Description
he Assignment must be submitted on Blackboard (WORD format only) via allocated folder.Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page.Students must mention question numbers clearly in their answer. Avoid plagiarism, the work should be in your own words, copying without proper referencing will result in ZERO marks. No exceptions.All answers must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism.Submissions without this cover page will NOT be accepted.In solving each question, put the steps for the solution, mentioning the rules in detailsThe answers must be solve correct or it will not ecept APA style reference use only this one
Brewer, P.C., Garrison, R.H. & Noreen, E.W. (2013). Introduction to Managerial Accounting (6th). New York: McGraw-Hill Irwin. ISBN: 9780078025419. Q5 must be solve it correctly make sure or it will not accepted at all The assignment file is attached to you, and the solutions are also attached to you. The solutions must be identical and the same, but the solution method must be in your own way to avoid similarity
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College of Administration and Finance Sciences
Answer Q 1:
Output
Total Fixed Cost
Total Variable Cost
Total Cost
200
20,000
100,000
120,000
300
20,000
150,000
170,000
400
20,000
200,000
220,000
500
20,000
250,000
270,000
600
20,000
300,000
320,000
ANSWER Q 2
1. Job Costing
Job costing is a method for determining how much each project or job costs. Job costing
functions admirably in fields where administrations or merchandise are modified or unique. In job
costing, costs are given to each work, which allows them to take a look at every one of the costs that
accompany that task in more detail (Brewer, 2013). For example, in a development organization,
costs like work, materials, and above that are special to a specific structure work are monitored
independently. For instance, a construction company is constructing two distinct houses. The job
costing strategy would provide each house with its own arrangement of expenses, which would assist
the organization with sorting out which tasks are the most beneficial.
2. ABC Costing
College of Administration and Finance Sciences
Activity based costing is a method for sharing costs that includes sorting out how much assets
various undertakings and cycles really use. Because it takes into account the fact that not all actions
contribute the same amount to the total costs, this method of assigning costs to goods or services is
more accurate. For instance, considering a business that makes various types of items. ABC costing
would take a gander at the particular errands that go into making every item, similar to the time it
takes to set up, run, and really look at the nature of the items (Brewer, 2013). Then, at that point,
costs would be split in light of the amount of every asset every item really utilizes. A more accurate
picture of the cost structure would result from this. The ABC costing strategy is particularly useful
while utilizing customary costing techniques could prompt wrong evaluating decisions since costs
aren’t being distributed accurately.
Answer:
Students’ answer may be different depending upon Explanation. (DON’T COPY THE
ANSWER FROM OTHER STUDENT)
Q.3- Global MNCs manufactures sports items. The material used in for one sports item cost
$ 45. The Global MNCs establish and rents a manufacturing factory for a monthly rent of
$ 475.
(3 Marks)
You are required to.
Prepare a table showing the Total Fixed Cost, Total Variable cost, Total Cost and Average
Fixed Cost, Average Variable Cost, and Average Cost for three different levels of production.
(No. of units at three different levels can be chosen by you).
Every student should choose different level. Do not copy and paste the same unit/number.
Solution. This is just a model SOLUTION. Students’ answer may be different depending upon
their assumption.
College of Administration and Finance Sciences
Answer Q3:
Level
TFC
TVC
TC
AFC
AVC
AC
100 units
$475
$4500
$4975
$4.75
$45
$49.75
200 units
$475
$9000
$9475
$2.375
$45
$47.375
300 units
$475
$13500
$13975
$1.583
$45
$46.583
The levels of production are 100, 200, and 300 units.
Material Cost per Unit: Given as $45.
Total Fixed Cost: Given as $475.
Total Variable Cost: Material Cost per unit * Number of units
Total Cost: Total Fixed Cost + Total Variable Cost
Average Fixed Cost: Total Fixed Cost / Number of units
Average Variable Cost: Total Variable Cost / Number of units
Average Cost: Total Cost / Number of units
Q. 4 -The total cost of production for the last six Months for Noor Bicycles is as follows.
Use the high-low method find out.
