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HANSEN & MOWENHANSEN & MOWEN
Cost ManagementCost ManagementACCOUNTING AND CONTROLACCOUNTING AND CONTROL
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Product and Service Costing: Product and Service Costing: Job-Order SystemJob-Order System
5
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1Manufacturing Firms versus Service Manufacturing Firms versus Service FirmsFirms
Manufacturing involves joining together direct materials, direct labor, and overhead to produce a new product. The product is tangible and can be inventoried.
A service is intangible. It cannot be separated from the customer and cannot be inventoried.
Managers must be able to track the costs of services rendered just as precisely as they must track the costs of goods manufactured.
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1Manufacturing Firms versus Service Manufacturing Firms versus Service FirmsFirms
Features of Service Firms and Their Interface with the Cost Management System
Features of Service Firms and Their Interface with the Cost Management System
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1Manufacturing Firms versus Service Manufacturing Firms versus Service FirmsFirms
Unique versus Standardized Products and ServicesUnique versus Standardized Products and Services
Firms that produce unique products in small batches that incur different product costs must track the costs of each product or batch separately. This is called a job-order costing system.
Examples: Cabinet makers, home builders, dental and medical services
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1Manufacturing Firms versus Service Manufacturing Firms versus Service FirmsFirms
Unique versus Standardized Products and ServicesUnique versus Standardized Products and Services
Some firms produce identical units of the same product. The costs of each unit are also the same. This is called a process-costing costing system.
Examples: Food, cement, petroleum and chemicals
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Setting Up the Cost Accounting SystemSetting Up the Cost Accounting System 2
Relationship of Cost Accumulation, Cost Measure- ment, and Cost Assignment
Relationship of Cost Accumulation, Cost Measure- ment, and Cost Assignment
The cost accounting system must satisfy the needs for cost accumulation, cost measurement and cost assignment.
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Setting Up the Cost Accounting SystemSetting Up the Cost Accounting System 2
Cost accumulation refers to the recognition and recording of costs. Source documents can be designed to supply information that can be used for multiple purposes.
Cost measurement refers to classifying the costs and determining the dollar amounts for direct materials, direct labor and overhead.
Cost measurement methods:
Actual costing
Normal costing
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Setting Up the Cost Accounting SystemSetting Up the Cost Accounting System 2
Cost assignment occurs after costs have been accumulated and measured. Total product costs associated with the units is divided by the number of units produced to determine unit cost.
Unit costs in manufacturing firms are used for:
Valuing inventory
Determining income
Decision making
Unit costs in nonmanufacturing firms are used for:
Determining profitability
Determining feasibility of new services
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Setting Up the Cost Accounting SystemSetting Up the Cost Accounting System 2
Unit cost is made up of
direct materials
direct labor
overhead
Overhead is applied using a predetermined rate based on budgeted overhead costs and budgeted amount of driver. Commonly used drivers include:
1. Units produced
2. Direct labor hours
3. Direct labor dollars
4. Machine hours
5. Direct materials dollars or cost
traced directly to units
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Setting Up the Cost Accounting SystemSetting Up the Cost Accounting System 2
Activity level must be predicted for the coming year to calculate the predetermined overhead rate.
Four different measure of activity level:
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The Job-Order Costing System: The Job-Order Costing System: General DescriptionGeneral Description 3
Overview of the Job-Order Costing SystemOverview of the Job-Order Costing System
Job-order industries produce a wide variety of products or jobs that are distinct.
Costs are accumulated by job in a job-order costing system. Each job is documented on a job-order cost sheet.
Total manufacturing costs for the job are divided by the number of units produced to determine unit cost.
The work-in-process inventory is the collection of all job-order cost sheets.
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The Job-Order Costing System: The Job-Order Costing System: General DescriptionGeneral Description 3
The Job-Order Cost SheetThe Job-Order Cost Sheet
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The Job-Order Costing System: The Job-Order Costing System: General DescriptionGeneral Description 3
Materials Requisition FormMaterials Requisition Form
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The Job-Order Costing System: The Job-Order Costing System: General DescriptionGeneral Description 3
Time TicketTime Ticket
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The Job-Order Costing System: The Job-Order Costing System: General DescriptionGeneral Description 3
Overhead is assigned to jobs using a predetermined overhead rate. The actual amount of the driver used as a base must be collected and recorded.
