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ACC M118 Lecture Notes - Lecture 9: Income Statement, Cost Accounting

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orangeminnow841
7 Dec 2020
School
ACC
Department
Accounting
Course
ACC M118
Professor
Cross

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Document Summary

Firms operating in job-order industries produce a wide-variety of services or products that are quite distinct from each other. Printing, construction, furniture making, medical services, dental services, automobile repair, beautician services. Unit cost computed by dividing total job costs by units produced for that job. Firms producing identical products or services can use a process-costing accounting system. The key feature is that the cost of one unit of a product is identical to the cost of another. Unit cost computed by dividing process costs for the period by the units produced in the period. Job one distinct unit or set of units. Job order costing system where costs are assigned and accumulated by job. Actual cost system only actual costs of direct materials, direct labour and overhead are used to determine unit cost. Normal costing determines unit cost by adding actual direct materials cost, actual driect labour cost and estimated overhead cost to determine unit cost.

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Related Questions

Identify each statement as true or false. If false, indicate howto correct the statement.

1. Process cost systems are used to apply costs to similarproducts that are mass-produced in a continuous fashion.
2. A process cost system is used when each finished unit isindistinguishable from another.
3. Companies that produce soft drinks, motion pictures, andcomputers chips would all use process cost accounting.
4. In a process cost system, costs are tracked by individualjobs.
5. Job order costing and process costing track differentmanufacturing costs elements.
6. Both job order costing and process costing account for directmaterials, direct labor, and manufacturing overhead.
7. Costs flow through the accounts in the same basic way for bothjob order costing and process costing.
8. In a process cost system, only one work in process account isused.
9. In a process cost system, costs are summarized in a job costsheet.
10. In a process cost system, the unit cost is total manufacturingcosts for the period divided by the units produced during theperiod.

Case 3-49

Avid Assemblers uses normal job-order costing to assign costs toproducts. The company assembles and packages 25 different productsaccording to customer specifications. Products are worked on inbatches of 20 to 40 units. Each batch is given a job number. OnOctober 1, the company had the following balances:

Raw materials $9,800
Work in process 65,847
Finished goods 30,640


Work in process consisted of the following jobs:

Job 22 Job 24 Job 25
Direct materials $6,200 $5,190 $4,800
Direct labour 10,500 9,210 9,500
Applied overhead 7,350 6,447 6,650
Total $24,050 $20,847 $20,950
Number of units 20 40 30


Finished goods consisted of Job 23, with the following costs:

Job 23
Direct materials $8,200
Direct labour 13,200
Applied overhead 9,240
Total $30,640
Number of units 50


Shown below are the direct cost data related to jobs started inOctober:

Job 26 Job 27 Job 28 Total
Direct materials $5,180 $5,600 $4,200 $14,980
Direct labour 11,200 9,340 5,910 26,450
Number of units 20 30 20


Other information:

1. Direct materials and direct labour added tobeginning work in process in October were as follows:
Job 22 Job 24 Job 25 Total
Direct materials $1,150 $610 $1,500 $3,260
Direct labour 3,000 4,500 5,500 $13,000
2. Overhead is applied at a predetermined rate basedon the direct labour cost.
3. Actual expenses for October were as follows:
Supervisory salaries $6,000 Supplies (factory) $2,100
Factory rent 5,000 Selling expenses 8,500
Depreciation (machines) 5,000 Property tax and insurance 2,250
Indirect labour 4,000 CPP, EI, and other benefits* 4,200

* 80% of employer contributions and benefits relate to factorypersonnel.
4. Purchases of direct materials (raw materials)during October amounted to $28,500. Indirect materials (supplies)are handled in a separate account.
5. Only Job Nos. 27 and 28 are still in process atclosing on October 31. Finished goods consisted only of Job No. 25at month end.

6.

Avid writes off any under- and over-applied overhead to Cost ofGoods Sold in the month in which it is incurred.

Requirements:

a.Calculate Predetermined overhead rate

b.Calculate Unit cost of job 24 in October

c.Calulate the Oct 31 Balances for the following account:

Raw Materials, Work in Process, Finished Goods

d.What is the cost of goods manufactured?

e. Determine the under- or over- paid in October

Prepare the journal entry to dispose of this amount.

I. The basic parts of a joborder costing system are the:

A. Cost______________ and _________________ procedures.

B. ____________________ documents.

C. Accountsthat a company uses when it incurs costs for direct ____________,direct ________________, and ___________________.

II. Accounting for materialsrequires three types of entries.

A. With the ______________ of materials,debit Materials Inventory and credit Accounts Payable.

B. With the _______________ of directmaterials to ________________, debit Work in Process Inventory andcredit Materials Inventory.

C. With the transfer of__________________ materials to production, debit Overhead andcredit Materials Inventory.

III. Accounting for labor requirestwo types of entries.

A. For payroll costs incurred for_____________ labor, debit Work in Process Inventory and creditPayroll Payable.

B. For payroll costs incurred for_______________ labor, debit Overhead and credit PayrollPayable.

IV. Accounting for other overhead requires twotypes of entries.

A. Other overhead includes plant____________, property _____________, insurance, and_______________.

B. To record _____________ overhead costs,debit Overhead and credit Cash or Accumulated Depreciation.

C. To record _____________ overheadcosts, debit Work in Process Inventory and credit Overhead.

D. The actual (debits) and estimated(credits) overhead costs are ________________ at the end of theperiod to determine the accuracy of overhead costrecognition.

V. To recordthe transfer of ________________ units, debit Finished GoodsInventory and credit Work in Process Inventory.

VI. When a companyuses a perpetual inventory system, two accounting entries are madewhen products are sold.

A. To record the sold product’s________________, debit Accounts Receivable (or Cash) and creditSales.

B. To record the sold product’sassociated ____________, debit Cost of Goods Sold and creditFinished Goods Inventory.

VII. Each job in production has a job order_________________.

A. Hasspace for direct materials, direct labor, and overhead costs.

B. Includesthe job order number, product specifications, customer name, dateof order, projected completion date, and a cost summary.

C. Forincomplete jobs, they make up the _______________ ledger for theWork in Process Inventory account.

D. When ajob is completed, the costs are totaled on the_____________________.

1. Unit cost is computed to_____________ items in inventory.

2. Product ___________Cost = Total Costs for Job ÷ Number of Good Units Produced

VIII. Job order costing systems are also used in______________ organizations.

A. Job ordercost cards track ________________ contracts.

IX. Overhead costs are allocated in foursteps.

A. Step 1: _____________ the overheadrate.

1. A ________________ overheadrate is calculated as estimated overhead costs divided by estimatedcost driver activity.

B. Step 2:______________ the overhead rate.

1. Costs are assigned by multiplyingthe actual cost _____________ activity by the predeterminedoverhead rate.

C. Step 3:Record ________________ overhead costs

D. Step 4:_________________ applied and actual overhead amounts

1. Ifover- or underapplied amounts are minimal, credit or debit_________________.

2. Ifover- or underapplied amounts are material, adjustments should bemade to the inventory accounts affected.

X. The__________________ approach to applying overhead costs is to use asingle plantwide rate.

XI. The moreaccurate _____________________ approach to applying overhead costscreates many smaller activity pools and establishes separate ratesfor each pool.