1. Variable cost per unit,
2. Fixed cost
3. Total cost, if production in the July will be 5000 units.
(3 Marks)
Month
January
February
March
Units
3,560
3,800
4,000
Total Cost
$242,400
$252,000
$260,000
College of Administration and Finance Sciences
April
May
June
3,600
3,200
3,040
$244,000
$228,000
$221,600
Answer Q4:
Variable Cost per Unit = Change in Total Cost divided by Change in Units
($260,000 − $221,600) / (4000 – 3040)
$38400 / $960= $40
Fixed Cost:
Total Cost = Fixed Cost + (Variable Cost per Unit × Units)
$260,000 = Fixed Cost + ($40 × 4,000)
Fixed Cost = $260,000 − ($40× 4,000) = $260,000 − $160,000 = $100,000
Total Cost at 5,000 units (July):
Total Cost at 5,000 units = Fixed Cost + (Variable Cost per Unit × Units)
Total Cost at 5,000 units = $100,000 + ($40 × 5,000) = $100,000 + $200,000 = $300,000
Q. 5 A few costs and measures of activity are listed below. (5 marks)
Required:
Fill the correct cost in the column mentioned below as per information which indicates whether
the cost is Direct / Indirect /Fixed or Variable with respect to the possible measure of activity
listed below.
Cost Description
Possible measure of
activity / cost object
Fixed or Variable cost /
Direct / or Indirect cost
College of Administration and Finance Sciences
Cost of direct material used to make tables
and chairs in the office
Units produced
Cost of COVID vaccine produced in the KSA
Vaccine production
Cement/ steel /sand/ other material use to
build a house/office
Office or home
Electricity cost for lulu hypermarket for
selling products or production /producer
Selling product to the
people
Deprecation cost for lulu hypermarket on all
kinds of fixed assets or any constructions
A particular location or
hypermarket
Buying a photocopier for the production unit
For the office use
Paying any kind of incentive or commission
for salesperson in MNCs
Paying in SR or $
Paying salary to the driver at home for
working on the monthly basis
Working for whole family
Internet and water bills paid for the
warehouse on the accrual basis
Monthly accrual payment
Driver’s salary paid for the finished goods
Transporting to the market
for the sale
References
Brewer, P.C., Garrison, R.H. & Noreen, E.W. (2013). Introduction to Managerial Accounting (6th).
New York: McGraw-Hill Irwin. ISBN: 9780078025419.
College of Administration and Finance Sciences
Hilton, R. W., & Platt, D. E. (2020). Managerial accounting: creating value in a dynamic business
environment. McGraw-Hill.
College of Administration and Finance Sciences
Assignment (1)
Deadline: 02/03/2024 @ 23:59
Course Name: Managerial Accounting Student’s Name:
Course Code: ACCT322
Student’s ID Number:
Semester: 2nd-23-24
CRN: 23549
Academic Year: 1445 H
For Instructor’s Use only
Instructor’s Name: Dr. Mohammed Arshad Khan
Students’ Grade:
/15
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No exceptions.
• All answers must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism.
• Submissions without this cover page will NOT be accepted.
College of Administration and Finance Sciences
Assignment Question(s):
(Marks 15)
Q.1 Compute and complete the following table as per the value given in the box. (2 Marks)
Output
Total Fixed Cost
Total Variable Cost
Total Cost
200
300
400
150,000
20,000
500
600
Answer:
Output
Total Fixed Cost
Total Variable Cost
Total Cost
Q2. Briefly Explain with example in your words (2 marks)
1. Job Costing
2. ABC Costing
Answer:
Students’ answer may be different depending upon Explanation. (DON’T COPY THE
ANSWER FROM OTHER STUDENT)
College of Administration and Finance Sciences
Q.3- Global MNCs manufactures sports items. The material used in for one sports item cost
$ 45. The Global MNCs establish and rents a manufacturing factory for a monthly rent of
$ 475.
(3 Marks)
You are required to.
Prepare a table showing the Total Fixed Cost, Total Variable cost, Total Cost and Average
Fixed Cost, Average Variable Cost, and Average Cost for three different levels of production.
(No. of units at three different levels can be chosen by you).
