Acct 125 Chapter 10

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Visit UMT online at www.umtweb.edu South-Western 2004Survey of Accounting, 2/e

1 of 43Chapter 10,

CCOUNTINGCCOUNTING

FUND MENT LS FOR

UND MENT LS FOR

M N GERS

N GERS

Uniersit! of Mana"ement and Te#hnolo"!

1$01 %orth &ort M!er 'rie

(rlin"ton) V( 2220$Voi#e* +,03 1/-003 &a* +,03 1/-0$

Website* www.umtweb.edu
http://www.umtweb.edu/http://www.umtweb.edu/

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2 of 43Visit UMT online at www.umtweb.eduChapter 10,

Task Force Clip ArtTask Force Clip Art

included in this electronicincluded in this electronic

presentation is used withpresentation is used withthe permission of Newthe permission of New

Vision Technology ofVision Technology of

Nepean Ontario, Canada.Nepean Ontario, Canada.

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Visit UMT online at www.umtweb.edu South-Western 2004Survey of Accounting, 2/e

3 of 43Chapter 10,

Chapter 10

hapter 10

ccounting Syte! "or

ccounting Syte! "or

Manu"acturing #uineeanu"acturing #uinee

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After studying thisAfter studying this

chapter, you shouldchapter, you should

be able to:be able to:

After studying thisAfter studying this

chapter, you shouldchapter, you should

be able to:be able to:

ContinuedContinued

ContinuedContinued

Learning O$%ecti&e

earning O$%ecti&e

1. Distinguish the activities of a manufacturing business fromthose of a merchandise or service business.

2. Define and illustrate materials, factory labor, and factory

overhead costs.3. Describe accounting systems used by manufacturing

businesses.

4. Describe and illustrate a job order cost accounting system.

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of 43Visit UMT online at www.umtweb.eduChapter 10,

Learning O$%ecti&e

earning O$%ecti&e

5. Use job order cost information for decision making.

. Diagram the flo! of costs for a service business that uses ajob order cost accounting system.

". Describe just#in#time manufacturing.$. Describe and illustrate the use of activity#based costing in a

service business.

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/ of 43Visit UMT online at www.umtweb.eduChapter 10,

1Distinguish the

activities of a

manufacturingbusiness from those of

a merchandise or

service business.

Learning O$%ecti&e

earning O$%ecti&e

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, of 43Visit UMT online at www.umtweb.eduChapter 10,

MerchandisingMerchandisingMerchandisingMerchandising

ManufacturingManufacturingManufacturingManufacturing

Reports:

Cost of merchandise soldMerchandise inventory

Reports:Cost of goods sold

Materials inventory

Work in process inventory

Finished goods inventory

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of 43Visit UMT online at www.umtweb.eduChapter 10,

Define andillustrate materials!

factory labor! andfactory overheadcosts.

Learning O$%ecti&e

earning O$%ecti&e

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$ of 43Visit UMT online at www.umtweb.eduChapter 10,

ost lassifi#ationsost lassifi#ations

erioderiod

ostsosts

erioderiodostsosts

Sellin"

5enses

Sellin"

5enses

(dministratie5enses

(dministratie5enses

'ire#tMaterials

'ire#t

Materials

&a#tor!6erhead

&a#tor!6erhead

'ire#t7abor

'ire#t7abor

rodu#trodu#t

ostsosts

rodu#trodu#t

ostsosts

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Manufa#turin" ostsManufa#turin" osts

1. nters dire#tl! into the 5rodu#t.

2. 8s si"nifi#ant amount of total 5rodu#t #ost.

1. nters dire#tl! into manufa#turin" the 5rodu#t.

2. 8s si"nifi#ant amount of total 5rodu#t #ost.

ost other than dire#t materials #ost and dire#tlabor #ost in#urred in the manufa#turin" of 5rodu#t.

'ire#t Materials*'ire#t Materials*

'ire#t 7abor*'ire#t 7abor*

&a#tor! 6erhead*&a#tor! 6erhead*

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Manufa#turin" ost &lows and lassifi#ationsManufa#turin" ost &lows and lassifi#ations

rodu#t osts

Materialsur#hases

Materialsur#hases

eriod osts

'ire#t

7abor

'ire#t

7abor

&a#tor!6erhead

&a#tor!6erhead

Sellin" and(dministratie


ostsosts

9alan#e Sheet

8n#ome Statement

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9alan#e Sheet

Materials8nentor!

Materials8nentor!


rodu#t osts

Materialsur#hases

Materialsur#hases

eriod osts

8n#ome Statement

'ire#t

7abor

'ire#t

7abor

&a#tor!6erhead

&a#tor!6erhead



ostsosts

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Wor: inro#ess

8nentor!

Wor: in

ro#ess8nentor!

9alan#e Sheet

Materials8nentor!

Materials8nentor!


rodu#t osts

Materialsur#hases

Materialsur#hases

eriod osts

8n#ome Statement

'ire#t

7abor

'ire#t

7abor

&a#tor!6erhead

&a#tor!6erhead



ostsosts

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&inished;oods

8nentor!

