CHAPTER CHAPTER 1212

PowerPoint Author:LuAnn Bean, Ph.D., CPA, CIA, CFE

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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o Accumulates costs by individual products.

o Companies use job-order cost systems when they need to know the costs of individual products or batches of products.

o Accumulates costs by individual products.

o Companies use job-order cost systems when they need to know the costs of individual products or batches of products.

Cost Systems andCost Systems andType of ProductType of Product

Job-order cost systems may be used by:

1. Walt Disney Production to determine the cost of a particular film.

2. Rust Engineering to determine the cost of an office building constructed.

3. Boeing to determine the cost of an airplane manufactured.

Job-OrderJob-OrderCost SystemCost SystemJob-OrderJob-Order

Cost SystemCost SystemProcessProcess

Cost SystemCost SystemProcessProcess

Cost SystemCost System

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Job-OrderJob-OrderCost SystemCost SystemJob-OrderJob-Order

Cost SystemCost SystemProcessProcess

Cost SystemCost SystemProcessProcess

Cost SystemCost System

o Allocates costs evenly to homogeneous products.

o Unit product cost is determined by dividing the total product cost by the number of units produced during the accounting period.

o Allocates costs evenly to homogeneous products.

o Unit product cost is determined by dividing the total product cost by the number of units produced during the accounting period.

Process cost systems may be used by:

1. Texaco in its oil refining operations.

2. Dow Chemical in the manufacture of chemicals.

3. General Mills in the manufacture of cereal.

Process cost systems may be used by:

1. Texaco in its oil refining operations.

2. Dow Chemical in the manufacture of chemicals.

3. General Mills in the manufacture of cereal.

Cost Systems andCost Systems andType of ProductType of Product

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Begin Begin productionproductionReceive orders Receive orders

from customersfrom customers

OrderOrdermaterialsmaterials

Cost FlowsCost Flows

ScheduleScheduleworkwork

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Job-Order Cost FlowJob-Order Cost FlowIncome

statementIncome

statement

Boat 101Materials

Labor & OH

Boat 101Materials

Labor & OHBoat 104Materials

Labor & OH

Boat 104Materials

Labor & OH

Boat 102Materials

Labor & OH

Boat 102Materials

Labor & OH

Cost ofgoodssold

Cost ofgoodssold

Boat 105Materials

Labor & OH

Boat 105Materials

Labor & OH

Boat 103Materials

Labor & OH

Boat 103Materials

Labor & OH

Productcosts

Productcosts

Work in process inventoryWork in process inventoryFinishedgoods

inventory

Finishedgoods

inventory

Cost ofgoods

availablefor sale

keptseparately

for allboats

Cost ofgoods

availablefor sale

keptseparately

for allboats

MaterialsLabor

Overhead

MaterialsLabor

Overhead

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WIP WIPmixing packaging

WIP WIPmixing packaging

Process Cost FlowProcess Cost FlowProduct

costsProduct

costs

MaterialsLabor

Overhead

MaterialsLabor

Overhead

IncomestatementIncome

statement

Cost ofgoodssold

Cost ofgoodssold

Finishedgoods

inventory

Finishedgoods

inventory

MaterialsLabor

Overhead

Transferred-in costs

MaterialsLabor

Overhead

MaterialsLabor

Overhead Cost ofgoods

availablefor sale

Cost ofgoods

availablefor sale

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Hybrid Accounting Hybrid Accounting SystemsSystems

A hybrid accounting system uses some features from both job-order and process cost systems.

Hybrid systems are commonly used in the manufacture of personal computers. Many

models are mass produced and sold as a package. Other

systems are custom built to the specifications of the customer. Custom built systems normally sell at a premium compared to

standard systems.

Hybrid systems are commonly used in the manufacture of personal computers. Many

models are mass produced and sold as a package. Other

systems are custom built to the specifications of the customer. Custom built systems normally sell at a premium compared to

standard systems.

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Documentation in aDocumentation in aJob-Order Cost SystemJob-Order Cost System

The primary The primary document for document for tracking the tracking the

costs costs associated associated

with a given with a given job is thejob is the

job cost sheetjob cost sheet..

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Documentation in aDocumentation in aJob-Order Cost SystemJob-Order Cost System

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John SmythJohn Smyth

Documentation in aDocumentation in aJob-Order Cost SystemJob-Order Cost System

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Documentation in aDocumentation in aJob-Order Cost SystemJob-Order Cost System

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1,400 1,400 × $3.90 = $5,460× $3.90 = $5,4601,400 1,400 × $3.90 = $5,460× $3.90 = $5,460

Documentation in aDocumentation in aJob-Order Cost SystemJob-Order Cost System

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Benchmore started the month of January, 2015,with the following account balances.

Debit CreditCash 73,000$ Raw materials inventory 7,000 Work in process inventory 34,000 Finished goods inventory 85,000 Production supplies 300 Manufacturing equipment 90,000 Accumulated depreciation 32,000$ Common stock 200,000 Retained earnings 57,300 Total 289,300$ 289,300$

Benchmore Boat CompanyTrial Balance

As of January 1, 2015Boat 103 14,000$ Boat 104 8,000 Boat 105 12,000

34,000$

Work in Process

Boat 101 50,000$ Boat 102 35,000

85,000$

Finished Goods

Job-Order CostJob-Order CostSystem IllustratedSystem Illustrated

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Equivalent UnitsEquivalent UnitsEquivalent units are partially complete and are part

of work in process inventory. Partially completed products are expressed in terms of a smaller

number of fully completed units.

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Equivalent UnitsEquivalent Units

Two half completed products are equivalent to one completed product.

Two half completed products are equivalent to one completed product.

So, 10,000 units 60% completeare equivalent to 6,000 complete units.

So, 10,000 units 60% completeare equivalent to 6,000 complete units.

+ = 1

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Percent Actual Complete Equivalent

Units completed and transferred 500,000 100% 500,000 Ending inventory 85,000 40% 34,000

Total 585,000 534,000

A Janis engineer estimated the 85,000 units in ending work in process inventory were 40 percent complete. Janis computes the total equivalent units processed in the

extraction department as follows:

Equivalent UnitsEquivalent Units

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End of Chapter 12End of Chapter 12