4. Accounting 211H Ch. 18-20

entry to record various overhead costs

dr. factory overhead cr. cash and other accounts

overapplied overhead

- actual overhead < applied overhead -COGS is too high -Dr. Factory Overhead Cr. COGS

direct labor on job cost sheet

-accumulated costs by means of a work record, such as a time ticket, for each employee

underapplied overhead

-actual overhead > applied overhead -COGS is too low -Dr. COGS -Cr. Factory Overhead

factory overhead on job cost sheet

-allocate manufacturing overhead to jobs using a predetermined rate

adjusting for overapplied or underapplied overhead

-always will be a difference between actual and applied! -adjust Cost of Goods Sold and and Factory Overhead to make up for it

types of cost classifications

-classification by behavior (variable/fixed) -classification by traceability (direct/indirect) -classification by controllability -classification by relevance -classification by function (product/period)

equivalent units of production

-costs are accumulated for a period of time by the process department -unit cost is computed by diving the accumulated costs by the number of equivalent units produced in the period -equivalent units is a concept expressing a number of partially completed units as a smaller number of fully completed units ex. two half full pitches equal one whole one -multiply the amount of partially completed units by the percentage complete

types of cost classification: classification by traceability

-direct costs: costs trace ale to a single cost object. ex. material and labor costs for a product -indirect costs: costs that cannot be traced to a single cost object. ex. a maintenance expenditure benefiting two or more departments

entry to assign costs of direct and indirect labor

-direct: dr. goods in process inventory cr. factory payroll -indirect: dr. factory overhead cr. factory payroll

entry to assign cost of direct materials and indirect materials

-direct: dr. goods in process inventory cr. raw materials inventory -indirect: dr. factory overhead cr. raw material inventory

labor cost flows and documents

-employee time tickets indicate the cost of dirt labor to charge to jobs and the costs of indirect labor to charge to overhead -goes to job cost sheets (direct) and factory overhead account (indirect)

equivalent units for different inputs

-equivalent units may be different for material, labor, and overhead, given that costs may be added at different stages of a process

predetermined overhead rate

-estimated overhead based on another cost -ex. estimated total manufacturing cost for the coming period / estimated total direct labor costs for the coming period = 160% of direct labor = POHR

overhead cost flow across accounting reports

-factory overhead account: gives total overhead to manufacturing statement -manufacturing statement: gives cost of goods manufactured to income statement and ending goods in process inventory to balance sheet -income statement: gives ending finished goods inventory to income statement

summary of ending cost flows

-goods in process dr. direct material, direct labor, and labor overhead -goods finished dr. finished goods cr. goods in process -goods sold dr. cost of goods sold cr. finished goods.

comparing job order and process operations

-job order systems: custom orders, heterogenous products, low production volume, high product flexibility, low to medium standardization -process systems repetitive operations, homogenous products, high production volume, low product flexibility, high standardization

managerial accounting target (outer to inner)

-just in time manufacturing and total quality management -continuous improvement -customer orientation -to please customers, must make profit. stockholders expect return on equity -everything we do is about improvement and we always have to consider customer -triangle between stockholders, employees, and customers

summary of labor cost flow

-labor costs dr. factory payroll -direct labor dr. goods in process cr. factory payroll -indirect labor dr. factory overhead cr. factory payroll -overhead applied to work in process dr. goods in process cr. factory overhead -actual factory overhead does not equal applied factory overhead

entry to record goods manufactured and sold

-manufactured: dr. finished goods inventory cr. goods in process inventory -sold: dr. cost of goods sold cr. finished goods inventory

job order production activities

-materials into goods in process (direct) and factory overhead (indirect) -labor into goods in process (direct) and factory overhead (indirect) -factory overhead into goods in process -goods in process into finished goods -finished goods into cost of goods sold

reporting manufacturing activities compared to merchandising

-merchandisers: buy finished goods, sell finished goods -manufacturing: buy raw materials, produce and sell finished goods

manufacturer's income statement compared to merchandiser's

-merchandising: beginning merchandise inventory + cost of goods purchased - cost of goods sold = ending merchandise inventory -manufacturing: beginning finished goods inventory + cost of goods manufactured - cost of goods sold - ending finished goods inventory

reasons for using a predetermined overhead rate

-overhead is not incurred uniformly during the year -predetermined rate makes it possible to estimate job costs sooner -actual overhead rate might vary from month to month

