Lesson FA-20-020-01a Job Cost Accounting System Part 1a This workbook contains notes and worksheets to accompany the corresponding video lesson available online at: Permission is granted for educators and students to make copies and redistribute this document without fee provided the copyright notice and page footer is retained. All other intellectual property rights are reserved by the copyright holder. Copyright 2011 by Rocky Spears Enterprises LLC, All Rights Reserved Page 1 of 19
Job Cost Accounting System Part 1a [Clip 01] Definitions of Job Cost and Process Cost Systems Pre-Requisites This video covers topics usually found in a second accounting course. Before watching this video, you should understand the basic financial accounting concepts in a typical first accounting course. In addition, you should understand concepts covered in video lesson FA-20-010-xx on Managerial Cost Accounting Concepts. Objectives In part 1 of this lesson, we will 1. Learn to distinguish between job cost and process cost accounting systems. 2. Learn the flow of costs in a job cost accounting system, including proper journal entries for various situations 3. Learn about work-in-process inventory and job cost sheets. 4. Learn how to establish a predetermined overhead rate. 5. Learn how to determine applied overhead. 6. Learn how to reporting under/over applied overhead for interim periods such as monthly as well as at year end In part 2, we will 7. Complete a comprehensive problem illustrating the flow of costs in a job cost system Copyright 2011 by Rocky Spears Enterprises LLC, All Rights Reserved Page 2 of 19
Two Types of Cost Accounting Systems: Job Cost manufacturing costs are assigned to specific jobs or batches and traced through to finished goods inventory and cost of goods sold Used when manufactured products or batches have unique characteristics Objective is to compute the cost per job and trace this cost through to finished goods and to cost of goods sold Process Cost manufacturing costs are assigned to processes for a period of time and traced through to finished goods inventory and cost of goods sold Used when manufactured products are produced continuously in high volume and have similar characteristics Objective is to compute total costs at the end of the accounting period Copyright 2011 by Rocky Spears Enterprises LLC, All Rights Reserved Page 3 of 19
[Clip 02] Job Cost Flow Copyright 2011 by Rocky Spears Enterprises LLC, All Rights Reserved Page 4 of 19
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[Clip 03] Work in Process Inventory - Job Cost Sheets Work-in-Process Inventory Work-in-Process is exactly what you think it is jobs, batches, or other work that is partially complete and in the process of being completed. While a job is in process we track costs using a Job Cost Sheet. Each job in a job cost system has its own individual job cost sheet. On this document is recorded materials usage, labor usage, and a fair share of manufacturing overhead applied. Journal entries are written to debit Work-in-Process Inventory for any materials, labor, or overhead recorded on the job cost sheets. The job cost sheets represent a subsidiary ledger of the Work-in-Process Inventory account. The sum total of all costs recorded on job cost sheets for jobs still in process should equal the balance of the Work-in-Process Inventory account. Copyright 2011 by Rocky Spears Enterprises LLC, All Rights Reserved Page 8 of 19
Here is a mockup of a job cost sheet. As you can see a job cost sheet identifies the job number and the quantity to be produced. It may also have a description of the job or other general information about the job. For accounting purposes, the job cost sheet has a place to capture the cost of materials used, labor used, and manufacturing overhead applied as well as the date it was recorded. A job cost sheet may have many entries during the accounting period. When the job is completed, the various entries are summed to obtain a total for direct materials, for direct labor, and for manufacturing overhead applied. These are then totaled to obtain the total cost of the job. A journal entry is then written to transfer the cost of the job from Work-in- Process Inventory to Finished Goods Inventory. Debit Finished Goods Inventory Credit Work-in-Process Inventory Copyright 2011 by Rocky Spears Enterprises LLC, All Rights Reserved Page 9 of 19