&inished;oods

8nentor!

Wor: inro#ess

8nentor!

Wor: in

ro#ess8nentor!

9alan#e Sheet

Materials8nentor!

Materials8nentor!


rodu#t osts

Materialsur#hases

Materialsur#hases

eriod osts

8n#ome Statement

'ire#t

7abor

'ire#t

7abor

&a#tor!6erhead

&a#tor!6erhead



ostsosts

ost of ;oodsManufa#tured

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ost of

;oods Sold

ost of;oods Sold

&inished;oods

8nentor!

&inished;oods

8nentor!

Wor: inro#ess

8nentor!

Wor: in

ro#ess8nentor!

9alan#e Sheet

Materials8nentor!

Materials8nentor!


rodu#t osts

Materialsur#hases

Materialsur#hases

eriod osts

8n#ome Statement

'ire#t

7abor

'ire#t

7abor

&a#tor!6erhead

&a#tor!6erhead



ostsosts

rodu#t #ostsflow throu"h thebalan#e sheet to

the in#ome

statement

rodu#t #ostsflow throu"h thebalan#e sheet to

the in#ome

statement

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1/ of 43Visit UMT online at www.umtweb.eduChapter 10,



ost of

;oods Sold

ost of;oods Sold

&inished;oods

8nentor!

&inished;oods

8nentor!

Wor: inro#ess

8nentor!

Wor: in

ro#ess8nentor!

9alan#e Sheet

Materials8nentor!

Materials8nentor!


rodu#t osts

Materialsur#hases

Materialsur#hases

eriod osts

8n#ome Statement

'ire#t

7abor

'ire#t

7abor

&a#tor!6erhead

&a#tor!6erhead



ostsosts

eriod #osts flowdire#tl! to the

in#ome statement

eriod #osts flowdire#tl! to the

in#ome statement

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1, of 43Visit UMT online at www.umtweb.eduChapter 10,

"Describeaccounting

systems used bymanufacturingbusinesses.

Learning O$%ecti&e

earning O$%ecti&e

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ost (##ountin" S!stemsost (##ountin" S!stems

1. Man! different

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1$ of 43Visit UMT online at www.umtweb.eduChapter 10,

#Describe and illustratea $ob order cost

accounting system.

Learning O$%ecti&e

earning O$%ecti&e

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Materials 8nformation and ost &lowsMaterials 8nformation and ost &lows

=ob ,1

1)000 units of (meri#an >istor!

9alan#e ? 3)000'ire#t Materials'ire#t 7abor&a#tor! 6erhead

=ob ,24)000 units of (l"ebra

'ire#t Materials'ire#t 7abor&a#tor! 6erhead

Materials@eAuisitions

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Materials 8nformation and ost &lowsMaterials 8nformation and ost &lows

=ob ,1


9alan#e ? 3)000'ire#t Materials 2)000'ire#t 7abor&a#tor! 6erhead


'ire#t Materials ?11)000'ire#t 7abor&a#tor! 6erhead

Materials@eAuisitions

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7abor 8nformation and ost &lows7abor 8nformation and ost &lows

=ob ,1


9alan#e ? 3)000'ire#t Materials 2)000'ire#t 7abor&a#tor! 6erhead


'ire#t Materials ?11)000'ire#t 7abor&a#tor! 6erhead

TimeTi#:ets

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7abor 8nformation and ost &lows7abor 8nformation and ost &lows

=ob ,1


9alan#e ? 3)000'ire#t Materials 2)000'ire#t 7abor 3)00&a#tor! 6erhead


'ire#t Materials ?11)000'ire#t 7abor ,)00&a#tor! 6erhead

TimeTi#:ets

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redetermined &a#tor! 6erhead @atesredetermined &a#tor! 6erhead @ates

(#tiit! base eam5les

stimated total

fa#tor! oerhead #osts

stimated a#tiit! base

redeterminedfa#tor! oerhead rate

B

1. 'ire#t labor hours2. 'ire#t labor dollars3. Ma#hine hours4. 'ire#t materials. 6ther

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stimated total




B

Wh! is the 5redetermined oerhead rate #al#ulated fromestimated numbers at the be"innin" of the 5eriodC

8t is a tradeoff between a##ura#! and timeliness.8f a #om5an! waited until the end of an a##ountin" 5eriod)

when all oerhead #osts are :nown) the allo#ated fa#tor!oerhead would be a##urate but not timel!.

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stimated total




B

?0)000 estimatedfa#tor! oerhead #osts

10)000 estimateddire#t labor hours

B

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stimated total




B



B? 5er dire#tlabor hour

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stimated total




B



B? 5er dire#tlabor hour

&or ea#h dire#t labor

hour wor:ed) fa#tor!oerhead a55lied is ?.

