chapter 3 book: job order costing Flashcards
cost accounting
measuring, recording, and reporting of product costs
what can be achieved with the cost accounting information?
which products to produce
what price to charge
the amounts to produce
cost accounting system
consists of accounts for the various manufacturing costs
what is an important feature of cost accounting system?
the perpetual inventory system
the perpetual inventory system
provides immediate, up-to-date information on the cost of a product
what are the two basic types of cost accounting systems?
(1) a job order cost system
(2) a process cost system
a job order cost system
the company assigns costs to each job or to each batch of goods
ex: production of a movie by Disney
each job or batch has its own distinguishing characteristics
ex: each house is custom built
A job order cost system measures costs for each com- pleted job, rather than for set time periods
what is the objective with the job order cost system?
The objective is to compute the cost per job
when does a company use the process cost system?
when it manufactures a large volume of similar products
how does the process cost system work?
it accumu- lates product-related costs for a period of time (such as a week or a month)
it does not assing costs to specific products or job orders
companies assign the costs to departments or processes for the specified period of time
can a company use both the process cost system and the job order cost system?
ye boyyyy
how do the costs flow in a job order cost system?
it parallels the physical flow of the materials as they are converted into finished goods
show the steps of the flow of the job order cost system?
- manufacturing costs
- work in process inventory
- finished goods inventory
- costs of goods sold
what do you do in the journal entries when you first buy the raw materials?
you debit the costs of the materials to Raw Materials Inventory
you then later credit either A/P, cash, or whatever you used to buy
factory labor costs consist of?
(1) gross earnings of factory workers
(2) employer payroll taxes on these earnings
(3) fringe benefits (such as sick pay, pensions, and vacation pay) incurred by the employer
the factory labor costs are credited or debited when doing journal entries?
you debit labor costs to Factory Labor
the costs are later credited depending which one it is
which overhead costs are recorded daily?
machinery repairs
the use of indirect materials
indirect labor
which overhead costs are recorded periodically with adjusting entries?
how is this done?
property taxes
depreciation
insurance
done with a summary entry
what does a summary entry do?
ummarizes the totals from multiple transactions
debits the Manufacturing Overhead
credits all the costs that are payable
what is the job cost sheet?
a form used to record the costs chargeable to a specific job
to determine the total and unit costs of the completed job
constitutes the subsidiary ledger for the Work in Process Inventory account
is there a separate job cost sheet for each job?
yeee
what does a subsidiary ledge consist of?
individual records for each individual item )each individual job)
why is the Work in Process account is referred to as a control account in the job cost sheet?
because it summarizes the detailed data regarding specific jobs contained in the job cost sheets
what must each entry to Work in Process Inventory be accompanied by?
must be accompanied by a corresponding posting to one or more job cost sheets
when do companies issue raw materials costs?
when their materials storeroom issues the materials
materials requisition slip
allows companies to request raw materials
can raw materials be both direct and indirect materials?
yeee
how are direct and indirect raw materials written in the journal entries when they get requested?
direct materials debited as Work in Process Inventory
Indirect materials credited as Manufacturing Overhead
Raw materials Inventory is credited
Ar eche direct materials in the job cost sheets always be equal to the control account of Work In Process Inventory?
yeee boyyy
on what basis do companies assign factory labor costs to jobs?
on the basis of time tickets prepared when the work is performed
what to time tickets indicate?
the employee
the hours worked
the account and job to be charged
the total labor cost
what are the accounts journalized with time tickets?
direct labor debited as Work in Process Inventory
Indirect labor credited as Manufacturing Overhead
Factory labor is then credited
why can’t overhead jobs be assigned to specific jobs on the basis of actual costs incurred?
what do companies do instead?
because manufacturing overhead relates to production operations as a whole
companies assign manufacturing overhead to work in process and to specific jobs on an estimated basis
how can companies assign specific jobs on an estimated basis?
through the use of a predetermined overhead rate
what is the predetermined overhead rate based on? which tern is expressed by this basis?
the relationship between estimated annual overhead costs and expected annual operating activity
activity base
what is the formula for the predetermined overhead rate?
(expected annual operating activity)
= Predetermined overhead rate
what is usually used as the activity base historically and currently?
historically, its been direct labor costs or direct labor hours
today, it is much more machine hours
how is Manufacturing Overhead journalized?