Every student should choose different level. Do not copy and paste the same unit/number.
Solution. This is just a model SOLUTION. Students’ answer may be different depending upon
their assumption.
Level
TFC
TVC
TC
AFC
AVC
AC
Q. 4 -The total cost of production for the last six Months for Noor Bicycles is as follows.
Use the high-low method find out.
1. Variable cost per unit,
2. Fixed cost
3. Total cost, if production in the July will be 5000 units.
(3 Marks)
Month
January
February
March
April
May
June
Units
3,560
3,800
4,000
3,600
3,200
3,040
Total Cost
$242,400
$252,000
$260,000
$244,000
$228,000
$221,600
Answer:
Q. 5 A few costs and measures of activity are listed below. (5 marks)
Required:
Fill the correct cost in the column mentioned below as per information which indicates whether
College of Administration and Finance Sciences
the cost is Direct / Indirect /Fixed or Variable with respect to the possible measure of activity
listed below.
Cost Description
Possible measure of
activity / cost object
Cost of direct material used to make tables
and chairs in the office
Units produced
Cost of COVID vaccine produced in the KSA
Vaccine production
Cement/ steel /sand/ other material use to
build a house/office
Office or home
Electricity cost for lulu hypermarket for
selling products or production /producer
Selling product to the
people
Deprecation cost for lulu hypermarket on all
kinds of fixed assets or any constructions
A particular location or
hypermarket
Buying a photocopier for the production unit
For the office use
Paying any kind of incentive or commission
for salesperson in MNCs
Paying in SR or $
Paying salary to the driver at home for
working on the monthly basis
Working for whole family
Internet and water bills paid for the
warehouse on the accrual basis
Monthly accrual payment
Driver’s salary paid for the finished goods
Transporting to the market
for the sale
Fixed or Variable cost /
Direct / or Indirect cost
Managerial Accounting and
Cost Concepts
Chapter 01
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Classifications of Manufacturing
Costs
Direct
Materials
Direct
Labor
Manufacturing
Overhead
The Product
1-2
Direct Materials
Raw materials that become an integral
part of the product and that can be
conveniently traced directly to it.
Example: A radio installed in an automobile
1-3
Direct Labor
Those labor costs that can be easily
traced to individual units of product.
Example: Wages paid to automobile assembly workers
1-4
Manufacturing Overhead
Manufacturing costs that cannot be easily
traced directly to specific units produced.
Examples: Indirect materials and indirect labor
Materials used to support
the production process.
Examples: lubricants and
cleaning supplies used in the
automobile assembly plant.
Wages paid to employees
who are not directly
involved in production
work.
Examples: maintenance
workers, janitors, and
security guards.
1-5
Nonmanufacturing Costs
Selling
Costs
Administrative
Costs
Costs necessary to
secure the order and
deliver the product.
All executive,
organizational, and
clerical costs.
1-6
Product Costs Versus Period Costs
Product costs include
direct materials, direct
labor, and
manufacturing
overhead.
Inventory
Period costs include all
selling costs and
administrative costs.
Cost of Good Sold
Expense
Income
Statement
Income
Statement
Sale
Balance
Sheet
1-7
Classifications of Costs
Manufacturing costs are often
classified as follows:
Direct
Material
Direct
Labor
Prime
Cost
Manufacturing
Overhead
Conversion
Cost
1-8
Cost Classifications for Predicting Cost
Behavior
Cost behavior refers to
how a cost will react to
changes in the level of
activity. The most
common classifications
are:
▫ Variable costs
▫ Fixed costs
▫ Mixed costs
1-9
Variable Cost
Total Texting Bill
Your total texting bill is based on how
many texts you send.
Number of Texts Sent
1-10
Variable Cost Per Unit
Cost Per Text Sent
The cost per text sent is constant at
5 cents per text message.
Number of Texts Sent
1-11
The Activity Base (Cost Driver)
Machinehours
Units
produced
A measure of what
causes the
incurrence of a
variable cost
Miles
driven
Laborhours
1-12
Fixed Cost
Monthly Cell Phone
Contract Fee
Your monthly contract fee for your cell phone is
fixed for the number of monthly minutes in your
contract. The monthly contract fee does not
change based on the number of calls you make.
