ACC Chapter 2
finished goods inventory
as jobs are completed become part of
The two main types of cost accounting systems for manufacturing are:
-Job order costs systems -Process cost systems
Three common activity bases used to allocate factory overhead are
-direct labor hours -direct labor costs -machine hours
Examples of companies that might use Job Order cost systems:
-movie production company -custom furniture -clothing manufacturer
examples of process cost systems
-oil refineries, paper producers, chemical processers, food processors
Finished goods inventory
Job 69, Job 70, finished
work in process inventory
Job 72, Job 71
job order cost system
accumulates (tracks) product costs for each quantity of product that is manufactured.
Period Costs
are recorded as expenses of the current period as either selling or administrative expenses: Selling expenses are incurred in marketing and delivering the sold product to customers. Administrative expenses are incurred in managing the company, but are not related to the manufacturing or selling functions.
FOH applied
credited
Flow of manufacturing costs
materials inventory- work in process - finished goods - cost of goods sold
cost accounting systems
measure, record, and report product costs.
process cost system
provides product costs for each manufacturing department or process. (continuous production process)
materials requisitioned
represents materials that are REMOVED from the storeroom and put into the factory for manufacturing
job cost sheets
show the detail behind the work in process subsidiary ledger.
work in process inventory
when jobs are still in production process
Cost of goods sold
when the finished goods are sold to customers
Materials purchased on account during the month amounted to $190,000. Direct Materials requisitioned and placed in production totaled $156,000. The entry to record the transaction for materials requisitioned by the production department is:
Dr. WIP $156,000 Cr. Materials $156,000
During the period, labor costs incurred on account amounted to $165,000, including $140,000 for Factory Supervisor salaries and $25,000 for assembly line workers. In addition, factory overhead applied to production was $21,000. The entry to record the direct labor costs is:
Dr. WIP $25,000 Cr. Wages Payable $25,000
The journal entry to record direct labor for the month for Legend Guitars (see previous slide) is as follows *** IF SUBSIDIARY LEDGER ACCOUNTS ARE NOT USED:
Dr. WIP Cr. Wages Payable
Direct Materials requisitioned and placed in production totaled $156,000. Of the $156,000, $47,000 was used in Job #79, $71,000 was used on Job #89 and the remainder was used on Job #49. The company uses Subsidiary Ledgers to record it's transactions for each specific job. The debit side of the journal entry to record the transaction for materials requisitioned for Job #49 is:
Dr. WIP Job #49 38,000
cost allocation
The process by which factory overhead or other costs are assigned to a cost object, such as a job
FOH actual
debited
predetermined factory overhead rate
estimated total factory overhead costs / estimated activity base
materials inventory
hickory, oak, maple, materials
factory overhead
includes all manufacturing costs except direct materials and direct labor.
receiving report
is prepared when materials ordered are received and inspected. The quantity received and the condition of the materials are entered on the receiving report.
suppliers invoice
is received and compared to the Receiving Report. If no discrepancies, a journal entry is made to record the purchase.
