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CHAPTER 12

CHAPTER 12. Job-Order, Process, and Hybrid Cost Systems. Chapter Opening. Job-order cost systems capture the unique cost of each individual inventory item. Process cost systems distribute costs evenly across the total number of units produced during a period. Learning Objective.

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CHAPTER 12

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  1. CHAPTER 12 Job-Order, Process, and Hybrid Cost Systems

  2. Chapter Opening Job-order cost systems capturethe unique cost of eachindividual inventoryitem. Processcost systems distributecosts evenly across thetotal number of unitsproduced duringa period.

  3. Learning Objective To distinguishbetween job-orderand processcost systems LO1

  4. Cost Systems andType of Product Job-OrderCost System ProcessCost System Job-order cost systems may be used by: • Walt Disney Production to determine the cost of a particular film. • Rust Engineering to determine the cost of an office building constructed. • Boeing to determine the cost of an airplane manufactured. • Accumulates costs by individual products. • Companies use job-order cost systems when they need to know the costs of individual products or batches of products.

  5. Allocates costs evenly to homogeneous products. • Unit product cost is determined by dividing the total product cost by the number of units produced during the accounting period. Cost Systems andType of Product Job-OrderCost System ProcessCost System Process cost systems may be used by: • Texaco in its oil refining operations. • Dow Chemical in the manufacture of chemicals. • General Mills in the manufacture of cereal.

  6. Begin production Receive orders from customers Schedulejobs Ordermaterials Cost Flows

  7. Job-Order Cost Flow Finishedgoodsinventory Incomestatement Productcosts Work in process inventory Boat 101MaterialsLabor & OH MaterialsLaborOverhead Cost ofgoodsavailablefor salekeptseparatelyfor allboats Boat 104MaterialsLabor & OH Cost ofgoodssold Boat 103MaterialsLabor & OH Boat 105MaterialsLabor & OH Boat 102MaterialsLabor & OH

  8. Process Cost Flow Finishedgoodsinventory Incomestatement WIP WIPmixing packing Productcosts MaterialsLaborOverhead MaterialsLaborOverhead Transferred-in costs Cost ofgoodsavailablefor sale Cost ofgoodssold MaterialsLaborOverhead

  9. Hybrid Accounting Systems A hybrid accounting system uses some features from both job-order and process cost systems. Hybrid systems are commonly used in the manufacture of personal computers. Many models are mass produced and sold as a package. Other systems are custom built to the specifications of the customer. Custom built systems normally sell at a premium compared to standard systems.

  10. Learning Objective To identifydocumentationused in a job-order cost system LO2

  11. The primary document for tracking the costs associated with a given job is thejob cost sheet. Documentation in aJob-Order Cost System

  12. Documentation in aJob-Order Cost System

  13. Documentation in aJob-Order Cost System John Smyth

  14. Documentation in aJob-Order Cost System

  15. 1,400 × $3.90 = $5,460 Documentation in aJob-Order Cost System

  16. Learning Objective To explain howevents in ajob-order costsystem affectfinancial statements LO3

  17. Job-Order CostSystem Illustrated Benchmore started the month of January, 2008,with the following account balances.

  18. Job-Order CostSystem Illustrated Event 1Benchmore Boat Company paid $14,000cash to purchase raw materials.

  19. Job-Order CostSystem Illustrated Event 2Benchmore used $17,000 of raw materialsin the process of making boats.

  20. Job-Order CostSystem Illustrated Event 3Benchmore paid $1,200 cash topurchase production supplies.

  21. Job-Order CostSystem Illustrated Event 4Benchmore paid $8,000 cash to productionemployees who worked on Boat 103.

  22. Total estimatedoverhead costs Total estimateddirect labor hours Predeterminedoverhead rate ÷ = Job-Order CostSystem Illustrated Event 5Benchmore applied estimated manufacturingoverhead costs of $6,240 to the Boat 103 job. $15,990 ÷ 4,100 = $3.90 per direct labor hour

  23. Job-Order CostSystem Illustrated Event 6Benchmore transferred $36,240 of product costs for completed Boat 103 from work in process inventory to finished goods inventory.