purpose of managerial accounting

-planning: strategic aims, long and short term, annual budgets -control: measurement, evaluation, oversight

pricing for services

-pricing for services is based on direct labor. any material costs are incidental and part of overhead

manufacturer's balance sheet compared to merchandiser

-primary difference seen in inventory -merchandiser: current assets are cash, receivables, merchandise inventory -manufacturer: current assets are cash, receivables, raw materials inventory, goods in process inventory, finished goods inventory

prime costs and conversion costs

-prime costs: direct material and direct labor -conversion costs: direct labor and manufacturing overhead -direct labor isn't split into two amounts, it's included in both

cost accounting systems

-process costing -job costing

trends in process operations

-process design -customer orientation -automation -services -just in time production

cycle time and efficiency

-process time is the only "value-added" time -wait time = order received to production started -manufacturing cycle time = production started to goods shipped process time + inspection time + move time + queue time -total cycle time = order received to goods shipped; wait time + manufacturing cycle time

types of cost classification: classification by function

-product costs: direct labor, direct material, manufacturing overhead -period costs: expenses not attached to the product. selling and administrative costs -selling costs are incurred to obtain orders and to deliver finished goods to customers -administrative costs are non manufacturing costs of staff and support administrative functions

summary of materials cost flow

-raw materials purchases dr. materials purchases -indirect material dr. factory overhead cr. raw materials -direct material dr. goods in process cr. raw material

Just in time manufacturing

-receive customer orders - schedule production - receive materials for just in time production - complete parts just in time for assembly into products - complete products just in time to ship to customers -if we shorten operating cycle (cash to cash) we have more cash available to use for other things that isn't held in inventory of A/R -JIT makes cycle smaller with respect to inventory. pushes responsibility of inventory on to supplier

timeline in job order costing

-receive order from customer -predict cost to complete job -negotiate a sales prices and decide whether to pursue the job -schedule production of the job

similarities in job order and process operations

-same objective: to determine cost of products -same inventory accounts: raw materials, goods in process, and finished goods -same overhead assignment method: predetermined rate times actual activity -same journal entries

process cost summary

-shows the flow of units and costs through work in process -helps factory managers evaluate department manager performance -provides cost information for financial statements -helps managers control their departments

types of cost classification: classification by relevance

-sunk costs have already been incurred and cannot be avoided or changed. sunk costs should not be considered in decisions. ex. an automobile purchased two years ago is a sunk costs because it will not change whether the car is driven, sold, traded or abandoned -out of pocket costs require future outlays of cash and should be considered in decisions. ex. plan on buying a car next month -opportunity cost is the potential benefit lost from closing a specific action from two or more alternatives. ex. if you weren't attending college, could be earning $20k per year, so opportunity cost is $20k

types of cost classification: classification by controllability

-the degree of control depends on the level of management in the organization

differences in job order and process operations

-the main difference lies in how the cost of goods transferred to finished goods is determined -job order costing: the cost of goods transferred to finished goods is a sum of all the completed jobs for that period -process costing: the cost of goods transferred to finished goods equals the number of completed units time the per equivalent cost

material cost flows and documents

-the materials requisition indicates the cost of direct materials to charge to jobs and the cost of indirect materials charged to overhead -go onto job cost sheets (direct) and factory overhead account (indirect)

job order cost documents

-the primary document for tracking the costs associated with a given job is the job cost sheet -include info about the job, direct materials, direct labor, factory overhead, remarks, and cost summary

cost flow chart

-total costs incurred > period costs (expenses) or product costs (inventory) -period costs > income statement as operating expenses -product costs > inventory sold in year or inventory not sold in year -inventory sold in year > income statement as cost of goods sold -inventory not sold in year > balance sheet as inventory: raw materials, goods in process, finished goods

job costing examples

-typical job order cost applications: special order printing, building construction -also used in service industry: hospitals, law firms

implications for managerial accounting

-understand the nature and sources of the cost -measure value provided to customers -price paid is an important determinant of value

process operations fundamentals

-used for production of small, identical, low cost items -mass produced in automated continuous production process -costs cannot be directly traced to each unit of product

materials requisition

-used to authorize the use of materials on a job -includes info about job, materials needed, signature of person requesting, and signature of person authorizing -serves as a source document for recording material usage in accounting records

weighted average cost flow system

1. determine physical flow of units (beginning units + units started into units transferred or in GIP) 2. compute the equivalent units of production (units x percentage complete for DM, DL, and OH) 3. compute cost per equivalent unit (divide total costs for DM, DL, and OH by EUP) 4. assign and reconcile the costs (assign to transferred our or GIP inventory, reconcile costs to each assignment with total cost)

key components of manufacturing statement

1. direct materials (raw materials BB + purch = available for use - EB = direct materials used) 2. direct labor (given) 3. factory overhead (total overhead costs) 4. cost of goods manufactured (total manufacturing costs + GIP beginning inventory = total cost of GIP - GIP ending inventory = cost of goods manufactured)

