Chapter 2. Job Order Costing
Manufacturing Cost Categories (3)
-Direct Materials (Direct Cost) -Direct Labor(Direct Cost) -Manufacturing Overhead (Indirect Cost).
Actual Manufacturing Overhead
All manufacturing related expenses that cannot be traced to specific jobs, including indirect materials used at the job site. -Add all the expenses together (IM, IL, supervision, depreciation, taxes, insurance on manufacturing related equipment...). -The difference between Applied and Actual MO is handled in the balance sheet. -Recorded on debit (left) side of MO account.
Overapplied Manufacturing Overhead (credit balance) does what to CoGS?
Decreases Cost of Goods Sold.
Cost of Goods Manufactured (AKA Cost of Goods Completed)
The total manufacturing cost that is transferred out of Work in Process Inventory and into Finished Goods Inventory.
Basic Process Costing Formula is:
Total Cost / Total Units Produced = Average Unit Cost
Process Costing (a cost system)
Used by companies that make Standardized or Homogeneous Products or Services. Example: Coca-Cola beverages and Exxon petroleum products.
Cost of Goods Sold (CoGS)
When a job is sold, its cost is transferred out of Finished Goods Inventory and into Cost of Goods Sold.
Three Steps to Assigning Manufacturing Overhead Costs
1. Determine the allocation base (Cost Driver(labor hours or machine hours)). 2. Calculate the predetermined overhead rate (POR). 3. Assign manufacturing overhead using the POR.
Three Inventory Accounts that are used to record Manufacturing Costs are:
1. Raw Materials (RM) Inventory. 2. Work In Process (WiP) Inventory. 3. Finished Goods (FG) Inventory.
Materials Requisition Form (Source Document 1/2)
A Source Document that lists the quantity and cost of direct materials used.
Direct Labor Time Ticket (Source Document 2/2)
A Source Document that shows how much time a worker spent on various jobs each week.
Predetermined Overhead Rate Formula
Estimated total manufacturing overhead Cost / estimated total cost driver = Predetermined overhead rate.
Underapplied Overhead
If the actual amount (debit) is more than the applied amount (credit), it means we didn't apply. enough manufacturing overhead costs to jobs. -A debit balance in MO account means overhead was underapplied. -Credit out of MO acc. and debit to COGS.
Overapplied Overhead
If the applied amount (credit) is more than the actual amount (debit), it means that we applied more overhead cost to jobs than actually incurred during the period. -a credit balance in MO account means overhead was overapplied. -Debit out of MO acc. and credit to CoGS.
Job Cost Sheet
In a job order system, companies record manufacturing costs on this document which provides a detailed record of the costs incurred to complete a specific job. Example: Cost of building one house
Underapplied Manufacturing Overhead (debit balance) does what to CoGS?
Increases Cost of Goods Sold.
Operation Costing (a hybrid cost system)
Is a blend of process costing and job order costing. Example: Same series of production processes to make each car, but add different engines.
Selling, General, and Administrative Expenses
Nonmanufacturing costs to sell the products and run the businesses. -This total is subtracted from gross profit on the income statement.
Assign Applied Manufacturing Overhead Costs to Specific Job
Predetermined Overhead Rate * Actual Cost Driver = Applied manufacturing Overhead -Recorded on credit (right) side of MO account.
Raw Materials (RM) Inventory
Represents the cost of materials purchased from suppliers but not yet used in production. This account includes both direct material (goes to WiP) and indirect material (goes to MO).
Finished Goods (FG) Inventory
The cost of jobs that have been completed but not yet sold. -When sold, moves to CoGS
Work in Process (WiP) Inventory
The total cost of jobs that are in process at any given point in time. -When complete, moves to FG.
Job Order Costing (a cost system)
used in companies that offer customized or unique products or services Example: Custome Home
