Kế toán, kiểm toán - Chapter 2: Job - Order costing for manufacturing & service companies

Prepared by Debby Bloom-Hill CMA, CFMCHAPTER 2Job-Order Costing for Manufacturing&Service CompaniesManufacturing CostsDirect MaterialsCost of materials directly traceable to items produced Materials not directly traceable are indirect materialsDirect LaborCost of labor directly traceable to items producedLabor costs not directly traceable are indirect laborManufacturing OverheadCost of manufacturing activities other than direct materials and direct laborSlide 2-3Learning objective 1: Distinguish between manufacturing and nonmanufacturing costs and between product and period costs.Merchandising and Manufacturing FirmsSlide 2-4Learning objective 1: Distinguish between manufacturing and nonmanufacturing costs and between product and period costs.Common Manufacturing Overhead Costs (Illustration 2-2)Slide 2-5Learning objective 1: Distinguish between manufacturing and nonmanufacturing costs and between product and period costs.Nonmanufacturing CostsNonmanufacturing costs (also known as period costs) are all costs that are not associated with the production of goodsSelling CostsCosts associated with securing and filling customer orders e.g. advertising, sales salaries, depreciation of sales equipmentGeneral and Administrative CostsCosts associated with the firm’s general management e.g. human resources, accounting, corporate headquarters and other support costsSlide 2-6Learning objective 1: Distinguish between manufacturing and nonmanufacturing costs and between product and period costs.Product and Period CostsProduct CostsCosts assigned to goods produced (i.e. direct materials, direct labor, and manufacturing overhead)Included in inventory until goods soldPeriod CostsCosts identified with accounting periods (i.e. selling and administrative expenses)Expensed in period incurredSlide 2-7Learning objective 1: Distinguish between manufacturing and nonmanufacturing costs and between product and period costs.Relationships Among Cost Categories (Illustration 2-3)Slide 2-8Learning objective 1: Distinguish between manufacturing and nonmanufacturing costs and between product and period costs.Which of the following is not a product cost?Depreciation on manufacturing equipmentIndirect materialsInsurance on manufacturing equipmentBonus compensation to the company presidentAnswer:d. Bonus compensation to the company president (administrative expense)Slide 2-9Test Your Knowledge 1Learning objective 1: Distinguish between manufacturing and nonmanufacturing costs and between product and period costs.Test Your Knowledge 2Which of the following is a period cost?Raw materials costsManufacturing plant maintenanceDepreciation on plant equipmentDepreciation on salespersons’ laptopsAnswer:d. Depreciation on salespersons’ laptops (selling expense)Slide 2-10Learning objective 1: Distinguish between manufacturing and nonmanufacturing costs and between product and period costs.Which of the following is a direct materials cost?Steel for a ship builderPostage and supplies in the mailroomFactory rentWages for production line workersAnswer:a. Steel for a ship builderSlide 2-11Test Your Knowledge 3Learning objective 1: Distinguish between manufacturing and nonmanufacturing costs and between product and period costs.Product Cost Information in Financial Reporting/Decision Making Manufacturing companies use product costs to prepare financial statements and for managerial decisionsOften the cost information needed is different for the two purposesDecision making relies on incremental analysis – an analysis of the revenues and expenses that will actually increase or decrease as a result of the decisionYou will need to separate the variable and fixed costs to do an incremental analysisSlide 2-12Learning objective 1: Distinguish between manufacturing and nonmanufacturing costs and between product and period costs.Decision Making/Incremental AnalysisIncremental analysisBob Williams, the owner of Eastlake Motorboat Company, is considering taking out an advertisement in Wooden Boat magazineThe ad will cost $25,000Bob believes it will result in at least one additional order for a custom boatOn average, Eastlake boats sell for $90,000He expects $90,000 of incremental revenue and $25,000 of incremental costs related to the adBob also needs to consider the incremental production costsSlide 2-13Learning objective 1: Distinguish between manufacturing and nonmanufacturing costs and between product and period costs.Decision Making/Incremental