Number of Minutes Used
Within Monthly Plan
1-13
Fixed Cost Per Unit
Monthly Cell Phone
Contract Fee
Within the monthly contract allotment, the average
fixed cost per cell phone call made decreases as
more calls are made.
Number of Minutes Used
Within Monthly Plan
1-14
Types of Fixed Costs
Committed
Discretionary
Long term, cannot be
significantly reduced in
the short term.
May be altered in the
short term by current
managerial decisions
Examples
Examples
Depreciation on Buildings
and Equipment and Real
Estate Taxes
Advertising and
Research and
Development
1-15
The Linearity Assumption and the
Relevant Range
Total Cost
Economist’s
Curvilinear Cost
Function
Relevant
Range
A straight line
closely
approximates a
curvilinear
variable cost
line within the
relevant range.
Accountant’s Straight-Line
Approximation (constant
unit variable cost)
Activity
1-16
Fixed Costs and the Relevant Range
For example, assume office space is available at
a rental rate of $30,000 per year in increments of
1,000 square feet.
Fixed costs would increase in a
step fashion at a rate of $30,000 for
each additional 1,000 square feet.
1-17
Rent Cost in Thousands
of Dollars
Fixed Costs and the Relevant Range
90
Relevant
60
Range
30
0
0
The relevant range
of activity for a fixed
cost is the range of
activity over which
the graph of the
cost is flat.
1,000
2,000
3,000
Rented Area (Square Feet)
1-18
Cost Classifications for Predicting Cost
Behavior
Behavior of Cost (within the relevant range)
Cost
In Total
Per Unit
Variable
Total variable cost Increase
and decrease in proportion
to changes in the activity level.
Variable cost per unit
remains constant.
Fixed
Total fixed cost is not affected
by changes in the activity
level within the relevant range.
Fixed cost per unit decreases
as the activity level rises and
increases as the activity level falls.
1-19
Mixed Costs
(also called semivariable costs)
A mixed cost contains both variable and fixed
elements. Consider the example of utility cost.
Total Utility Cost
Y
Variable
Cost per KW
X
Activity (Kilowatt Hours)
Fixed Monthly
Utility Charge
1-20
Mixed Costs
The total mixed cost line can be expressed
as an equation: Y = a + bX
Where:
Y
Y
a
Total Utility Cost
b
X
= The total mixed cost.
= The total fixed cost (the
vertical intercept of the line).
= The variable cost per unit of
activity (the slope of the line).
= The level of activity.
Variable
Cost per KW
X
Activity (Kilowatt Hours)
Fixed Monthly
Utility Charge
1-21
Mixed Costs – An Example
If your fixed monthly utility charge is $40, your
variable cost is $0.03 per kilowatt hour, and your
monthly activity level is 2,000 kilowatt hours, what is
the amount of your utility bill?
Y = a + bX
Y = $40 + ($0.03 × 2,000)
Y = $100
1-22
Analysis of Mixed Costs
Account Analysis and the Engineering Approach
In account analysis, each account is
classified as either variable or fixed based
on the analyst’s knowledge of how
the account behaves.
The engineering approach classifies
costs based upon an industrial
engineer’s evaluation of production
methods, and material, labor, and
overhead requirements.
1-23
Scattergraph Plots – An Example
Assume the following hours of maintenance work
and the total maintenance costs for six months.
1-24
The Scattergraph Method
Plot the data points on a graph
(Total Cost Y vs. Activity X).
Scattergraph Method
Y
Total Maintenance Cost
$10,000
$9,500
$9,000
$8,500
$8,000
$7,500
X
$7,000
400
500
600
700
Hours of Maintenance
800
900
1-25
The High-Low Method – An Example
The variable cost
per hour of
maintenance is
equal to the change
in cost divided by
the change in hours.
