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Accounting notes part 2
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Detailed notes with tables on all of the lectures for the 'Accounting' course
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CHAPTER 19: JOB ORDER COSTINGJOB ORDER COSTING & PROCESS COSTING
− knowing costing price helps:
o setting selling prices that will
lead to profits
o computing cost of goods sold for
the income statement
o computing the cost of inventory
for the balance sheet
− job order costing:
o allocating costs to jobs
o unique products/specialized
service
− process costing:
o identical costs
o accumulates costs by the process taking place
o producing identical products continuously
− tracking product costs:
1. accumulating the different indirect costs for products in manufacturing overhead
2. assigning direct costs to products
3. allocating the overhead costs to the products
4. adjust overhead costs if under or overallocated
− allocation = stating in the accounts that the certain amount of costs is divided within the products
produced
MATERIALS & LABOUR COSTS in JOB ORDER COSTING
− flow of product costs:
o product costs for each job are recorded on an individual job cost record
o work-in-process inventory → adding costs incurred for each job with debits
o cost of goods manufactured/COGM → costs of a completed job are transferred out of
the WIP with a credit and transferred into finished goods inventory with a debit
o costs of goods sold/COGS → the costs of a sold job are transferred out of FGI with a
credit and transferred into COGS with a debit
− Materials Requisition Form = requesting the transfer of raw materials to the production floor
− Job Cost Record = recording of the direct materials received on the production floor, recording
direct labour
− materials purchased: Raw Materials Inventory & Accounts Payable → Materials purchased,
accumulated in RM.
− materials used: Work-In-Process Inventory (direct materials) + Manufacturing Overhead
(indirect materials) & Raw Materials Inventory → Materials used, direct materials assigned to
WIP, indirect materials accumulated in MOH.
, − labour costs incurred: Work-In-Process Inventory (direct labour) + Manufacturing Overhead
(indirect labour) & Wages Payable → Labour incurred, direct labour assigned to WIP, indirect
labour accumulated in MOH.
OVERHEAD COSTS
− steps for allocating overhead costs:
1. calculating the predetermined overhead rate before the period
2. allocating overhead during the period
3. adjusting overhead at the end of the period
− traditional cost drivers: direct labour hours, direct labour costs, machine hours
− 1) predetermined overhead allocation rate = total estimated overhead costs / total estimated
quantity of the overhead allocation base → before the period
− 2) allocating manufacturing overhead cost = predetermined overhead allocation rate X actual
quantity of the allocation base used by each job → during the period
− recording manufacturing overhead on the Job Cost Record
− actual overhead costs incurred:
o Manufacturing Overhead & Accumulated Depreciation → Overhead incurred, costs
accumulated in MOH.
o Manufacturing Overhead & Cash → Overhead incurred, costs accumulated in MOH.
o Manufacturing Overhead & Prepaid Insurance → Overhead incurred, costs accumulated in
MOH.
o Manufacturing Overhead & Property Taxes Payable → Overhead incurred, costs
accumulated in MOH.
− overhead allocation: Work-In-Process Inventory & Manufacturing Overhead → Overhead allocated
to WIP.
COMPLETION & SALES of FINISHED GOODS
− jobs completed: Finished Goods Inventory & Work-In-Process Inventory → Jobs completed, costs
assigned to FG.
− jobs sold: Accounts Receivable & Sales Revenue → Jobs sold; entry reflects sale price, not costs.
, − cost of jobs sold: Cost of Goods Sold & Finished Goods Inventory → Jobs sold, costs assigned to
COGS.
− balance sheet → WIP & FG inventory
− income statement → COGS
OVERALLOCATED & UNDERALLOCATED OVERHEAD
− manufacturing overhead = actual costs – allocated costs
− adjusting manufacturing overhead: Cost of Goods Sold & Manufacturing Overhead → MOH
adjusted for underallocated overhead.
− 3) at the end of the period:
MANUFACTURING
COST of GOODS SOLD JOURNAL ENTRY
OVERHEAD
actual costs > DR – COGS ↑
underallocated undercosted
allocated costs CR – MOH ↓
actual costs < DR – COGS ↓
overallocated overcosted
allocated costs CR – MOH ↑
JOB COSTS for a SERVICE COMPANY
− a law firm, an accounting firm
− total costs:
direct labour + indirect costs
(hours X cost of direct labour) + (hours X predetermined overhead allocation rate)
− markup = total cost X markup percentage = the amount added to the cost price of goods to cover
overhead and profit
− price = total cost + markup
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