AnalysisIncremental analysisDirect materials and direct labor are incrementalOnly 10% of overhead ($3,000) is incrementalIncremental revenue exceeds incremental cost by $17,000. Thus, Bob should place the ad.Slide 2-14Learning objective 1: Distinguish between manufacturing and nonmanufacturing costs and between product and period costs.Balance Sheet Presentation of Product CostsRaw materials inventory Includes cost of materials on hand Work in process inventoryIncludes goods partially completeFinished goods inventoryIncludes cost of items ready for saleSlide 2-15Learning objective 2: Discuss the three inventory accounts of a manufacturing firm and describe the flow of product costs in a manufacturing firm’s accounts.Flow of Product CostsSlide 2-16Learning objective 2: Discuss the three inventory accounts of a manufacturing firm and describe the flow of product costs in a manufacturing firm’s accounts.Flow of Product Costs in AccountsPurchased materialsRequisitioned direct and indirect materialsIncurred and paid for direct and indirect laborIncurred and paid other overhead costsOverhead appliedCompleted goods transferred to finished goods inventoryFinished goods soldRaw MaterialsMaterials purchased2. Materials usedCashMaterials purchased3. Total labor 4. Other overhead Overhead2. Indirect materials3. Indirect labor 4. Other overhead 5. Applied overhead Work in Process2. Direct materials 3. Direct labor 5. Applied overhead 6. Goods finishedFinished Goods6. Goods finished7. Goods soldCOGS7. Goods soldSlide 2-17Learning objective 2: Discuss the three inventory accounts of a manufacturing firm and describe the flow of product costs in a manufacturing firm’s accounts.Star Plastics had requisitions for $250,000 of materials related to specific jobs and $20,000 of indirect materials. Prepare the journal entry to record the issuance of materials.Work in Process-------------250,000Manufacturing Overhead---20,000 Raw Materials-------------------270,000You could also prepare two separate journal entries.Slide 2-18Test Your Knowledge 4Learning objective 2: Discuss the three inventory accounts of a manufacturing firm and describe the flow of product costs in a manufacturing firm’s accounts.Income Statement Presentation of Product CostsSlide 2-19Learning objective 2: Discuss the three inventory accounts of a manufacturing firm and describe the flow of product costs in a manufacturing firm’s accounts.Income Statement Presentation of Product CostsSlide 2-20Learning objective 2: Discuss the three inventory accounts of a manufacturing firm and describe the flow of product costs in a manufacturing firm’s accounts.The formula to determine cost of goods sold is:Beginning Work in Process + Cost of Goods Manufactured – Ending Finished GoodsBeginning Work in Process + Cost of Goods Manufactured – Ending Finished GoodsBeginning Finished Goods + Cost of Goods Manufactured – Ending Finished GoodsBeginning Work in Process + Current Manufacturing Cost – Ending Work in Process Answer:c. Beginning Finished Goods + Cost of Goods Manufactured – Ending Finished GoodsSlide 2-21Test Your Knowledge 5Learning objective 2: Discuss the three inventory accounts of a manufacturing firm and describe the flow of product costs in a manufacturing firm’s accounts.Cost of Goods Manufactured is $200,000, beginning Finished Goods is $50,000, ending Finished Goods is $100,000, and ending Work in Process is $10,000. What is the Cost of Goods Sold?$100,000$250,000$50,000$150,000Answer:d. $150,000 ($50,000 + $200,000 – $100,000)Slide 2-22Test Your Knowledge 6Learning objective 2: Discuss the three inventory accounts of a manufacturing firm and describe the flow of product costs in a manufacturing firm’s accounts.Job Order versus Process Costing Job Order CostingCompanies produce goods to a customer’s unique specifications Cost of job accumulated on job cost sheetProcess CostingCompanies produce large quantities of identical items Cost accumulated by each operationUnit cost of items determined dividing costs of production by number of units producedLearning objective 3: Discuss the types of product costing systems and explain the relation between the cost of jobs and the Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold accounts.Slide 2-23Relating Product Costs to JobsSlide 2-24Learning objective 3: Discuss the types of product costing systems and explain the relation between the cost of jobs and the Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold accounts.Job Costs and Financial Statement AccountsThe