Fraud and ethics in managerial accounting

1. involves the use of one's job for personal gain through deliberate misuse of the employer's assets 2. is done to provide direct or indirect benefit to the employee 3. violates the employer's duties to his employer 4. costs the employer money 5. is secret 6. increases business costs -Institute of Management Accountants has issues a code of ethics to help accountants involved in solving ethical dilemmas

nature of financial accounting

1. users and decision makers: investors, creditors, and other users external to the organization 2. purpose of info: assist external users i naming investment, credit, and other decisions 3. flexibility of practice: structured and often controlled by GAAP 4. timeliness of info: often only available after and audit is complete 5. time dimension: focus on historical info with some predictions 6. focus of info: emphasis on whole organizations 7. nature of information: monetary info

nature of managerial accounting

1. users and decision makers: managers, employees, and decision makers internal to the organization 2. purpose of info: assist managers in making planning and control decisions 3. flexibility of practice: relatively flexible (no GAAP) 4. timeliness of info: available quickly without the need to wait for an audit 5. time dimension: many projections and estimates; historical info also presented 6. focus of info: emphasis on organization's projects, processes and subdivisions 7. nature of info: mostly monetary, but also non monetary info

cost per equivalent unit

= product costs for the period / equivalent units for the period

entry to record salaries and wages of workers

dr. factory payroll cr. cash/ accounts payable

finished goods roll forward

beginning balance + cost of goods manufactured - cost of goods sold = ending balance

works in progress roll forward

beginning balance + direct materials used + direct labor + factory overhead - cost of goods manufactured = ending balance

raw materials roll forward

beginning balance +purchases - direct materials used - indirect materials used = ending balance

entry to apply overhead

dr. goods in process inventory cr. factory overhead (use POHR)

total quality management

constant focus on higher standards -quality improvement applies to all aspects of business activities -seek and uncover waste -employees encouraged to try new methods and improve quality -company emphasizes value of quality through quality awards

types of cost classifications: classifications by behavior

cost behavior refers to how a cost will react to changes in the level of business activity -total fixed costs do not change when activity changes. ex. rent -total variable costs change in proportion to activity changes. ex. raw materials, labor -mixed costs are combinations of fixed and variable costs. (start at a fixed point on Y axis, but increase with increased production) ex. utility costs

journal entry for acquiring materials

dr. raw materials inventory cr. accounts payable

cost of production

direct labor + direct materials + factory overhead

direct labor

direct labor costs are the wages and salaries for direct labor that are separately and readily traced through the manufacturing process to finished goods. ex. wages paid for a bike assembly worker

direct materials

direct material costs are the expenditures for direct materials that are separately and readily traced through the manufacturing process to finished goods. ex. steel used in the frame of a bike

factory overheard

factory overhead consists of all manufacturing costs that are not direct materials or direct labor and the costs cannot be separately or readily traced to finished goods. ex. maintenance, cleaning supplies, factory utility costs, supervisory costs

comparing goods in process account for job order and process operations

goods in process account: -made up of individual jobs in a job order system -made up of specific processes in the process cost system

managerial accounting

provides financial and non financial information for managers of an organization and other decision makers

financial accounting

provides general purpose financial info to those who are outside the organization

materials ledger card

records received, issues, and balance for a specific material

journal entries for process operations

same as job order costing

manufacturing statement

summarizes the types and amounts of costs incurred in a company's manufacturing process direct materials used + direct labor + factory overhead = total manufacturing costs + beginning works in process - ending works in process = cost of goods manufactured

manufacturing cycle efficiency

value added time (process time) / manufacturing cycle time -manufacturing cycle time does't include wait time

how is the predetermined overhead rate used to assign overhead to jobs

we multiple the POHR times the number of activity units /9like direct labor costs) incurred for the job