=ob ,1 30 ? B ?1),0=ob ,2 00 ? B ?2)00

'ire#t &a#tor!7abor 6erhead>ours (55lied

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(ssi"nin" &a#tor! 6erhead to =obs(ssi"nin" &a#tor! 6erhead to =obs

=ob ,1


9alan#e ? 3)000'ire#t Materials 2)000'ire#t 7abor 3)00&a#tor! 6erhead


'ire#t Materials ?11)000'ire#t 7abor ,)00&a#tor! 6erhead

Time Ti#:etsredetermined

6erhead @ates

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(ssi"nin" &a#tor! 6erhead to =obs(ssi"nin" &a#tor! 6erhead to =obs

=ob ,1


9alan#e ? 3)000'ire#t Materials 2)000'ire#t 7abor 3)00&a#tor! 6erhead 1),0


'ire#t Materials ?11)000'ire#t 7abor ,)00&a#tor! 6erhead 2)00

Time Ti#:etsredetermined

6erhead @ates

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Summar! of =ob ost SheetsSummar! of =ob ost Sheets

=ob ,1


9alan#e ? 3)000'ire#t Materials 2)000'ire#t 7abor 3)00&a#tor! 6erhead 1),0

Total =ob ost ?10)20


'ire#t Materials ?11)000'ire#t 7abor ,)00&a#tor! 6erhead 2)00 ?21)000

Total of debits toWor: in ro#ess

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;oodwell rinters8n#ome Statement

&or the Month nded 'e#ember 31) 2004

Sales ?2)000

ost of "oods sold 20)10;ross 5rofit ? ,)0

Sellin" and admin. e5enses*

Sales salaries e5ense ?2)000

6ffi#e salaries e5ense 1)00

Total sellin" and admin.

e5enses 3)00

8n#ome from o5erations ? 4)30

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%&se $ob order cost

information for

decision making.

Learning O$%ecti&e

earning O$%ecti&e

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'ob 1##

(tem: )) folding chairs

Materials

Quantity

(board feet

Materials

!rice

Materials

"mount

Direct materials:

Wood

Direct materials per chair

1!*)) +".%) +%!*))+,

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'ob 1*"

(tem: )) folding chairs

Materials

Quantity

(board feet

Materials

!rice

Materials

"mount

Direct materials:

WoodDirect materials per chair

!))) +".%) +-!)))+"%

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*Diagram the flo of

costs for a service

business that uses a $oborder cost accounting

system.

Learning O$%ecti&e

earning O$%ecti&e

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#ages !ayable

Direct labor ///

(ndirect labor ///$actory

O%erhead

#or& in !rocess Cost of 'er%ices

(ndirect labor ///

0upplies used ///

pplied overhead 2///3

Direct labor ///

pplied overhead ///

Completed $obs 2///3

Completed $obs ///

'upplies

&sed ///

F'o( o" Cot Through a

'o( o" Cot Through a

Ser&ice #uine

er&ice #uine

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-Describe $ust4in4time

manufacturing.

Learning O$%ecti&e

earning O$%ecti&e

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8ssue

=ust-in-Time

Manufa#turin"

Traditional

Manufa#turin"

%nventory &educes inventory. %ncreases inventory to 'buffer(or )rotect against )rocess)roblems.

*ead time &educes lead time. %ncreases lead time as abuffer against uncertainty.

+etu) time &educes setu) time. Disregards setu) time as anim)rovement )riority.

roduction layout -m)hasies )roduct#orientedlayout.

-m)hasies )rocess#orientedlayout.

ContinuedContinuedContinuedContinued

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8ssue

=ust-in-Time

Manufa#turin"

Traditional

Manufa#turin"

&ole of the -m)loyee -m)hasies team#orientedem)loyee involvement.

-m)hasies !ork ofindividuals, follo!ingmanager instructions.

roduction scheduling )olicy -m)hasies )ullmanufacturing.

-m)hasies )ushmanufacturing.

/uality -m)hasies ero defects. 0olerates defects.

+u))liers -m)hasies su))lier)artnering.

0reats su))liers as 'arms#length,( inde)endent entities.

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,Describe and illustrate

the use of activity4

based costing in aservice business.

Learning O$%ecti&e

earning O$%ecti&e

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(#tiit!

(#tiit!-9ase

Usa"e

(#tiit!

@ate B

(#tiit!

ost

dmitting 1 admission 1$ )er admission 1$

&adiological testing 2 images 32 )er image 4

6)erating room 4 hours 2 )er hour $

athological testing 1 s)ecimen 12 )er s)ecimen 12

Dietary and laundry " days 15 )er day 1,5

0otal 2,"7

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O!)#)** O'!+T"*

Customer (!atient !rofitability eport

$or the !eriod )nding -ecember /, 0112

(d#o#:)Dim

9irini)9rian

onwa!)'on

Wilson)Mar!

&evenues 7,5 21,4 5,5 3,3

*ess )atient costs8

Drugs and su))lies 4 1, 3 2

dmitting 1$ 1$ 1$ 1$

&adiological testing 1,2$ 2,5 1,2$ 4

6)erating room 2,4 ,4 1, $

athological testing 24 12 12

Dietary and laundry 4,2 14," 1,5 1,5

0otal )atient costs $," 25,44 4,53 2,77

%ncome from o)erations $ 94,4: 52 31

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Acct 125 Chapter 10