inventory accounts of a manufacturing company that will appear on the balance sheetWork in Process InventoryCost of jobs being worked onFinished Goods InventoryCost of jobs completed but not yet soldCost of Goods SoldCost of jobs soldSlide 2-25Learning objective 3: Discuss the types of product costing systems and explain the relation between the cost of jobs and the Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold accounts.Job Order Costing SystemJob order costing begins when a company decides to produce a specific product A job cost sheet accumulates the cost of the item or items and contains detailed information on the three categories of product costs Direct materialsDirect laborManufacturing overheadThe next slide shows an example of a job cost sheetLearning objective 4: Describe how direct material, direct labor, and manufacturing overhead are assigned to jobs.Slide 2-26Job Cost SheetSlide 2-27Learning objective 4: Describe how direct material, direct labor, and manufacturing overhead are assigned to jobs.Job Costs – Direct MaterialsA materials requisition form is used to request the release of materials from a company’s storage areaRemoval of materials from storage for use on a specific job decreases Raw Materials and increases Work in Process InventoryThe next slide illustrates the journal entry and general ledger postings assuming $60,000 of materials are issued to specific jobsSlide 2-28Learning objective 4: Describe how direct material, direct labor, and manufacturing overhead are assigned to jobs.Job Costs – Direct MaterialsRequisition of raw materials for use on a specific jobSlide 2-29Learning objective 4: Describe how direct material, direct labor, and manufacturing overhead are assigned to jobs.Job Costs – Direct LaborWorkers in a company that uses a job-order costing system fill out time tickets to keep track of the amount of time spent on each jobIncurring direct labor costs increases Work in Process Inventory and increases Wages PayableThe next slide illustrates the journal entry and general ledger postings assuming $10,000 of direct labor cost is incurredSlide 2-30Learning objective 4: Describe how direct material, direct labor, and manufacturing overhead are assigned to jobs.Job Costs – Direct LaborCost of direct labor related to a particular jobSlide 2-31Learning objective 4: Describe how direct material, direct labor, and manufacturing overhead are assigned to jobs.Job Costs – Manufacturing OverheadApply manufacturing overhead to jobsChoose an allocation base, for example direct labor hours or direct labor costCalculate overhead allocation rateEstimated overhead divided by estimated quantity of the allocation baseUse rate to apply overhead to jobs based on actual quantity of base usedSlide 2-32Learning objective 4: Describe how direct material, direct labor, and manufacturing overhead are assigned to jobs.Lollah Mfg Company expects annual mfg. overhead to be $800,000, 50,000 direct labor hours costing $1,600,000 and machine run time of 25,000 hours. Calculate overhead allocation rates based on direct labor hours, direct labor cost, and machine time.Overhead allocation rate based on direct labor hours $800,000 / 50,000 = $16 per direct labor hourOverhead allocation rate based on direct labor cost $800,000 / $1,600,000 = 50% of direct labor costOverhead allocation rate based on machine time $800,000 / 25,000 = $32 per machine hourSlide 2-33Test Your Knowledge 7Learning objective 4: Describe how direct material, direct labor, and manufacturing overhead are assigned to jobs.Job Costs – Manufacturing OverheadSlide 2-34Learning objective 4: Describe how direct material, direct labor, and manufacturing overhead are assigned to jobs.Job Costs – Manufacturing OverheadSlide 2-35Learning objective 4: Describe how direct material, direct labor, and manufacturing overhead are assigned to jobs.Decision Making / Incremental AnalysisActual cost of Job 20124 is $31,600 + $25,200 + $39,816 = $96,616Suppose the customer is only willing to pay $115,000. Should the sale be turned down? Probably not.Assuming 10% of overhead is variable and the remainder is composed of fixed costs such as depreciation, the incremental costs are $31,600 + $25,200 + $3,982 = $60,782Slide 2-36Learning objective 4: Describe how direct material, direct labor, and manufacturing overhead are assigned to jobs.Decision Making / Incremental AnalysisThe incremental profit of the job is $54,218, which is the $115,000 the customer will pay minus the incremental cost of $60,782Turning the job down