Product Costing Job and Process Operation

8/13/2019 Product Costing Job and Process Operation

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PRODUCT COSTING: JOB AND PROCESS

OPERATION,ACTIVITY BASED COSTING

Student name

Student id

Profeor! name

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Ta"#e of $ontent

Executive summary .3

Introduction..3

Cost Classifications for Manufacturing Firms4

Direct material .5

roduct and eriod Costs.5

roduct Cost Information in Financial !e"orting

..#

$c%edule of &oods Manufactured.'

!elating (o)*+rder Costing to t%e $c%edule of &oods Manufactured

Conclusion.11

My recommendation .13

!eferences.14

,


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E%e$uti&e ummar'

- manufacturing firm generally "roduces goods )ased on demand

forecasting. o/ever0 it sometimes "roduces t%em also on recei"t of

order from its customers. &oods "roduced and /ors done as "er

customers2 order are called o). %erefore0 t%e costing met%od designed to

determine t%e cost of a o) is very essential. (o) order costing is t%e

costing system t%at determines t%e cost of t%e o)s received from t%e

client.. %us0 o) order costing system estimates t%e costs of

manufacturing "roducts as "er customers2 orders.

Introdu$tion

In t%e o) order costing met%od0 eac% o) is treated as se"arate cost

center. +ver%eads to a o) are allocated on t%e )asis of eit%er "rocessing

%ours or D or la)or cost or mac%ine %ours.

Cot C#aifi$ation for (anufa$turin) *irm

Manufacturing costs0 )y definition0 are all costs /%ic% are associated /it%

t%e "roduction of goods. %e t%ree traditional categories of manufacturing

costs include6

1. Direct Materials

,. Direct a)or

3. Manufacturing +ver%ead

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Dire$t materia#

Direct material costs include ra/ materials and com"onents t%at are

directly tracea)le to t%e final finis%ed "roduct.

ere t%in of a %ome )uilder7s direct material costs. !a/ materials

include lum)er and s%eetroc. Com"onents include lig%t fixtures and

s"rinler system com"onents. Materiality I$ im"ortant %ere

8ecause direct materials D+ 9+ include minor material costs /%ic% are

not easily or cost ustifia)ly traced to t%e final finis%ed "roduct. %e

%ome )uilder /ould "ro)a)ly not include nails0 scre/s and ot%er small0

inex"ensive fasteners in direct materials.

Direct la)or costs0 lie direct material costs0 include la)or t%at is directly

tracea)le to t%e final finis%ed "roduct. :sing t%e %ome )uilder exam"le0

salaries of car"enters are considered direct la)or. Construction

su"ervisory salaries0 t%oug%0 are not.

Produ$t and Period Cot

%ese t/o terms are synonymous /it% Manufacturing and

9onmanufacturing costs0 res"ectively0 discussed "reviously. %ey are

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im"ortant )ecause t%ey refer to t%e timing of ex"enses as muc% as t%e

descri"tion.

Produ$t Cot Information in *inan$ia# Re+ortin) and De$iion

(ain)

+ften t%e information needed )y internal managers stands in s%ar"

contrast to external re"orting re;uirements "romulgated )y &enerally

-cce"ted -ccounting rinci"les


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,. -8C


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3. +nce t%e estimated over%ead %as )een a""lied to eac% o)0 at t%e end

of t%e year0 t%e total a""lied over%ead for eac% o) /ill )e accumulated in

t%e Manufacturing +ver%ead -ccount


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,. If t%e cost is a eriod Cost0 t%en it /ill flo/ directly to t%e Income

$tatement as an ex"ense.

3. If t%e cost is a roduct Cost0 t%en you next %ave to identify /%at ty"e

of roduct cost t%at you are trying to classify. For exam"le0 t%ere are 3

roduct Costs


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S$-edu#e of Good (anufa$tured: %is sc%edule sim"ly summariHesyour "roduct costs. -gain0 let us go )ac to t%e )asic conce"t of roduct

Cost to "ut t%is into "ers"ective. First0 t%ere are 3 8asic roduct Costs

or in rocess.

!a/ Materials :sed I

otal Manufacturing Costs

* Ending >I

Cost of &oods Manufactured


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different inventory categories. :ltimately0 you /ill end u" /it% t%e cost

of t%e finis%ed goods.

%e )asic cost flo/ structure /ill )e t%e same for t%e entire semester.

%us0 once you %ave an understanding of t%is after t%e first 3 c%a"ters0you s%ould )e more comforta)le /it% more advanced and miscellaneous

conce"ts t%at /ill )e introduced later in t%e semester.

Re#atin) Jo"0Order Cotin) to t-e S$-edu#e of Good (anufa$tured

%is is actually a very easy conce"t. $im"ly loo at your Cost of &oods

Manufactured formula. It is t%e same for any costing met%od. %e only

t%ing t%at is different a)out t%is formula for t%e sc%edule0 is t%at you use

-IED +E!E-D0 not -ctual +ver%ead. -ctual +ver%ead is notused in a o) order costing system /%en initially calculating t%e cost of

goods manufactured.

