Chapter 2 - Job Order Costing

Cost Accounting Systems

involves measuring, recording, and reporting of PRODUCT COSTS

Cost accounting information is used for what?

1. Pricing decisions

2. Product mix decisions

3. New product offerings

4. Financial reporting

Non Manufacturing Costs

(S&A Operating Exp), you expense it in the period INCURRED (accrual accounting)

Manufacturing costs

DM, DL, Manu. OH, when costs are incurred, record as an asset and expense when inventory is sold (accrual accounting)

cost flow parallels the physical flow of materials as they are converted to finisihed goods

Actual Costing

Assign ACTUAL Dm, DL, and Manu. OH cost to each unit

Normal Costing

Assign actual DM and DL used to each unit, assign ALLOCATED Manu. OH to each unit

2 Basic Cost Accounting Systems

1. Job Order Costing System

2. Process Cost System

Job Order Cost System

Costs are assigned to each Job or Batch, a job can be a specific order

Measures costs for job COMPLETED, not time periods

Job Cost Sheet

Beg Costs from prior period

+DM

+DL

+OH Applied

=Total Cost

Average Cost per Unit Formula

Total Product Costs for the Job

---

Number of units in the job

Process Cost System

Used when a large volume of similar products are manufactured, costs accumulated by department over time

Ex: cereal oil, paint

What 3 types of inventory are reported on the balance sheet.

1. Raw Materials

2. WIP Inventory

3. Finished Goods Inventory

How to record product costs when INCURRED

Manufacturing costs are assigned to WIP Inventory

How to record product costs when a job is COMPLETED

Cost is transferred to FG Inventory

How to record product costs when units are SOLD

Cost is transferred to COGS (like accrual accounting)

Direct Materials Costs

Assign DM used directly to each job, based on materials requisition form

Direct Labor Costs

Assign direct labor costs directly to each job, based on time tickets

Manufacturing Overhead costs (Manu. OH)

Must use an allocation process if NORMAL COSTING is used, because it is an indirect cost

What 2 things do we use Manu OH to keep track of?

1) actual OH costs incurred 2) OH costs assigned to inventory (OH applied)

Every unit should be assigned what 3 costs?

1) DM

2) DL

3) OH Applied

Predetermined OH rate

established at the beginning of the period, assigned an estimated OH cost to each unit, based on activity that costs Manu OH costs to be incurred

Predetermined OH rate formula

Budgeted Total Manu. OH Costs

---

Budgeted Total Activity

Plant Wide/Dept. OH Rate

Projected Total Department OH Cost

---

Projected Departmental Cost Driver

Normal Costing Process

1) Determine the Predetermined OH Rate

2) Overhead is Applied (Assigned) to WIP Inventory based on actual activity

3) Balance in the OH account is closed to COGS

OH Applied formula

Predetermined OH rate * Actual Activity

OH Underapplied if…

Actual OH costs are greater than applied OH costs (Debit Balance)

OH Overapplied if…

actual costs are less than OH applied costs (Credit Balance)