Cost management accounting and control 6e by hansen mowen guan chapter 05

Differentiate the cost accounting systems of service and manufacturing firms and of unique and standardized products.. Unique versus Standardized Products and Services • Firms that prod

COST MANAGEMENT

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Accounting & Control

Hansen▪Mowen▪Guan

Chapter 5 Product and Service

Costing:

Job-Order System

Study Objectives

1 Differentiate the cost accounting systems of service and

manufacturing firms and of unique and standardized products.

2 Discuss the interrelationship of cost accumulation, cost

measurement, and cost assignment.

3 Explain the difference between job-order and process costing, and identify the source documents used in job-order costing.

4 Describe the cost flows associated with job-order costing, and prepare the journal entries.

5 Explain why multiple overhead rates may be preferred to a

single, plantwide rate.

6 Explain how spoilage is treated in a job-order costing system.

Manufacturing Firms versus Service Firms

• 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

Unique 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 a…

– Examples: Cabinet makers, home builders,

dental and medical services

Unique 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 a…

– Examples: Food, cement, petroleum and

chemicals

Setting Up the Cost Accounting System

Setting Up the Cost Accounting System

– The recognition and recording of costs

– Source documents can be designed to supply information that can be used for multiple

purposes

Setting Up the Cost Accounting System

– Classifying the costs and determining the

dollar amounts for direct materials, direct

labor and overhead

Setting Up the Cost Accounting System

• Unit Cost

– Used in manufacturing firms to

• Value inventory

• Determine income

• Inform decision making

– Used in nonmanufacturing firms to

• Determine profitability

• Determine feasibility of new services

Setting Up the Cost Accounting System

• Overhead is applied using a predetermined rate based on budgeted overhead costs and

budgeted amount of driver

• Commonly used drivers include

– Units produced

– Direct labor hours

– Direct labor dollars

– Machine hours

– Direct materials dollars or cost

– Reflective of consumer demand

• Normal activity level

• Expected activity level

– Reflective of production capabilities

• Theoretical activity level

• Practical activity level

Job-Order Costing: Overview

• 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.

Job-Order Costing: Overview

• 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.

Job-Order Costing: General Description

Job-Order Costing: General Description

Job-Order Costing: General Description

Job-Order Costing:

Specific Cost Flow Description

Job-Order Costing:

Specific Cost Flow Description

Job-Order Costing:

Specific Cost Flow Description

Job-Order Costing:

Specific Cost Flow Description

Job-Order Costing:

Specific Cost Flow Description

Statement of Cost of Goods Manufactured

Statement of Cost of Goods Manufactured

Statement of Cost of Goods Manufactured

Statement of Cost of Goods Manufactured

Statement of Cost of Goods Manufactured

Statement of Cost of Goods Sold

Summary of Manufacturing Cost Flows

Income Statement

Single versus Multiple

Overhead Rates

Using single overhead application rate:

Single versus Multiple

Overhead Rates

Using multiple overhead application rates:

Single versus Multiple

$4 = $2,000 $12 = $6,000500 MH @

COST MANAGEMENT

COPYRIGHT © 2009 South-Western Publishing, a division of Cengage Learning.

Cengage Learning and South-Western are trademarks used herein under license 39

Accounting & Control

Hansen▪Mowen▪Guan

End Chapter 5