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Chapter 20

Chapter 20. Part 1. CHAPTER 20. JOB ORDER COST ACCOUNTING. Accounting Principles, Eighth Edition. Study Objectives. Explain the characteristics and purposes of cost accounting. Describe the flow of costs in a job order cost accounting system.

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Chapter 20

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  1. Chapter 20 Part 1

  2. CHAPTER 20 JOB ORDER COST ACCOUNTING Accounting Principles, Eighth Edition

  3. Study Objectives • Explain the characteristics and purposes of cost accounting. • Describe the flow of costs in a job order cost accounting system. • Explain the nature and importance of a job cost sheet. • Indicate how the predetermined overhead rate is determined and used.

  4. Study Objectives • Prepare entries for jobs completed and sold. • Distinguish between under- and over- applied manufacturing overhead.

  5. Preview of Chapter Accurate product costing is critical to a company’s success For accurate bids on new jobs For determining potential profitability of new jobs For identifying profitability of completed jobs

  6. Job Order Cost Accounting Cost Accounting Systems Job Order Cost Flow Reporting Job Cost Data Job Order Cost System Process Cost System Accumulating Manufacturing Costs Assigning Manufacturing Costs to Work in Process Assigning Costs to Finished Goods Assigning Costs to Cost of Goods Sold Summary Cost of goods manufactured schedule Income statement presentation Under-or overapplied manufacturing overhead

  7. Cost Accounting Systems Cost accounting involves: Measuring, Recording, and Reporting of product costs Consists of the various manufacturing costs that are fully integrated into the general ledger system. An important feature is the use of a perpetual inventory system to provide immediate, up-to-date information on the cost of a product. LO 1: Explain the characteristics and purposes of cost accounting.

  8. Cost Accounting Systems There are two basic types of cost accounting systems. Job Order Cost Systems and Process Cost Systems LO 1: Explain the characteristics and purposes of cost accounting.

  9. Job Order Cost System Costs are assigned to each job or batch A job may be for a specific order or inventory A key feature: Each job or batch has its own distinguishing characteristics The objective: to compute the cost per job Measures costs for each job completed – not for set time periods LO 1: Explain the characteristics and purposes of cost accounting.

  10. Job Order Cost System LO 1: Explain the characteristics and purposes of cost accounting.

  11. Process Cost System Used when a large volume of similar products are manufactured - Cereal, Automobiles, Compact Discs, Paint Costs are accumulated for aspecifictime period – A week or a month Costs are assigned to departments or processes for a set period of time LO 1 Explain the characteristics and purposes of cost accounting.

  12. Process Cost System LO 1 Explain the characteristics and purposes of cost accounting.

  13. Cost Accounting Systems Review Question Cost accounting involves the measuring, recording, and reporting of: a. Product costs. b. Future costs. c. Manufacturing processes. d. Managerial accounting decisions. LO 1 Explain the characteristics and purposes of cost accounting.

  14. Job Order Cost Flows The cost flow parallels the physical flow of the materials as they are converted into finished goods Manufacturing costs are assigned to Work in Process Cost of completed jobs is transferred to Finished Goods When units are sold, the cost is transferred to Cost of Goods Sold LO 2 Describe the flow of costs in a job order cost accounting system.

  15. Job Order Cost Flows - Overview LO 2 Describe the flow of costs in a job order cost accounting system.

  16. Job Order Cost System LO 2 Describe the flow of costs in a job order cost accounting system.

  17. Job Order Cost Flow Two Major Steps in Flows of Costs Accumulate the manufacturing costs incurred Raw Materials Factory Labor Manufacturing Overhead Assign the accumulated costs to the work done LO 2 Describe the flow of costs in a job order cost accounting system.

  18. Accumulating Manufacturing Cost Raw Materials Costs Raw Materials are debited to Raw Materials Inventory when purchased. At this point, the cost of materials are not assigned to specific jobs or orders. Example: On January 4, Wallace Manufacturing Company purchases 2,000 handles at $5 per unit ($10,000) and 800 modules at $40 per unit ($32,000) for a total cost of $42,000. LO 2 Explain the flow of costs in a job order cost accounting system.

  19. Accumulating Manufacturing Cost Raw Materials Inventory A General Ledger Account is A Control Account that summarizes the detailed data regarding specific inventory accounts in the Subsidiary Ledger LO 2 Explain the flow of costs in a job order cost accounting system.

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