Fifth Edition Fundamental Managerial Accounting Concepts Thomas P

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Fifth Edition Fundamental Managerial Accounting Concepts Thomas P. Bor-Yi Tsay Philip R. Mc. Graw-Hill/Irwin

Fifth Edition Fundamental Managerial Accounting Concepts Thomas P. Bor-Yi Tsay Philip R. Mc. Graw-Hill/Irwin Edmonds Olds 12 -1 Copyright © 2009 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

CHAPTER 12 Job-Order, Process, and Hybrid Cost Systems 12 -2

CHAPTER 12 Job-Order, Process, and Hybrid Cost Systems 12 -2

Learning Objective Distinguish between job-order and process cost systems. LO 1 12 -3

Learning Objective Distinguish between job-order and process cost systems. LO 1 12 -3

Cost Systems and Type of Product Job-Order Cost System Process Cost System Job-order cost

Cost Systems and Type of Product Job-Order Cost System Process Cost System Job-order cost systems may be used by: 1. Walt Disney Production to determine o Accumulates costs by individual products. the cost of a particular film. o Companies use job-order cost systems whenofthey 2. Rust Engineering to determine the cost an needoffice to know the costs of individual products or building constructed. batches of products. 3. Boeing to determine the cost of an airplane manufactured. 12 -4

Cost Systems and Type of Product Job-Order Cost System Process cost systems may be

Cost Systems and Type of Product Job-Order Cost System Process cost systems may be used by: o Allocates costs evenly to homogeneous 1. Texaco in its oil refining operations. products. 2. Dow Chemical in the manufacture of o Unit product cost is determined by dividing the chemicals. total product cost by the number of units 3. General Mills the in the manufacture of cereal. produced during accounting period. 12 -5

Cost Flows Receive orders from customers Schedule work Begin production Order materials 12 -6

Cost Flows Receive orders from customers Schedule work Begin production Order materials 12 -6

Job-Order Cost Flow Product costs Work in process inventory Boat 104 Materials Labor &

Job-Order Cost Flow Product costs Work in process inventory Boat 104 Materials Labor & OH Materials Labor Overhead Income statement Boat 101 Materials Labor & OH Boat 103 Materials Labor & OH Boat 105 Materials Labor & OH Finished goods inventory Boat 102 Materials Labor & OH Cost of goods available for sale kept separately for all boats Cost of goods sold 12 -7

Process Cost Flow Product costs WIP mixing Materials Labor Overhead WIP packing Transferredin costs

Process Cost Flow Product costs WIP mixing Materials Labor Overhead WIP packing Transferredin costs Materials Labor Overhead Finished goods inventory Income statement Cost of goods available for sale Cost of goods sold 12 -8

Hybrid Accounting Systems A hybrid accounting system uses some features from both job-order and

Hybrid Accounting Systems A hybrid accounting system uses some features from both job-order and process cost systems. Hybrid systems are commonly used in the manufacture of personal computers. Many models are mass produced and sold as a package. Other systems are custom built to the specifications of the customer. Custom built systems normally sell at a premium compared to standard systems. 12 -9

Learning Objective Identify documentation used in a job-order cost system. LO 2 12 -10

Learning Objective Identify documentation used in a job-order cost system. LO 2 12 -10

Documentation in a Job-Order Cost System The primary document for tracking the costs associated

Documentation in a Job-Order Cost System The primary document for tracking the costs associated with a given job is the job cost sheet 12 -11

Documentation in a Job-Order Cost System 12 -12

Documentation in a Job-Order Cost System 12 -12

Documentation in a Job-Order Cost System John Smyth 12 -13

Documentation in a Job-Order Cost System John Smyth 12 -13

Documentation in a Job-Order Cost System 12 -14

Documentation in a Job-Order Cost System 12 -14

Documentation in a Job-Order Cost System 1, 400 × $3. 90 = $5, 460

Documentation in a Job-Order Cost System 1, 400 × $3. 90 = $5, 460 12 -15

Learning Objective Explain how events in a job-order cost system affect financial statements. LO

Learning Objective Explain how events in a job-order cost system affect financial statements. LO 3 12 -16

Job-Order Cost System Illustrated Benchmore started the month of January, 2009, with the following

Job-Order Cost System Illustrated Benchmore started the month of January, 2009, with the following account balances. 12 -17

Job-Order Cost System Illustrated Event 1 Benchmore Boat Company paid $14, 000 cash to

Job-Order Cost System Illustrated Event 1 Benchmore Boat Company paid $14, 000 cash to purchase raw materials. 12 -18

Job-Order Cost System Illustrated Event 2 Benchmore used $17, 000 of raw materials in

Job-Order Cost System Illustrated Event 2 Benchmore used $17, 000 of raw materials in the process of making boats. 12 -19

Job-Order Cost System Illustrated Event 3 Benchmore paid $1, 200 cash to purchase production

Job-Order Cost System Illustrated Event 3 Benchmore paid $1, 200 cash to purchase production supplies. 12 -20

Job-Order Cost System Illustrated Event 4 Benchmore paid $8, 000 cash to production employees