The costs of materials used are tracked using a materials requisition form. When materials are removed from raw materials inventory, this form is completed with information about the quantity of materials, the cost of the materials, and the job to which the materials are to be charged. If the materials are for general factory use, then it will be noted as indirect materials rather than destined for a particular job. The materials requisition forms are the source documents for recording the use of direct materials on the job cost sheets. While materials requisition forms are prepared daily and may be posted to the job cost sheets daily or weekly, summary journal entries may be made weekly or monthly, depending on the needs of the organization. Copyright 2011 by Rocky Spears Enterprises LLC, All Rights Reserved Page 10 of 19
The costs of labor used is tracked using a time ticket or time card. Copyright 2011 by Rocky Spears Enterprises LLC, All Rights Reserved Page 11 of 19
Workers record their hours worked and indicate on the time ticket or time card which jobs their hours apply to. The hours worked are multiplied by the hourly rate and a total cost determined. The time tickets or time cards are the source documents for recording the use of direct labor on the job cost worksheets. Employees are typically paid on a weekly or bi-weekly basis. Journal entries are recorded for the payroll with a debit to Factory Labor for the gross wages and benefits. In a manual system, job-cost sheets may be updated with direct labor costs used at the time of the payroll, or shortly thereafter. In the case of electronic time tickets, job-cost sheets may be updated daily with allocated direct labor costs. Summary journal entries for the allocation of factory labor to work-in-process and/or manufacturing overhead may be made weekly or monthly, depending on the needs of the organization. Copyright 2011 by Rocky Spears Enterprises LLC, All Rights Reserved Page 12 of 19
The timing of entries to job cost sheets for applied manufacturing overhead will also differ among organizations depending on their needs. In the next clip, we discuss the process of determining applied overhead. Applied overhead is recorded on job cost sheets when needed, but probably at least monthly. If direct labor cost or direct labor hours is the basis for allocating overhead, then overhead will probably be recorded on the job cost sheets at the same time that direct labor is recorded. In any case, manufacturing overhead is likely to be applied to job cost sheets and journal entries writing to debit Work-In-Process at least monthly. Copyright 2011 by Rocky Spears Enterprises LLC, All Rights Reserved Page 13 of 19
[Clip 04] Work-in-Process Inventory - Job Cost Concepts - Example #1 Example #1. The shift supervisors of Lancier Manufacturing recorded the following on materials requisition forms and time cards. For job #1001, $3,000 in direct materials withdrawn on 8/1/x0 For job #1002, $2,000 in direct materials withdrawn on 8/1/x0 For general factory use, $1,500 in materials withdrawn on 8/1/x0 For job #1001, 30 hours at $12/hour on 8/7/x0 For job #1002, 45 hours at $12/hour on 8/7/x0 For job #1001, $810 in applied overhead on 8/7/x0 For job #1002, $1,215 in applied overhead on 8/7/x0 Required: Assuming these were the only two jobs in work in process inventory on 8/7 and these were the only entries to job cost sheets for the two jobs: 1. Record these entries on job cost sheets for Jobs 1001 and 1002. 2. What is the cost of job #1001 on 8/7/x0? 3. What is the cost of job #1002 on 8/7/x0? (see Appendix 1 for the Solution) (see Appendix 2 for Job Cost Sheet) Copyright 2011 by Rocky Spears Enterprises LLC, All Rights Reserved Page 14 of 19
[Clip 05] Work-in-Process Inventory - Job Cost Concepts - Example #2 Work-in-Process Inventory (continued) Example #2. Continuing Example #1 for Lancier Manufacturing, 1. Write a summary journal entry to post the entries made to the job cost sheets in Example #1 to the general ledger. 2. What is the balance of Work-In-Process Inventory after the journal entry is posted to the general ledger? 3. What is the sum of the costs of Jobs #1001 and #1002? General Journal Date Description Debit Credit (see Appendix 1 for the Solution) Copyright 2011 by Rocky Spears Enterprises LLC, All Rights Reserved Page 15 of 19
APPENDIX 1 SOLUTIONS Job Cost Accounting System Part 1a [Clip 04] Work-in-Process Inventory - Job Cost Concepts - Example #1 SOLUTION: Copyright 2011 by Rocky Spears Enterprises LLC, All Rights Reserved Page 16 of 19
[Clip 05] Work-in-Process Inventory - Job Cost Concepts - Example #2 SOLUTION: Copyright 2011 by Rocky Spears Enterprises LLC, All Rights Reserved Page 17 of 19
APPENDIX 2 WORKSHEETS Copyright 2011 by Rocky Spears Enterprises LLC, All Rights Reserved Page 18 of 19
General Journal Date Description Debit Credit Copyright 2011 by Rocky Spears Enterprises LLC, All Rights Reserved Page 19 of 19