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Job-Order Costing: Specific Job-Order Costing: Specific Cost Flow DescriptionCost Flow Description 4
Summary of Direct Materials Cost FlowsSummary of Direct Materials Cost Flows
+
=
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Job-Order Costing: Specific Job-Order Costing: Specific Cost Flow DescriptionCost Flow Description 4
Summary of Direct Labor Cost FlowsSummary of Direct Labor Cost Flows
+
=
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Job-Order Costing: Specific Job-Order Costing: Specific Cost Flow DescriptionCost Flow Description 4
Summary of Overhead Cost FlowsSummary of Overhead Cost Flows
+
=
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Job-Order Costing: Specific Job-Order Costing: Specific Cost Flow DescriptionCost Flow Description 4
Completed Job-Order Cost SheetCompleted Job-Order Cost Sheet
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Job-Order Costing: Specific Job-Order Costing: Specific Cost Flow DescriptionCost Flow Description 4
Summary of Finished Goods Cost FlowsSummary of Finished Goods Cost Flows
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Job-Order Costing: Specific Job-Order Costing: Specific Cost Flow DescriptionCost Flow Description 4
Statement of Cost of Goods ManufacturedStatement of Cost of Goods Manufactured
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Job-Order Costing: Specific Job-Order Costing: Specific Cost Flow DescriptionCost Flow Description 4
Statement of Cost of Goods ManufacturedStatement of Cost of Goods Manufactured
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Job-Order Costing: Specific Job-Order Costing: Specific Cost Flow DescriptionCost Flow Description 4
Statement of Cost of Goods ManufacturedStatement of Cost of Goods Manufactured
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Job-Order Costing: Specific Job-Order Costing: Specific Cost Flow DescriptionCost Flow Description 4
Statement of Cost of Goods ManufacturedStatement of Cost of Goods Manufactured
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Job-Order Costing: Specific Job-Order Costing: Specific Cost Flow DescriptionCost Flow Description 4
Statement of Cost of Goods ManufacturedStatement of Cost of Goods Manufactured
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Job-Order Costing: Specific Job-Order Costing: Specific Cost Flow DescriptionCost Flow Description 4
Statement of Cost of Goods SoldStatement of Cost of Goods Sold
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Job-Order Costing: Specific Job-Order Costing: Specific Cost Flow DescriptionCost Flow Description 4
All Signs Company Summary of Manufacturing Cost FlowsAll Signs Company Summary of Manufacturing Cost Flows
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Job-Order Costing: Specific Job-Order Costing: Specific Cost Flow DescriptionCost Flow Description 4
Income StatementIncome Statement
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5
Departmental Overhead Costs and ActivityDepartmental Overhead Costs and Activity
=Plantwide overhead
rate
$240,000 20,000
= $12 per direct labor hour
Department A overhead rate
=$60,000 15,000
= $4 per direct labor hour
Department B overhead rate
=$180,000
15,000= $12 per direct labor hour
Job-Order Costing: Specific Job-Order Costing: Specific Cost Flow DescriptionCost Flow Description
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Job-Order Costing: Specific Job-Order Costing: Specific Cost Flow DescriptionCost Flow Description 5
Production Data for Jobs 23 and 24Production Data for Jobs 23 and 24
Job 23 overhead: $12 500 DLH = $6,000
Job 24 overhead: $12 1 DLH = $12
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Job-Order Costing: Specific Job-Order Costing: Specific Cost Flow DescriptionCost Flow Description 5
Overhead assigned using multiple overhead rates
Department A Department B
Overhead cost $60,000 $180,000Cost driver 15,000 DLH 15,000 MHrDepartment overhead rate $4/DLH $12/MHrOverhead applied to Job 23 $2,000 —Overhead applied to Job 24 — $6,000
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Job-Order Costing: Specific Job-Order Costing: Specific Cost Flow DescriptionCost Flow Description 5
Overhead assigned using multiple overhead rates
Compare to overhead assigned using a single overhead rate:
Job 23 overhead: $12 500 DLH = $6,000
Job 24 overhead: $12 1 DLH = $12
Department A Department B
Overhead cost $60,000 $180,000Cost driver 15,000 DLH 15,000 MHrDepartment overhead rate $4/DLH $12/MHrOverhead applied to Job 23 $2,000 —Overhead applied to Job 24 — $6,000
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End of End of Chapter 5Chapter 5
Recommended