  24. Job-Order CostSystem Illustrated Event 7Benchmore paid $24,500 cash for selling and administrative expenses.

  25. Job-Order CostSystem Illustrated Event 8Benchmore paid $12,000 cash to production employees for work on Boats 104 and 105.

  26. Job-Order CostSystem Illustrated Event 9Benchmore applied estimated manufacturing overhead costs to boats 104 and 105.

  27. Job-Order CostSystem Illustrated Event 10Benchmore paid $10,100 cash for utilitiesand other indirect production costs.

  28. Job-Order CostSystem Illustrated Event 11Benchmore recognized $4,000 of actual manufacturing equipment depreciation.

  29. Job-Order CostSystem Illustrated Event 12Benchmore counted the supplies on hand at year-end and recognized actual overhead cost for the supplies used.

  30. Job-Order CostSystem Illustrated Event 13Benchmore sold Boat 101 for $91,000 cash.

  31. Job-Order CostSystem Illustrated Event 14Benchmore recognized cost of goods sold for Boat 101.

  32. Job-Order CostSystem Illustrated Event 15Benchmore closed the Manufacturing Overhead account, reducing cost of goods sold by $400.

  33. Job-Order CostSystem Illustrated

  34. Learning Objective To explain how events in a process cost system affect financial statements LO4

  35. Process Cost System Illustrated Janis Juice Company uses three distinct processes to produce cans of apple juice. Raw materials (whole apples) enter the Extraction Department where juice concentrate is extracted from whole fruit. The juice extract passes to the Mixing Department where Janis adds water, sugar, food coloring, and preservatives. The juice mixture then moves to the Packaging Department where it is canned and boxed for shipment.

  36. Process Cost System Illustrated The company’s trial balance as of January 1, 2008, is shown below:

  37. Process Cost System Illustrated Event 1Janis paid $84,000 cash to purchase raw materials.

  38. Process Cost System Illustrated Event 2Janis processed $26,720 of whole fruit to produce juice extract.

  39. Process Cost System Illustrated Event 3Janis paid $38,000 cash to production employeeswho worked in the Extraction Department.

  40. Total estimatedoverhead costs Total estimateddirect labor dollars Predeterminedoverhead rate ÷ = Process Cost System Illustrated Event 4Janis applied estimated manufacturing overhead costs to the Extraction Department work in process inventory. $96,000 ÷ $120,000 = $0.80 per direct labor dollar

  41. Learning Objective To calculateequivalent units andprepare a cost ofproduction report LO5

  42. Equivalent Units Equivalent unitsare partially complete and are part of work in process inventory. Partially completed products are expressed in terms of a smaller number of fully completed units.

  43. + = 1 Equivalent Units Two half completed products are equivalent to one completed product. So, 10,000 units 60% completeare equivalent to 6,000 complete units.

  44. Equivalent Units A Janis engineer estimated the 85,000 units in ending work in process inventory were 40 percent complete. Janis computes the total equivalent units processed in the extraction department as follows:

  45. Total processing costNumber of equivalent whole units Cost per equivalent unit = $117,480534,000 = $0.22 per equivalent unit Process Cost System Illustrated Event 5Janis finished processing some of the whole fruit and transferred the related cost from the Extraction Department work in process inventory account to the Mixing Department work in process inventory account.

  46. Process Cost System Illustrated Event 5Janis used the cost per equivalent unit to allocate the total cost incurred in the extraction department between the amount transferred to the mixing department and the amount in the extraction department’s ending work in process inventory as follows:

  47. Process Cost System Illustrated The allocation of costs between unitstransferred and ending inventory can besummarized in a cost of production report. See next slidefor Janis’ cost ofproduction report for theExtraction Department

  48. Extraction DepartmentCost ofProductionReport

  49. Process Cost System Illustrated Event 6Janis mixed (used) $24,400 of additives with the extract transferred from the Extraction Department.

  50. Process Cost System Illustrated Event 7Janis paid $48,000 cash to production employees who worked in the Mixing Department.

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