Job-Order Cost System Illustrated Event 4 Benchmore paid $8, 000 cash to production employees who worked on Boat 103. 12 -21

Job-Order Cost System Illustrated Event 5 Benchmore applied estimated manufacturing overhead costs of $6,

Job-Order Cost System Illustrated Event 5 Benchmore applied estimated manufacturing overhead costs of $6, 240 to the Boat 103 job. Total estimated Predetermined Total estimated ÷ = overhead costs direct labor hours overhead rate $15, 990 ÷ 4, 100 = $3. 90 per direct labor hour 12 -22

Job-Order Cost System Illustrated Event 6 Benchmore transferred $36, 240 of product costs for

Job-Order Cost System Illustrated Event 6 Benchmore transferred $36, 240 of product costs for completed Boat 103 from work in process inventory to finished goods inventory. 12 -23

Job-Order Cost System Illustrated Event 7 Benchmore paid $24, 500 cash for selling and

Job-Order Cost System Illustrated Event 7 Benchmore paid $24, 500 cash for selling and administrative expenses. 12 -24

Job-Order Cost System Illustrated Event 8 Benchmore paid $12, 000 cash to production employees

Job-Order Cost System Illustrated Event 8 Benchmore paid $12, 000 cash to production employees for work on Boats 104 and 105. 12 -25

Job-Order Cost System Illustrated Event 9 Benchmore applied estimated manufacturing overhead costs to boats

Job-Order Cost System Illustrated Event 9 Benchmore applied estimated manufacturing overhead costs to boats 104 and 105. 12 -26

Job-Order Cost System Illustrated Event 10 Benchmore paid $10, 100 cash for utilities and

Job-Order Cost System Illustrated Event 10 Benchmore paid $10, 100 cash for utilities and other indirect production costs. 12 -27

Job-Order Cost System Illustrated Event 11 Benchmore recognized $4, 000 of actual manufacturing equipment

Job-Order Cost System Illustrated Event 11 Benchmore recognized $4, 000 of actual manufacturing equipment depreciation. 12 -28

Job-Order Cost System Illustrated Event 12 Benchmore counted the supplies on hand at yearend

Job-Order Cost System Illustrated Event 12 Benchmore counted the supplies on hand at yearend and recognized actual overhead cost for the supplies used. 12 -29

Job-Order Cost System Illustrated Event 13 Benchmore sold Boat 101 for $91, 000 cash.

Job-Order Cost System Illustrated Event 13 Benchmore sold Boat 101 for $91, 000 cash. 12 -30

Job-Order Cost System Illustrated Event 14 Benchmore recognized cost of goods sold for Boat

Job-Order Cost System Illustrated Event 14 Benchmore recognized cost of goods sold for Boat 101. 12 -31

Job-Order Cost System Illustrated Event 15 Benchmore closed the Manufacturing Overhead account, reducing cost

Job-Order Cost System Illustrated Event 15 Benchmore closed the Manufacturing Overhead account, reducing cost of goods sold by $400. 12 -32

Job-Order Cost System Illustrated 12 -33

Job-Order Cost System Illustrated 12 -33

Learning Objective Explain how events in a process cost system affect financial statements. LO

Learning Objective Explain how events in a process cost system affect financial statements. LO 4 12 -34

Process Cost System Illustrated Janis Juice Company uses three distinct processes to produce cans

Process Cost System Illustrated Janis Juice Company uses three distinct processes to produce cans of apple juice. Raw materials (whole apples) enter the Extraction Department where juice concentrate is extracted from whole fruit. The juice extract passes to the Mixing Department where Janis adds water, sugar, food coloring, and preservatives. The juice mixture then moves to the Packaging Department where it is canned and boxed for shipment. 12 -35

Process Cost System Illustrated The company’s trial balance as of January 1, 2009, is

Process Cost System Illustrated The company’s trial balance as of January 1, 2009, is shown below: 12 -36

Process Cost System Illustrated Event 1 Janis paid $84, 000 cash to purchase raw

Process Cost System Illustrated Event 1 Janis paid $84, 000 cash to purchase raw materials. 12 -37

Process Cost System Illustrated Event 2 Janis processed $26, 720 of whole fruit to

Process Cost System Illustrated Event 2 Janis processed $26, 720 of whole fruit to produce juice extract. 12 -38

Process Cost System Illustrated Event 3 Janis paid $38, 000 cash to production employees

Process Cost System Illustrated Event 3 Janis paid $38, 000 cash to production employees who worked in the Extraction Department. 12 -39

Process Cost System Illustrated Event 4 Janis applied estimated manufacturing overhead costs to the

Process Cost System Illustrated Event 4 Janis applied estimated manufacturing overhead costs to the Extraction Department work in process inventory. Total estimated Predetermined Total estimated ÷ = overhead costs direct labor dollars overhead rate $96, 000 ÷ $120, 000 = $0. 80 per direct labor dollar 12 -40

Learning Objective Calculate equivalent units and prepare a cost of production report. LO 5

Learning Objective Calculate equivalent units and prepare a cost of production report. LO 5 12 -41