would hurt financial performanceThe incremental revenues are higher than the incremental costsSlide 2-37Learning objective 4: Describe how direct material, direct labor, and manufacturing overhead are assigned to jobs.The Flow of Costs in Work in Process, Finished Goods and Cost of Goods SoldLearning objective 4: Describe how direct material, direct labor, and manufacturing overhead are assigned to jobs.Slide 2-38The Flow of Costs in Work in Process, Finished Goods and Cost of Goods SoldSuppose the cost of jobs completed is $160,000 and the cost of jobs sold is $85,000. The journal entries are:Learning objective 4: Describe how direct material, direct labor, and manufacturing overhead are assigned to jobs.Slide 2-39Overhead Allocation RatesOverhead is made up of cost items indirectly related to jobs producedNeed to develop means of assigning overhead to jobsThe rate is calculated as overhead cost divided by allocation baseA company had $50,000 of overhead cost and used 10,000 labor hoursIts rate is $50,000 / 10,000 = $5 per labor hourSlide 2-40Learning objective 4: Describe how direct material, direct labor, and manufacturing overhead are assigned to jobs.Overhead Allocation BasesChoices of allocation bases include:Direct labor hoursDirect labor costMachine hoursDirect material cost, among othersJobs with greater quantities of an allocation base will receive larger allocations of overheadThe allocation base used should be strongly associated with overhead costSlide 2-41Learning objective 4: Describe how direct material, direct labor, and manufacturing overhead are assigned to jobs.Activity Based Costing (ABC)Most firms use a single overhead rateActivity Based Costing (ABC) assigns overhead costs to products using a number of allocation basesThe major activities which create overhead costs are identified and grouped (pools)Multiple rates calculated by dividing each pool by its corresponding activity (driver)Slide 2-42Learning objective 4: Describe how direct material, direct labor, and manufacturing overhead are assigned to jobs.Predetermined Overhead RatesCompanies can develop rates using actual overhead and quantities of the baseMost do not do this because actual costs are not known until the end of the periodOverhead rates are typically based on estimates of overhead cost and the baseOverhead rates calculated this way are called predetermined overhead ratesSlide 2-43Learning objective 5: Explain the role of a predetermined overhead rate in applying overhead to jobs, and explain the treatment of the difference between actual overhead and overhead allocated to jobs using a predetermined rate.Overapplied OverheadIf applied overhead is greater than actual overhead, overhead is overappliedOverapplied overhead is eliminated at the end of the period as follows:If a small amount, debit Manufacturing Overhead and credit Cost of Goods SoldIf relatively large amount, apportion and close to Work in Process, Finished Goods and COGS Slide 2-44Learning objective 5: Explain the role of a predetermined overhead rate in applying overhead to jobs, and explain the treatment of the difference between actual overhead and overhead allocated to jobs using a predetermined rate.Underapplied OverheadIf actual overhead is greater than applied overhead, overhead is underappliedUnderapplied overhead is eliminated at the end of the period as follows:If a small amount, debit Cost of Goods Sold and credit Manufacturing OverheadIf a relatively large amount, apportion and close to Work in Process, Finished Goods and COGS Slide 2-45Learning objective 5: Explain the role of a predetermined overhead rate in applying overhead to jobs, and explain the treatment of the difference between actual overhead and overhead allocated to jobs using a predetermined rate.Test Your Knowledge 8Overapplied overhead is:Overhead applied to production greater than actual overheadOverhead in excess of standard overheadEqual to the predetermined overhead rateOverhead in excess of the amount in the previous periodAnswer:a. Overhead applied to production greater than actual overheadSlide 2-46Learning objective 5: Explain the role of a predetermined overhead rate in applying overhead to jobs, and explain the treatment of the difference between actual overhead and overhead allocated to jobs using a predetermined rate.Test Your Knowledge 9Actual overhead was $1,500.000. The predetermined overhead rate was $17 per direct labor hour, and there were 100,000 direct labor hours. Overhead was:Underapplied by $200,000Overapplied by $200,000Underapplied by $20,000Overapplied by $20,000Answer:b. Applied overhead = 100,000 X $17 = $1,700,000. Actual minus applied = $1,500,000 – $1,700,000 = $200,000 overappliedSlide 2-47Learning objective 5: Explain the role of a predetermined overhead rate in applying overhead to jobs, and explain the treatment of the difference between actual overhead and overhead allocated to jobs using a predetermined rate.Eliminating Overapplied or Underapplied OverheadSuppose a company had $50,000 of actual overhead and applied $48,000Overhead is underapplied by $2,000The journal entry to close manufacturing overheadSlide 2-48Learning objective 5: Explain the role of a predetermined overhead rate in applying overhead to jobs, and explain the treatment of the difference between actual overhead and overhead allocated to jobs using a predetermined rate.Eliminating Overapplied or Underapplied OverheadThe amount of under- or overapplied overhead should be apportioned among Work in Process, Finished Goods and Cost of Goods SoldAccomplished based on relative costs in the accountsThe company from the previous slide has Work in Process of $10,000, Finished Goods $10,000 and Cost of Goods Sold $20,000Rate is 2,000 / (10,000 + 10,000 + 20,000) = $0.05 per dollar in the account Slide 2-49Learning objective 5: Explain the role of a predetermined overhead rate in applying overhead to jobs, and explain the treatment of the difference between actual overhead and overhead allocated to jobs using a predetermined rate.Eliminating Overapplied or Underapplied OverheadThe amount applied to each account is:Work in Process $10,000 * 0.05 = $500Finished Goods $10,000 * 0.05 = $500Cost of Goods Sold $20,000 * 0.05 = $1,000The journal entry to close manufacturing overheadSlide 2-50Learning objective 5: Explain the role of a predetermined overhead rate in applying overhead to jobs, and explain the treatment of the difference between actual overhead and overhead allocated to jobs using a predetermined rate.Job-Order Costing for Service CompaniesService companies use the same processAllocate costs incurred to jobsUse predetermined rate to apply overhead to jobsExamplesHospitalsRepair ShopsConsulting FirmsLearning objective 6: Explain how service companies can use job-order costing to calculate the cost of services provided to customers.Slide 2-51Service Company ExampleICMS has a contract with RCP CommunicationsContract is for $4.2 million per year or $350,000 per monthICMS needs to determine the cost of providing services to RCPThe details follow on the next slideSlide 2-52Learning objective 6: Explain how service companies can use job-order costing to calculate the cost of services provided to customers.Job-Order Cost for Call CenterSlide 2-53Learning objective 6: Explain how service companies can use job-order costing to calculate the cost of services provided to customers.Customer ProfitabilityIs RCP a profitable customer?Cost of the job is $337,108.05Monthly revenue is $350,000Profit from the job is $12,891.95Markup is only 3.8%, which is lower than the company’s goal of 30%This information is useful the next time the contract is up for negotiation, especially if RCP presses for price concessions!Slide 2-54Learning objective 6: Explain how service companies can use job-order costing to calculate the cost of services provided to customers.Modern Manufacturing PracticesJust-in-Time Production (JIT)Minimize raw materials and work in process inventoriesDevelop flexible, balanced production that is flexible and allows for smooth, rapid flow of materialsConcentrate on improving qualityImplications for over- and underapplied overheadWork in Process and Finished Goods Inventories are very smallClose difference into Cost of Goods SoldLearning objective 7: Discuss modern manufacturing practices and how they affect product costing.Slide 2-55Modern Manufacturing PracticesComputer-Controlled ManufacturingUse computers (including robots) to control equipment and achieve flexible and accurate production processLean ManufacturingSimilar to JITJIT focus is inventory managementLean focus is elimination of wasteTotal Quality Management (TQM)Ensure products are of highest qualityProduction processes are efficientLearning objective 7: Discuss modern manufacturing practices and how they affect product costing.Slide 2-56Full and Incremental CostSlide 2-57Learning objective 7: Discuss modern manufacturing practices and how they affect product costing.Copyright © 2016 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.Slide 2-58