ACC Chapter 2

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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.


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