Work In Process in debited by the same amount
Manufacturing Overhead is credited by the same amount
at the end of the month, are the accounts of the Work In Process Inventory and Job Cost Sheets supposed to be equal?
yeee bruuuv
how a completed job journalized?
the completed job is debited to Finished Goods Inventory
the Work in Process Inventory is credited by the same amount
when do companies recognize the COGS?
when a sale occurs
how are sales journalized?
Accounts receivable, or cash, or anything relevant is debited by the amount of the sale
sale is credited
COGS is debited by the amount of inventory gone
Finished Goods Inventory is credited
Cost-plus contracts
customer’s bill is the sum of the costs incurred on the job, plus a profit amount that is cal- culated as a percentage of the costs incurred
which types of companies use cost-plus contracts?
service companies
ex: hospitals
do service companies have inventory accounts?
nah boy
what accounts to service companies use instead of inventory accounts?
often called Service Contracts in Process
records job costs prior to completion
what is the overall flow of a Job Order Cost Flow?
- accumulations
- assignment to Jobs
- Completed Jobs
- Sale of goods
how does a company accumulate costs? what are the steps?
(1) purchasing raw materials
(2) incurring labor costs
(3) incurring manufacturing overhead costs
after the accumulation of costs, what are the following steps regarding assignment to jobs?
(4) use of raw materials on specific jobs
(5) assigns materials to work in process, or treats them as manufacturing overhead if the raw materials cannot be associated with a specific job
assigns factory labor to work in process, or treats it as manufacturing overhead if the factory labor cannot be associated with a specific job
(6) it assigns manufacturing overhead to work in process using a predetermined overhead rate
what happens when jobs are finally completed?
company transfers the cost of the completed job out of work in process inventory into finished goods inventory
what happens when goods are finally sold regarding COGS?
the company transfers their cost out of finished goods inventory into cost of goods sold
what is the difference for the financial statements and journal entries regarding manufacturing overhead costs? why is there this difference?
it shows manufacturing overhead applied
The company adds this amount to direct materials and direct la- bor to determine total manufacturing costs
so basically, to find the total costs of goods manufactured
what is under applied overhead?
the overhead assigned to work in process is less than the overhead incurred
when manufacturing overhead has a debit balance, it is under applied or over applied?
under applied
what is over applied overhead?
overhead assigned to work in process is greater than the over- head incurred
when manufacturing overhead has a credit balance, it is under applied or over applied?
over applied
how do you adjust credited or debited manufacturing overhead? basically, how do you adjust over or under applied overhead?
you credit under applied overhead and then you debit COGS
in the other case, you debit over applied overhead and credit COGS
what is the goal of adjusting manufacturing overhead?
you want the account to have a zero balance
you only want to report the COGS
cost accounting
area of accounting that involves measuring, recording, and reporting product costs
cost accounting systems
Manufacturing-cost accounts that are fully integrated into the general ledger of a company
job cost sheet
used to record the costs chargeable to a specific job
also used to determine the total and unit costs of the completed job
Job order cost system
A cost accounting system in which costs are assigned to each job or batch
Materials requisition slip
A document authorizing the issuance of raw materials from the storeroom to production
over applied overhead
situation in which overhead assigned to work in process is greater than the overhead incurred
Underapplied overhead
A situation in which overhead assigned to work in process is less than the overhead incurred
Predetermined overhead rate
A rate based on the relationship between estimated annual overhead costs and expected annual operating activity
expressed in terms of a common activity base
Process cost system
A cost accounting system used when a company manufactures a large volume of similar products
summary entry
A journal entry that summa- rizes the totals from multiple transactions
Time ticket
A document that indicates the em- ployee, the hours worked, the account and job to be charged, and the total labor cost
pro ration method
second method of adjusting manufacturing overhead balance
you prorate (allocate) the under or over applied overhead costs to Work in Process Inventory, Finished Goods Inventory, and COGS accounts
who do you do the pro ration method?
you allocate the portion of under or over applied overhead to the equivalent to whatever was in the Work in Process Inventory, Finished Goods Inventory and COGS accounts
what are control accounts?
Control accounts (materials, labor and overhead, work-in-process, and finished goods) are inventory accounts