$2,400
= $6.00/hour
400
1-26
The High-Low Method – An Example
Total Fixed Cost = Total Cost – Total Variable Cost
Total Fixed Cost = $9,800 – ($6/hour × 850 hours)
Total Fixed Cost = $9,800 – $5,100
Total Fixed Cost = $4,700
1-27
The High-Low Method – An Example
The Cost Equation for Maintenance
Y = $4,700 + $6.00X
1-28
Least-Squares Regression Method
A method used to analyze mixed costs if a
scattergraph plot reveals an approximately linear
relationship between the X and Y variables.
This method uses all of the
data points to estimate
the fixed and variable
cost components of a
mixed cost. The goal of this method is
to fit a straight line to the
data that minimizes the
sum of the squared errors.
1-29
Least-Squares Regression Method
Software can be used to fit a regression line
through the data points.
The cost analysis objective is the same:
Y = a + bX
Least-squares regression also provides a statistic,
called the R2, which is a measure of the goodness
of fit of the regression line to the data points.
1-30
Comparing Results From
the Two Methods
The two methods just discussed provide
different estimates of the fixed and variable cost
components of a mixed cost.
This is to be expected because each method
uses differing amounts of the data points to
provide estimates.
Least-squares regression provides the most
accurate estimate because it uses all the data
points.
1-31
The Traditional and Contribution Formats
Used primarily for
external reporting.
Used primarily by
management.
1-32
Uses of the Contribution Format
The contribution income statement format is used
as an internal planning and decision-making tool.
We will use this approach for:
1.Cost-volume-profit analysis (Chapter 5).
2.Budgeting (Chapter 7).
3.Segmented reporting of profit data (Chapter 6).
4.Special decisions such as pricing and make-orbuy analysis (Chapter 10).
1-33
Assigning Costs to Cost Objects
Direct costs
Indirect costs
• Costs that can be
easily and
conveniently traced
to a unit of product
or other cost object.
• Costs that cannot
be easily and
conveniently traced
to a unit of product
or other cost object.
• Examples: direct
material and direct
labor
• Example:
manufacturing
overhead
1-34
Cost Classifications for Decision Making
Every decision involves a choice
between at least two alternatives.
Only those costs and benefits that
differ between alternatives are relevant
in a decision. All other costs and
benefits can and should be ignored as
irrelevant.
1-35
Differential Cost and Revenue
Costs and revenues that differ among alternatives.
Example: You have a job paying $1,500 per month in
your hometown. You have a job offer in a neighboring
city that pays $2,000 per month. The commuting cost
to the city is $300 per month.
Differential revenue is:
$2,000 – $1,500 = $500
Differential cost is:
$300
1-36
Opportunity Cost
The potential benefit that is
given up when one alternative
is selected over another.
Example: If you were
not attending college,
you could be earning
$15,000 per year.
Your opportunity cost
of attending college for
one year is $15,000.
1-37
Sunk Costs
Sunk costs have already been incurred and cannot
be changed now or in the future. These costs
should be ignored when making decisions.
Example: Suppose you had purchased gold for
$400 an ounce, but now it is selling for $250 an
ounce. Should you wait for the gold to reach $400 an
ounce before selling it? You may say, “Yes” even
though the $400 purchase is a sunk cost.
1-38
Summary of the Types of Cost
Classifications
Financial
Reporting
Predicting Cost
Behavior
Assigning Costs
to Cost Objects
Making Business
Decisions
1-39
End of Chapter 01
1-40
Job-Order Costing
Chapter 02
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Job-Order Costing: An Overview
Job-order costing systems are
used when:
1.Many different products are produced each
period.
2.Products are manufactured to order.
3.The unique nature of each order requires
tracing or allocating costs to each job, and
maintaining cost records for each job.
2-2
Job-Order Costing: An Overview
Examples of companies that
would use job-order costing include:
1.Boeing (aircraft manufacturing)
2.Bechtel International (large-scale construction)
3.Walt Disney Studios (movie production)
2-3
Job-Order Costing – An Example
Direct Materials
Job No. 1
Direct Labor
Job No. 2
Job No. 3
Charge
direct
material and
direct labor
costs to
each job as
work is
performed.
