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MDC ACG 2071 - Job Order Cost System

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ACG 2071Module 5: Job Order Cost SystemCost Accounting System Records manufacturing activities using perpetual inventory system, which continuously updates records for costs of materials, goods in process, and finished goods inventories. Two main types of Cost Accounting Systems:o Job Order Cost Accounting An accounting system that records information concerning the production of customized products Constructiono Process Cost Accounting An accounting system that records information concerning the mass production of a good PencilsJob Order Manufacturing A major aim is to determine the cost of producing each job or job lot. Job sheeto Is a separate record maintained for each jobo While a job is being manufactured, its accumulated costs are kept in Goods in Process InventoryCreated by: M. MariFall 2007-1Page 1 of 12ACG 2071Module 5: Job Order Cost Systemo When job is finished , costs are transferred to Finished Goods InventoryJournal Entries: Purchase of materialsDateAccount PR Debit CreditRaw materials inventory XX Accounts payable XXExample 1: Purchased $8,000 worth of materials for use in production on accountDateAccount PR Debit CreditRaw materials inventory $8,000 Accounts payable $8,000 Requisition of materialsDateAccount PR Debit CreditWork in Process Direct materialsFactory overhead Indirect materials Materials inventory Total materialcostCreated by: M. MariFall 2007-1Page 2 of 12ACG 2071Module 5: Job Order Cost SystemExample 2: Bunny manufacturing has the following cost information for the period. Record the material usage.Job No. Materials125 $4,500126 $4,250127 $4,000128 $3,500129 $3,000Indirect $2,000TOTALS $21,250DateAccount PR Debit CreditWork in process $19,250Factory overhead 2,000 Raw materials inventory $21,250 Factory laborDate Account PR Debit CreditGood in process Direct laborFactory overhead Indirect labor Wages payable Total labor costsCreated by: M. MariFall 2007-1Page 3 of 12ACG 2071Module 5: Job Order Cost SystemExample 3: Bunny manufacturing has the following cost information for the period. Record the labor costs.DateAccount PR Debit CreditWork in process $21,900Created by: M. MariFall 2007-1Page 4 of 12Job No. Labor DirectLaborHours125 $5,000 200126 $4,900 175127 $4,500 150128 $4,000 125129 $3,500 100Indirect $1,500TOTALS $23,400 830ACG 2071Module 5: Job Order Cost SystemFactory overhead 1,500 Wages payable $23,400 Factory overhead costsDate Account PR Debit CreditFactory overhead Total actual overhead costs Various accounts Total Record factory overhead costs incurred.Allocating Factory Overhead Cost Allocation – the process of assigning factory overhead costs to a cost object, such as a job. Activity base – measure used to allocate factory overhead.o Should be a measure that reflects the consumption or use of factory overhead cost.Predetermined Factory Overhead Rate = Estimated total factory overhead costsEstimated activity baseExample 4: The Corporation estimates factory overhead costs at $500,000 for the next period. The corporation uses Created by: M. MariFall 2007-1Page 5 of 12ACG 2071Module 5: Job Order Cost Systemdirect labor hours as its activity bases and estimates 50,000 total direct labor hours. Compute the predetermined rate? Predetermined Factory Overhead Rate = Estimated total factory overhead costsEstimated activity base = $500,000 50,000 = $10 per direct labor hoursExample 5: The Corporation estimates factory overhead costs at $500,000 for the next period. Factory overhead is determined as a percentage of direct labor costs. If direct labor costs are expected to be $750,000, what is the rate?$500,000 750,00067% of direct labor costs.This means that for each dollar of direct labor charged, we charge factory overhead 67 cents.Applying Factory Overhead to Work in ProcessThe factory overhead account is applied based on thepredetermined rate.Created by: M. MariFall 2007-1Page 6 of 12ACG 2071Module 5: Job Order Cost SystemApplying Factory Overhead:Date Account PR Debit CreditWork in process Total factory overhead applied Factory overhead Total factory overhead appliedExample 6: Bunny manufacturing has the following cost information for the period.Job No. MaterialsLabor DirectLaborHoursFactoryOverheadTotal Costs125 $4,500 $5,000 230126 $4,250 $4,900 175127 $4,000 $4,500 150128 $3,500 $4,000 125129 $3,000 $3,500 100Indirect $2,000 $1,500TOTALS $21,250 $23,400 780Factory overhead rate is $50 per direct labor hour. Recordthe application of factory overhead to the jobs listed above.Created by: M. MariFall 2007-1Page 7 of 12DirectLaborHoursFactory Overhead230 230hrs x $50 = $11,500175 175 hrs x $50 = $ 8,750150 150 hrs X $50 = $7,500125 125 hrs x $50 = $6,250100 100 hrs x $50 = $5,000780 Total factory overhead = $39,000ACG 2071Module 5: Job Order Cost SystemThe journal entry would be:DateAccount PR Debit CreditGoods in process $39,000Factory overhead $39,000At the end of the period, the factory overhead account isreviewed: If the balance is on the debit side, we say the account isunderapplied.If the balance is on the credit side, we say the account isoverapplied. Factory Overhead Debit Credit Under applied Over appliedSince Factory overhead is an EXPENSE account, it must be closed at the end of the period.Created by: M. MariFall 2007-1Page 8 of 12Actual costs are greater than applied costsActual costs are less than applied costsACG 2071Module 5: Job Order Cost SystemThe balance of the account is closed into COST OF GOODS SOLDDisposal of Factory Overhead BalanceDate Account PR Debit CreditCost of Goods Sold Factory overheadExample 7: The balance in the factory overhead account is $50,000, the corporation applies $60,000 to work in process.Record the disposal of the balance.The factory overhead account has a credit balance of $10,000 after the entry to apply factory overhead to work in process.DateAccount PR Debit CreditFactory overhead $10,000 Cost of goods sold $10,000Had the factory account had a debit balance, the above entry would be reversed.Once the job is completed, the costs must be transferred to finished goods inventory account from goods in processTransferred of Finished GoodsDate Account PR Debit CreditCreated by: M. MariFall 2007-1Page 9 of 12ACG 2071Module 5: Job Order Cost SystemFinished goods Total manufacturing costs Work in process Total manufacturing costsExample 7: Using


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