ACCT 230 EXAM TWO

cost accounting

measuring, recording and reporting of product costs

non-manufacturing costs

selling & admin/operating expenses

how are non-manufacturing costs treated?

expense in the period incurred

manufacturing costs

DM, DL, Manu OH

how are manufacturing costs treated?

as costs are incurred, they’re recorded as an asset and expense when inventory is sold.

actual costing

assign actual DM, DL, Manu OH cost to each unit

problem with actual costing

Manu OH costs are indirect costs of production & MOH costs may not be known a time of production

normal costing

assign actual DM and DL cost to each unit + allocated share of MOH cost to each unit

basic cost accounting systems

job order costing and process costing system

job order costing system

costs are assigned to each job or batch, measures costs for each job completed not a time period

job cost sheet

the form used in a job order costing system to record the costs related to a specific job on a daily basis

average cost per unit

total product costs for the job/# of units in the job

process cost system

used when a large volume of similar products are manufactured — costs are accumulated by department for a specific time period/ compute average cost per unit for each dept.

flow of product costs for a manufacturer

3 types of inventory — raw materials, work in progress, finished goods

RM Inventory

direct and indirect materials that have been purchased but not yet used in production

work in progress inventory

inventory that has been started in production but not yet completed

finished goods inventory

inventory that has been completed in production but not yet sold

when incurred, manu costs are assigned to

WIP inventory

when a job ins completed, cost is transferred to

FG inventory

when units are sold, cost is transferred to

COGS

direct material costs

assign direct material used directly to each job

direct labor costs

assign direct labor costs to each job

manu OH costs

use an allocation process for normal costing, assign OH applied to each job

total job costs

beg. costs

+DM used

+DL used

+OH applied

=total job costs

how to assign OH costs to inventory

1. determine predetermined OH rate

2. OH is “applied” to WIP inventory based on actual activity

3. balance in the OH account is closed out to COGS at the end of the period

predetermined OH rate

budgeted total manu. OH costs/budgeted total activity

OH applied

predetermined OH rate * actual activity

MOH is underapplied if

actual > applied, debit COGS

MOH is overapplied if

actual < applied, credit COGS

RM purchased

debit raw material inventory, credit cash or AP

when direct material used

debit WIP inventory, credit raw material inventory

when indirect materials are used

debit MOH, credit raw material inventory

when direct labor recorded

debit WIP inventory, credit cash or wages payable

when indirect labor is recorded

debit MOH, credit cash or wages payable

debit WIP inventory when

DM used, DL recorded, OH applied

debit FG inventory

when inventory is completed

debit COGS when

inventory is sold

COGS for a service company

none since service companies don’t have inventory

COGS for a merchandising company

beg. merchandise inventory
+ merchandise purchases

=COGS available for sale

-ending merchandise inventory

=COGS

COGS for manufacturing company

1. compute cost of goods manufactured

2. compute COGS

DM used schedule

beg direct materials inventory

+DM purchases

=DM available for use in production

-ending DM inventory

=DM used

cost of goods manufactured schedule

beg WIP inventory

+current production costs

• DM used

• DL

• MOH applied

-ending WIP inventory

= COGM

COGS after adjustment schedule

beg FG inventory

+COGM

=COG available for sale

-ending finished goods inventory

=COGS before adjustment

± under/over applied OH

=COGS after adjustment

income statement

sales

-COGS

=gross margin

-operating expenses

=net operating income

when do you use job order cost system?

customized or distinguishable

when do you use process cost system?

produce homogenous products in a continuous production process

cost/unit

DM used+DL+OH applied/units produced

equivalent units

completed units * % complete

how to assign costs for job order cost system

assign DM, DL and OH applied to WIP according to job

how to assign costs for process cost system

assign DM, DL and OH applied to WIP according to department

activity based costing

assigns OH costs to products based on the activity that cuases costs to be incurred

two stage process for allocating with ABC

1. allocate OH costs to activities/cost pools.

2. calculate an activity rate for each cost pool and allocate costs to products based on incurrence of the activity

unit level activities

activities performed for each of production

batch level activities

activities performed for each batch of products processed, regardless of how many units are in the batch

product level activities

activities performed in support of an entire product line regardless of how many units are in the batch

facility level (organization-sustaining) activities

activities required to support the organization regardless of what products are produced or how many units are made

4 steps for implementing ABC

1. define activities and cost pools

2. identify the activity measure for each cost pool

3. calculate activity rates

4. assign OH costs to cost objects

OH for each activity

estimated OH cost for the activity/estimated cost driver for the activity

how to assign OH to cost objects

OH activity rates x # of cost drivers expected to be used per products