2-4
Job-Order Costing – An Example
Direct Materials
Job No. 1
Direct Labor
Manufacturing
Overhead
Job No. 2
Job No. 3
Manufacturing
Overhead,
including
indirect
materials and
indirect labor,
are allocated
to all jobs
rather than
directly traced
to each job.
2-5
The Job Cost Sheet
PearCo Job Cost Sheet
Job Number A – 143
Department B3
Item Wooden cargo crate
Date Initiated 3-4-11
Date Completed
Units Completed
Direct Materials
Direct Labor
Manufacturing Overhead
Req. No. Amount Ticket Hours Amount Hours
Rate
Amount
Cost Summary
Direct Materials
Direct Labor
Manufacturing Overhead
Total Cost
Unit Product Cost
Units Shipped
Date Number Balance
2-6
Measuring Direct Materials Cost
Will E. Delite
2-7
Measuring Direct Materials Cost
2-8
Measuring Direct Labor Costs
2-9
Job-Order Cost Accounting
2-10
Why Use an Allocation Base?
An allocation base, such as direct labor-hours,
direct labor dollars, or machine-hours, is used to
assign manufacturing overhead to individual jobs.
We use an allocation base because:
a.It is impossible or difficult to trace overhead costs to particular
jobs.
b.Manufacturing overhead consists of many different items ranging
from the grease used in machines to the production manager’s
salary.
c.Many types of manufacturing overhead costs are fixed even
though output fluctuates during the period.
2-11
Manufacturing Overhead Application
The predetermined overhead rate (POHR) used to apply
overhead to jobs is determined before the period begins.
POHR =
Estimated total manufacturing
overhead cost for the coming period
Estimated total units in the
allocation base for the coming period
Ideally, the allocation base
is a cost driver that causes
overhead.
2-12
The Need for a POHR
Predetermined overhead rates rely upon
estimated data because…
Actual
overhead for
the period is
not known until
the end of the
period.
Actual
overhead costs
can fluctuate
seasonally,
thus misleading
decision
makers.
2-13
Computing Predetermined Overhead
Rates
The predetermined overhead rate is computed before the period begins
using a four-step process.
1. Estimate the total amount of the allocation base (the denominator)
that will be required for next period’s estimated level of production.
2. Estimate the total fixed manufacturing overhead cost for the coming
period and the variable manufacturing overhead cost per unit of the
allocation base.
3. Use the following equation to estimate the total amount of
manufacturing overhead: Y = a + bX
Where,
Y = The estimated total manufacturing overhead cost
a = The estimated total fixed manufacturing overhead cost
b = The estimated variable manufacturing overhead cost
per unit of the allocation base
X = The estimated total amount of the allocation base.
4. Compute the predetermined overhead rate.
2-14
Overhead Application Rate
PearCo estimates that it will require 160,000 direct labor-hours to meet the
coming period’s estimated production level. In addition, the company
estimates total fixed manufacturing overhead at $200,000, and variable
manufacturing overhead costs of $2.75 per direct labor-hour.
Y = a + bX
Y = $200,000 + ($2.75 per direct labor-hour × 160,000 direct laborhours)
Y = $200,000 + $440,000
Y = $640,000
POHR =
$640,000 estimated total manufacturing overhead
160,000 estimated direct labor-hours (DLH)
POHR = $4.00 per direct labor-hour
2-15
Job-Order Cost Accounting
2-16
Job-Order Cost Accounting
2-17
Job-Order Cost Accounting
2-18
Learning Objectives 4 and 5
Learning Objective 4 is to
understand the flow of costs in
the job-order costing system and
prepare appropriate journal
entries to record costs.
Learning Objective 5 is to use
T-accounts to show the flow of
costs in a job-order costing
system.
2-19
Key Definitions
1. Raw materials include any materials that go
into the final product.
2. Work in process consists of units of production
that are only partially complete and will require
further work before they are ready for sale to
customers.
3. Finished goods consist of completed units of
product that have not been sold to customers.
4. Cost of goods manufactured include the
manufacturing costs associated with the goods
that were finished during the period.