$ince )ot% C%a"ters , and C%a"ter 3 relate to (o)*+rder Costing0 go )ac

to C%a"ter1 and revie/ t%e )asic formula. o/ever0 for C%a"ters , and

C%a"ter 30 su)stitute -""lied +ver%ead to get t%e cost of goods

manufactured. -ny variance /it% t%e actual over%ead data /ill )e

corrected /it% t%e Manufacturing +ver%ead -ccount and Cost of &oods

$old at t%e end of t%e "eriod.

It is very easy to get distracted in a lot of t%e text)oo "ro)lems as t%e

aut%ors /ill s%o/ you several different terms relating to over%ead)ut

do not get confusedee" it sim"le and follo/ my in class lecture and

you s%ould )e fine.

Ot-er (i$e##aneou Item

Con&erion Cot? Direct a)or K +ver%ead

Prime Cot? Direct Materials K Direct a)or

Sun Cot? "ast costs and considered not relevant for decision maing.

Cost 8e%avior

1. Fixed Cost

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a. otal Fixed Cost ? Do not c%ange /it%in t%e relevant range


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rocess costing systems are designed to assign costs to a large

num)er of %omogeneous "roducts "assing t%roug% a series of

"rocesses. Eac% "rocess "erforms s"ecific activities t%at )ring

a "roduct closer to com"letion. %us0 a +ro$eis a series of

activities


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Thus, such a job may not demand a normalmanufacturing process. No two jobs are exactlyalie. The end product may not behomogeneous. !bviously, the cost of each job

may differ with the uniqueness of the wor orderreceived from customers.

Unit Cot

1. %e calculation of unit costs in a "rocess system

involves6

Com"uting t%e manufacturing costs for a

"rocess de"artment for a given time

"eriod.

Com"uting t%e out"ut in units of t%e

"rocess de"artment for t%at same time

"eriod.

Calculating t%e unit cost )y dividing t%e

costs of t%e "eriod )y t%e units "roduced during t%e "eriod.

%at is0 eac% unit in eac% "rocess receives a similar s%are

of manufacturing costs.

,. :nit costs are needed to6

Com"ute t%e cost of goods transferred outof t%e "rocess.

Determine t%e value of t%e ending

inventory.

3. $"ecial care is re;uired /%en calculating unit

costs in t%e follo/ing situations6

If t%ere is )eginning /or*in*"rocess

inventory0 t%e FIF+ or /eig%ted average met%od is used to

%andle t%e )eginning >I inventory )ecause t%ese units%ave "rior*"eriod /or and costs.

If t%ere are manufacturing costs added at different times during t%e

"rocess0 se"arate categories of e;uivalent units and unit cost calculation

are re;uired to %andle no uniform a""lication of "roduction costs

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Referen$e

1*%tt"6AAaccountlearning.)logs"ot.comA,N1NA1NAconce"t*and*meaning*of*

o)*order.%tml

2-///.csus.eduAindivAmAmaceytAaccy1,1A...A11c%N4.""t

"#novellaqalive2.mhhe.com/sites/dl/free/0072856599/.../ch17_sm_ed2.doc

4*http://accounting2011.wikispaces.com/file/view/Managerial+Accounting+Notes+Chapters+1-+

!"#$ri&'.&oc

5*%tt"6AA///.)usinessdictionary.comAdefinitionAo"erating*)udget.%tml

*%tt"6AA///.cliffsnotes.comAmore*su)ectsAaccountingAaccounting*

"rinci"les*iiA)udgetsAo"erating*)udgets

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http://accountlearning.blogspot.com/2010/10/concept-and-meaning-of-job-order.htmlhttp://accountlearning.blogspot.com/2010/10/concept-and-meaning-of-job-order.htmlhttp://www.csus.edu/indiv/m/mackeyjt/accy121/.../11ch04.ppthttp://accounting2011.wikispaces.com/file/view/Managerial+Accounting+Notes+Chapters+1-3+(Hybrid).dochttp://accounting2011.wikispaces.com/file/view/Managerial+Accounting+Notes+Chapters+1-3+(Hybrid).dochttp://accounting2011.wikispaces.com/file/view/Managerial+Accounting+Notes+Chapters+1-3+(Hybrid).dochttp://accounting2011.wikispaces.com/file/view/Managerial+Accounting+Notes+Chapters+1-3+(Hybrid).dochttp://www.businessdictionary.com/definition/operating-budget.htmlhttp://www.cliffsnotes.com/more-subjects/accounting/accounting-principles-ii/budgets/operating-budgetshttp://www.cliffsnotes.com/more-subjects/accounting/accounting-principles-ii/budgets/operating-budgetshttp://accountlearning.blogspot.com/2010/10/concept-and-meaning-of-job-order.htmlhttp://accountlearning.blogspot.com/2010/10/concept-and-meaning-of-job-order.htmlhttp://www.csus.edu/indiv/m/mackeyjt/accy121/.../11ch04.ppthttp://accounting2011.wikispaces.com/file/view/Managerial+Accounting+Notes+Chapters+1-3+(Hybrid).dochttp://accounting2011.wikispaces.com/file/view/Managerial+Accounting+Notes+Chapters+1-3+(Hybrid).dochttp://www.businessdictionary.com/definition/operating-budget.htmlhttp://www.cliffsnotes.com/more-subjects/accounting/accounting-principles-ii/budgets/operating-budgetshttp://www.cliffsnotes.com/more-subjects/accounting/accounting-principles-ii/budgets/operating-budgets

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Product Costing Job and Process Operation