Equivalent Units Equivalent units are partially complete and are part of work in process

Equivalent Units Equivalent units are partially complete and are part of work in process inventory. Partially completed products are expressed in terms of a smaller number of fully completed units. 12 -42

Equivalent Units Two half completed products are equivalent to one completed product. + =

Equivalent Units Two half completed products are equivalent to one completed product. + = 1 So, 10, 000 units 60% complete are equivalent to 6, 000 complete units. 12 -43

Equivalent Units A Janis engineer estimated the 85, 000 units in ending work in

Equivalent Units A Janis engineer estimated the 85, 000 units in ending work in process inventory were 40 percent complete. Janis computes the total equivalent units processed in the extraction department as follows: 12 -44

Process Cost System Illustrated Event 5 Janis finished processing some of the whole fruit

Process Cost System Illustrated Event 5 Janis finished processing some of the whole fruit and transferred the related cost from the Extraction Department work in process inventory account to the Mixing Department work in process inventory account. Cost per = equivalent unit Total processing cost Number of equivalent whole units $117, 480 = $0. 22 per equivalent unit 534, 000 12 -45

Process Cost System Illustrated Event 5 Janis used the cost per equivalent unit to

Process Cost System Illustrated Event 5 Janis used the cost per equivalent unit to allocate the total cost incurred in the extraction department between the amount transferred to the mixing department and the amount in the extraction department’s ending work in process inventory as follows: 12 -46

Process Cost System Illustrated The allocation of costs between units transferred and ending inventory

Process Cost System Illustrated The allocation of costs between units transferred and ending inventory can be summarized in a cost of production report. See next slide for Janis’ cost of production report for the Extraction Department 12 -47

Extraction Department Cost of Production Report 12 -48

Extraction Department Cost of Production Report 12 -48

Process Cost System Illustrated Event 6 Janis mixed (used) $24, 400 of additives with

Process Cost System Illustrated Event 6 Janis mixed (used) $24, 400 of additives with the extract transferred from the Extraction Department. 12 -49

Process Cost System Illustrated Event 7 Janis paid $48, 000 cash to production employees

Process Cost System Illustrated Event 7 Janis paid $48, 000 cash to production employees who worked in the Mixing Department. 12 -50

Process Cost System Illustrated Event 8 Janis applied estimated manufacturing overhead costs to the

Process Cost System Illustrated Event 8 Janis applied estimated manufacturing overhead costs to the Mixing Department work in process inventory. $48, 000 × $0. 80 = $38, 400 12 -51

Process Cost System Illustrated Event 9 Janis finished mixing some of the juice extract

Process Cost System Illustrated Event 9 Janis finished mixing some of the juice extract with additives and transferred the related cost from the Mixing Department Work in Process Inventory account to the Packaging Department Work in Process Inventory account. 12 -52

Process Cost System Illustrated Event 10 Janis added containers and other packaging materials costing

Process Cost System Illustrated Event 10 Janis added containers and other packaging materials costing $32, 000 to work in process in the Packaging Department. 12 -53

Process Cost System Illustrated Event 11 Janis paid $43, 000 cash to production employees

Process Cost System Illustrated Event 11 Janis paid $43, 000 cash to production employees who worked in the Packaging Department. 12 -54

Process Cost System Illustrated Event 12 Janis applied estimated manufacturing overhead costs to the

Process Cost System Illustrated Event 12 Janis applied estimated manufacturing overhead costs to the Packaging Department work in process inventory. $43, 000 × $0. 80 = $34, 400 12 -55

Process Cost System Illustrated Event 13 Janis finished packaging some of the juice and

Process Cost System Illustrated Event 13 Janis finished packaging some of the juice and transferred the related cost from the Packaging Department work in process inventory account to the finished goods inventory account. 12 -56

Process Cost System Illustrated Event 14 Janis paid $106, 330 cash for actual overhead

Process Cost System Illustrated Event 14 Janis paid $106, 330 cash for actual overhead costs. 12 -57

Process Cost System Illustrated Event 15 Janis sold 490, 000 cans of juice for

Process Cost System Illustrated Event 15 Janis sold 490, 000 cans of juice for $1 per can. 12 -58

Process Cost System Illustrated Event 16 Janis recognized cost of goods sold for the

Process Cost System Illustrated Event 16 Janis recognized cost of goods sold for the 490, 000 cans of juice sold. 490, 000 × $0. 69 = $338, 100 12 -59

Process Cost System Illustrated Event 17 Janis paid $78, 200 cash for selling and

Process Cost System Illustrated Event 17 Janis paid $78, 200 cash for selling and administrative expenses. 12 -60

Process Cost System Illustrated Event 18 Janis closed the Manufacturing Overhead account and increased

Process Cost System Illustrated Event 18 Janis closed the Manufacturing Overhead account and increased the Cost of Goods Sold account by $3, 130. 12 -61

Process Cost System Illustrated The ending trial balance for Janis Juice Company is shown

Process Cost System Illustrated The ending trial balance for Janis Juice Company is shown below: 12 -62

End of Chapter 12 12 -63

End of Chapter 12 12 -63