2-20
Flow of Costs: A Conceptual Overview
Costs
Balance Sheet
Inventories
Material Purchases
Raw Materials
Direct Labor
Work in
Process
Manufacturing
Overhead
Selling and
Administrative
Finished
Goods
Period Costs
Income
Statement
Expenses
Cost of
Goods
Sold
Selling and
Administrative
2-21
Job-Order Costing: The Flow of Costs
The transactions
(in T-account and
journal entry form)
that capture the
flow of costs in a
job-order costing
system are
illustrated on the
following slides.
2-22
The Purchase and Issue of Raw
Materials: T-Account Form
Raw Materials
Material ⚫Direct
Purchases Materials
⚫Indirect
Materials
⚫
Work in Process
(Job Cost Sheet)
Direct
Materials
⚫
Mfg. Overhead
Actual Applied
⚫Indirect
Materials
2-23
Cost Flows – Material Purchases
On October 1, Smith Corporation had $5,000 in raw
materials on hand. During the month, the company
purchased $45,000 in raw materials.
(1)
Raw Materials
Accounts Payable
45,000
45,000
2-24
Issue of Direct and Indirect Materials
On October 3, Smith had $43,000 in raw materials
requisitioned from the storeroom for use in production.
These raw materials included $40,000 of direct and $3,000
of indirect materials.
(2)
Work in Process
Manufacturing Overhead
Raw Materials
40,000
3,000
43,000
2-25
Labor Costs
Salaries and
Wages Payable
Direct
Labor
⚫Indirect
Labor
⚫
Work in Process
(Job Cost Sheet)
Direct
Materials
⚫Direct
Labor
⚫
Mfg. Overhead
Actual
⚫Indirect
Materials
⚫Indirect
Labor
Applied
2-26
Labor Costs
During the month the employee time tickets included
$35,000 of direct labor and $12,000 for indirect labor.
(3)
Work in Process
Manufacturing Overhead
Salaries and Wages Payable
35,000
12,000
47,000
2-27
Recording Actual Manufacturing Overhead
Salaries and
Wages Payable
Direct
Labor
⚫Indirect
Labor
⚫
Work in Process
(Job Cost Sheet)
Direct
Materials
⚫Direct
Labor
⚫
Mfg. Overhead
Actual Applied
⚫Indirect
Materials
⚫Indirect
Labor
⚫Other
Overhead
2-28
Recording Actual Manufacturing Overhead
During the month the company incurred the following
actual overhead costs:
1. Utilities (heat, water, and power) $1,700
2. Depreciation of factory equipment $2,900
3. Property taxes payable on factory $1,000
(4)
Manufacturing Overhead
Utilities Payable
Accumulated Depreciation
Property Taxes Payable
5,600
1,700
2,900
1,000
2-29
Applying Manufacturing Overhead
Salaries and
Wages Payable
Direct
Labor
⚫Indirect
Labor
⚫
Mfg. Overhead
Actual Applied
⚫Indirect
Materials ⚫Overhead
⚫Indirect
Applied to
Labor
Work in
⚫Other
Process
Overhead
Work in Process
(Job Cost Sheet)
Direct
Materials
⚫Direct
Labor
⚫Overhead
Applied
⚫
If actual and applied
manufacturing overhead
are not equal, a year-end
adjustment is required.
2-30
Applying Manufacturing Overhead
Smith uses a predetermined overhead rate of $3.50 per
machine-hour. During the month, 5,000 machine-hours
were worked on jobs.
(5)
Work in Process
Manufacturing Overhead
17,500
17,500
(5,000 machine-hours × $3.50 = $17,500)
2-31
Accounting for Nonmanufacturing Cost
Nonmanufacturing costs are not assigned to
individual jobs, rather they are expensed in the
period incurred.
Examples:
1.
Salary expense of employees
who work in a marketing, selling,
or administrative capacity.
2.
Advertising expenses are expensed
in the period incurred.
2-32
Accounting for Nonmanufacturing Cost
During the month, Smith incurred but has not paid sales
salaries of $2,000, and advertising expense of $750.
