
complete. The equivalent units are determined as follows:
90 units in ending inventory x 0.40 = 3690 units in ending inventory x 0.40 = 36
Cost of Production ReportCost of Production ReportCost of Production ReportCost of Production Report
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Micro System Co.Cost of Production Report
For the Month Ending July 31, 2004
Summary of units in process:
Beginning 4,000Units started 36,000In process 40,000Completed -35,000Ending 5,000
TopTop
Cost of Production ReportCost of Production ReportCost of Production ReportCost of Production Report
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Equivalent units in process: Materials Conversion
Units completed 35,000 35,000Plus equivalent units in end. inv. 5,000 1,000Equivalent units in process 40,000 36,000
Total cost to be accounted for andcost per equivalent units/process: Materials Conversion TotalWork-in-Process, beginning $ 16,000 $ 9,000 $ 25,000Current cost 144,000 108,900 252,900Total cost in process $160,000 $117,900 $277,900Equivalent units in process 40,000 36,000Cost per equivalent unit in process $ 4.00 $ 3.275 $ 7.275
MiddleMiddle
Cost of Production ReportCost of Production ReportCost of Production ReportCost of Production Report
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BottomBottom
Accounting for total cost
Transferred out (35,000 x $7.275) $254,625Work-in-Process, ending:
Materials $20,000Conversion (1,000 x $3.275) 3,275 23,275
Total cost accounted for $277,900
Cost of Production ReportCost of Production ReportCost of Production ReportCost of Production Report
Matches Matches total cost total cost in processin process
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Work-in-Process Inventory
Beginning balance $ 25,000Current manufacturing costs:
Direct materials $144,000Direct labor 62,200Applied overhead 46,700 252,900
Total $277,900Cost of goods manufactured -254,625Ending balance $ 23,275
The flow of Costs Through Work-in-Process Inventory is as follows:
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CChapter
66
The The EndEndThe The EndEnd
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