Chapter 2 notes

Job

production activities of customized product

Job lot

production of more than one customized unit

Cost Accounting System

Records manufacturing activities usually using perpetual system
and Provides timely information about inventories and manufacturing cost per
unit

Cost accounting system (2)

An accounting system for manufacturing activities that accumulates production costs and assigns them to products and services

Job Order costing

costs assigned to each unique unit or batch of units

Job order costing (2)

Basic type of cost accounting that is used to determine the cost of producing each job or job lot

job Order Production consists of

Job lots and Jobs

Overhead is estimated at the

beginning of the period, so once all costs are
transferred to finished goods

Underapplied overhead

actual cost exceed applied cost, overhead balance is a debit

Overapplied OH

applied cost exceed actual cost, overhead balance is a credit

Journal entry for underapplied OH

Dr. Cost of Goods Sold
Cr. Factory Overhead

Journal entry for overapplied OH

Dr. Factory Overhead
Cr. Cost of Goods Sold

Job order production/manufacturing/customized production:

customization
of products to customers specific requests

Events in Job Order Costing

Step1: predict cost to complete job; job initiated by customer order
Step 2: negotiate price and decide whether to pursue the job; cost-plus
contracts, market determines rates, or target cost
Step 3: Schedule job production: company assess capacity to meet
customer’s needs and orders raw material to begin production

Target cost

expected selling price-desired profit

Value engineering:

find ways to reduce job cost

Subsidiary records are used to record

information about raw materials,
overhead cost, jobs in process, finished goods, etc

Materials Cost Flows and Documents

Materials are purchased from suppliers and then issued for use in
production

Factory Payroll account

Temporary account for ALL payroll costs to then be allocated to
jobs and overhead

Overhead includes:

• Indirect materials

• Indirect labor

• Payments for supplies and utilities

• Adjusting entries like depreciation

Perpetual inventory system demands that overhead is

predicted in
advance and assigned to jobs at a predetermined overhead rate

Predetermined overhead rate =

estimated overhead costs/
estimated activity base

once the predetermined overhead rate is calculated
apply to

actual activity base amounts

Labor Cost Flows and Documents Flow

Time cards --> direct/indirect cost --> job cost sheets/Factory Overhead