(6)
Salaries Expense
Advertising Expense
Salaries Payable
Accounts Payable
2,000
750
2,000
750
2-33
Transferring Completed Units
Work in Process
(Job Cost Sheet)
Direct
Materials
⚫Direct
Labor
⚫Overhead
Applied
⚫
Finished Goods
Cost of
Goods
Mfd.
⚫
Cost of
Goods
Mfd.
⚫
2-34
Transferring Completed Units
During the period, Smith completed jobs with a total cost of
$27,000.
(9)
Finished Goods
Work in Process
27,000
27,000
2-35
Transferring Units Sold
Work in Process
(Job Cost Sheet)
Direct
Materials
⚫Direct
Labor
⚫Overhead
Applied
⚫
Finished Goods
Cost of
Goods
Mfd.
⚫
Cost of
Goods
Mfd.
⚫
Cost of
Goods
Sold
⚫
Cost of Goods Sold
Cost of
Goods
Sold
⚫
2-36
Transferring Units Sold
Smith sold the $27,000 in finished goods inventory to
customers for $43,500 on account.
(10)
Accounts Receivable
Sales
43,500
Cost of Goods Sold
Finished Goods
27,000
43,500
27,000
2-37
Schedule of Cost of Goods Manufactured:
Key Concepts
This schedule contains three
types of costs, namely direct
materials, direct labor, and
manufacturing overhead.
It calculates the cost of raw
material and direct labor used in
production and the amount of
manufacturing overhead
applied to production.
It calculates the
manufacturing
costs associated
with goods that
were finished
during the
period.
2-38
Product Cost Flows
Raw Materials
Beginning raw
materials inventory
+ Raw materials
purchased
= Raw materials
available for use
in production
– Ending raw materials
inventory
= Raw materials used
in production
Manufacturing
Costs
Work
In Process
Direct materials
As items are removed from raw
materials inventory and placed into
the production process, they are
called direct materials.
2-39
Product Cost Flows
Raw Materials
Beginning raw
materials inventory
+ Raw materials
purchased
= Raw materials
available for use
in production
– Ending raw materials
inventory
= Raw materials used
in production
Manufacturing
Costs
Work
In Process
Direct materials
+ Direct labor
+ Mfg. overhead applied
= Total manufacturing
costs
Conversion
costs are costs
incurred to
convert the
direct material
into a finished
product.
2-40
Product Cost Flows
Raw Materials
Beginning raw
materials inventory
+ Raw materials
purchased
= Raw materials
available for use
in production
– Ending raw materials
inventory
= Raw materials used
in production
Manufacturing
Costs
Work
In Process
Direct materials
+ Direct labor
+ Mfg. overhead applied
= Total manufacturing
costs
Beginning work in
process inventory
+ Total manufacturing
costs
= Total work in
process for the
period
All manufacturing costs added to
production during the period are
added to the beginning balance of
work in process.
2-41
Product Cost Flows
Raw Materials
Manufacturing
Costs
Beginning raw
Direct materials
materials inventory
+ Direct labor
+ Raw materials
+ Mfg. overhead applied
purchased
= Total manufacturing
= Raw materials
costs
available for use
in production
– Ending raw materials
inventory
= Raw materials used
in production
Costs
associated with the goods that
are completed during the period are
transferred to finished goods
inventory.
Work
In Process
Beginning work in
process inventory
+ Total manufacturing
costs
= Total work in
process for the
period
– Ending work in
process inventory
= Cost of goods
manufactured
2-42
Product Cost Flows
Work
In Process
Beginning work in
process inventory
+ Manufacturing costs
for the period
= Total work in process
for the period
– Ending work in
process inventory
= Cost of goods
manufactured
Finished Goods
Beginning finished
goods inventory
+ Cost of goods
manufactured
= Cost of goods
available for sale
– Ending finished
goods inventory
Cost of goods
sold
2-43
Underapplied and Overapplied
Overhead―A Closer Look
The difference between the overhead cost applied to
Work in Process and the actual overhead costs of a
period is referred to as either underapplied or
overapplied overhead.
Underapplied overhead
exists when the amount of
overhead applied to jobs
during the period using the
predetermined overhead
rate is less than the total
amount of overhead actually
incurred during the period.
Overapplied overhead
exists wh
