Learning Objectives
Continuum of Conventional Costing Systems
Job Costing
Job Costing
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•Job costingJob costing
-Manufacturing costs traced to individual jobsManufacturing costs traced to individual jobs
-Products produced are significantly different and Products produced are significantly different and may be produced in distinct jobs/batchesmay be produced in distinct jobs/batches
-Job cost sheet Job cost sheet is a document used in a job costing is a document used in a job costing system to record all the costs incurred on a job. system to record all the costs incurred on a job.
-In addition to job identification details such as job In addition to job identification details such as job number, customer name, etc., it includes number, customer name, etc., it includes particulars of direct material, direct labour and particulars of direct material, direct labour and manufacturing overheads incurred on the job.manufacturing overheads incurred on the job.
Job Cost Sheet
Job Cost Sheet
Journal Entries for Job Costing
Journal Entries for Job Costing
Purchase of materials
Purchase of materials
Raw material inventory
Raw material inventoryxxxxxxxx
Accounts payable
Accounts payablexxxxxxxx
Transferring direct material to jobs
Transferring direct material to jobs
Work in process inventory
Work in process inventoryxxxxxxxx
Raw material inventory
Raw material inventoryxxxxxxxx
Journal Entries for Job Costing (cont.)
Journal Entries for Job Costing (cont.)
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•Use of indirect material in productionUse of indirect material in production
Manufacturing overhead
Manufacturing overheadxxxxxxxx
Manufacturing supplies inventory
Manufacturing supplies inventory xxxxxxxx
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•Charging direct labour to jobsCharging direct labour to jobs
Work in process inventory
Work in process inventoryxxxxxxxx
Wages payable
Wages payablexxxxxxxx
Journal Entries for Job Costing (cont.)
Journal Entries for Job Costing (cont.)
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•Accounting for indirect labourAccounting for indirect labour
Manufacturing overhead
Manufacturing overheadxxxxxxxx
Wages payable
Wages payablexxxxxxxx
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•Accounting for manufacturing costsAccounting for manufacturing costs
Manufacturing overhead
Manufacturing overheadxxxxxxxx
Rent
Rentxxxxxxxx
Depreciation on equipment
Depreciation on equipment xxxxxxxx
Journal Entries for Job Costing (cont.)
Journal Entries for Job Costing (cont.)
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•Application of manufacturing overheadApplication of manufacturing overhead
Work in process inventory
Work in process inventoryxxxxxxxx
Manufacturing overhead
Manufacturing overheadxxxxxxxx
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•Completion of production jobCompletion of production job
Finished goods inventory
Finished goods inventoryxxxxxxxx
Work in process inventory
Work in process inventoryxxxxxxxx
Journal Entries for Job Costing (cont.)
Journal Entries for Job Costing (cont.)
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•Sale of goodsSale of goods
Accounts receivable
Accounts receivablexxxxxxxx
Sales revenue
Sales revenuexxxxxxxx
Cost of goods sold
Cost of goods soldxxxxxxxx
Finished goods inventory
Finished goods inventoryxxxxxxxx
Journal Entries for Job Costing (cont.)
Journal Entries for Job Costing (cont.)
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•Underapplied overheadUnderapplied overhead
Cost of goods sold
Cost of goods soldxxxxxxxx
Manufacturing overhead
Manufacturing overheadxxxxxxxx
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•Overapplied overheadOverapplied overhead
Manufacturing overhead
Manufacturing overheadxxxxxxxx
Cost of goods sold
Cost of goods soldxxxxxxxx
Job Costing
Job Costing
Process Costing
Process Costing
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•Process costingProcess costing
-Production costs traced to process/department Production costs traced to process/department and averaged across all units producedand averaged across all units produced
-Mass production or repetitive activities Mass production or repetitive activities environmentenvironment
-Sequential processesSequential processes
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•Process costing involves two stepsProcess costing involves two steps
1.
1.Estimating the cost of production processesEstimating the cost of production processes
2.
2.Calculating the average cost per unit Calculating the average cost per unit
Process Costing (cont.)
Process Costing (cont.)
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•The approach taken in process costing The approach taken in process costing depends on:depends on:
-The existence of work in process (WIP) inventory at The existence of work in process (WIP) inventory at the end of the accounting periodthe end of the accounting period
-The degree to which products are identical in their The degree to which products are identical in their consumption of direct material and specific consumption of direct material and specific production processesproduction processes
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•More complex forms of More complex forms of process costing process costing involving WIP involving WIP are covered in the are covered in the next topic (Chapter 5)next topic (Chapter 5)
Process Costing
Process Costing
Comparison of Job Costing and Process Costing
Comparison of Job Costing and Process Costing
Summary
Summary
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•Product costs are used for valuing inventory Product costs are used for valuing inventory (external reporting) and also for internal (external reporting) and also for internal decision makingdecision making
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•Overhead costs are allocated to product costs Overhead costs are allocated to product costs using a predetermined overhead rate using a predetermined overhead rate (allocation base)(allocation base)
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•The costing system used is determined by the The costing system used is determined by the attributes of products produced and the attributes of products produced and the production environmentproduction environment
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