cost sheet

Manufacturing Companies

There are 3 major categories of manufacturing costs:

There are 3 major categories of manufacturing costs:

Direct MaterialsRaw material,

parts, and components that can be observed

being used to make a specific product.

Direct MaterialsRaw material,

parts, and components that can be observed

being used to make a specific product.

Direct LaborThe cost of

paying employees who convert direct materials into

finished product.

Direct LaborThe cost of

paying employees who convert direct materials into

finished product.

Manufacturing Overhead


Indirect materialIndirect material

Indirect laborIndirect labor

Other overheadOther overhead


Prime Costs include:Prime Costs include:

Direct MaterialsDirect Materials Direct LaborDirect Labor Manufacturing Overhead



Conversion Costs include:Conversion Costs include:

Direct MaterialsDirect Materials Direct LaborDirect Labor Manufacturing Overhead


Nonmanufacturing Costs are all the costs not used to produce products.

Nonmanufacturing Costs are all the costs not used to produce products.

Stages of Production and the Flow of Costs

Raw MaterialsBeg. Inventory

Add: Purchases= Raw Materials

Available for Production

Less: Raw Materials Transferred to Production

= Ending Inventory

Work-In-ProcessBeg. WIP Inventory

Add: Raw Materials Transferred InDirect LaborManufacturing Overhead

= Total Manufacturing Costs Incurred

Less: Cost of Goods Completed and Transferred to Finished Goods

= Ending WIP Inventory

Finished GoodsBeg. Inventory

Add: Cost of Goods Completed and Transferred from WIP

= Goods Available for Sale

Less: Cost of Goods Sold= Ending Inventory

Stages of Production and the Flow of Costs - Example

Raw MaterialsBeg. Inventory

Add: Purchases= Raw Materials

Available for Production

Less: Raw Materials Transferred to Production

= Ending Inventory

What is Ending Inventory in February?

What is Ending Inventory in February?

Axel Electronics makes toasters. On February 1, Axel has $15,000 of raw material on hand. Axel’s purchase

and transfers to the production floor are indicated below.



DateCost of

PurchasesCost of

Transfers

3-Feb $8,000 $5,000 10-Feb $12,000 $11,000 15-Feb $14,000 $7,000 20-Feb $6,000 22-Feb $9,000 27-Feb $16,000





DateCost of

PurchasesCost of

Transfers

3-Feb $8,000 $5,000 10-Feb $12,000 $11,000 15-Feb $14,000 $7,000 20-Feb $6,000 22-Feb $9,000 27-Feb $16,000


Now let’s look at Work-in-Process.

Now let’s look at Work-in-Process.

Raw Materials$15,000

Add: 43,000= $58,000

Less: 45,000= $13,000


What is the amount of cost transferred to

Finished Goods in February?

What is the amount of cost transferred to

Finished Goods in February?

Work-In-ProcessBeg. WIP Inventory

Add: Raw Materials Transferred InDirect LaborManufacturing Overhead

= Total Manufacturing Costs Incurred

Less: Cost of Goods Completed and Transferred to Finished Goods

= Ending WIP Inventory


Add: 43,000= $58,000

Less: 45,000= $13,000

On February 1, Axel had WIP of $30,000 on the factory floor.

During February, Axel paid $92,000 in direct labor wages. Overhead is applied

at 150% of direct labor. On 2/28,

$22,000 is still in WIP.






Work-In-Process$30,000

Add: 45,00092,000

138,000= $305,000

Less: 283,000= $22,000










Add: 43,000= $58,000

Less: 45,000= $13,000

Now let’s look at

Finished Goods.

Now let’s look at

Finished Goods.

Transferred to Finished

Goods



Add: 45,00092,000

138,000= $305,000

Less: 283,000= $22,000

On February 1, Axel had Finished Goods of $125,000 on hand. At the end of February, a physical inventory count revealed

$96,000 in Finished Goods still on hand.

What was Cost of Goods Sold for February?





Add: 43,000= $58,000

Less: 45,000= $13,000

Finished GoodsBeg. Inventory

Add: Cost of Goods Completed and Transferred from WIP

= Goods Available for Sale

Less: Cost of Goods Sold= Ending Inventory



Add: 45,00092,000

138,000= $305,000

Less: 283,000= $22,000








Add: 43,000= $58,000

Less: 45,000= $13,000

Finished Goods$125,000

Add: 283,000= $408,000

Less: 312,000= $96,000

ProcessCosting

Job OrderCosting

Used for production of large, unique, high-cost items.

Built to order rather than mass produced.

Many costs can be directly traced to each job.

Basic Cost Accounting Procedures

Typical job order cost applications: Special-order printing Building construction

Also used in service industry Hospitals Law firms


ProcessCosting

Job OrderCosting

Used for production of small, identical, low-cost items.

Mass produced in automated continuous production process.

Costs cannot be directly traced to each unit of product.


ProcessCosting

Job OrderCosting

Typical process cost applications: Petrochemical refinery Paint manufacturer Paper mill


ProcessCosting

Job OrderCosting

THE JOB

Directmaterials

Direct labor

Traced directly to each job

Traced directly

to each job

Manufacturingoverhead (OH)

Applied to eachjob using a

predeterminedrate (POHR)

Job Order Costing

The primary document for tracking the costs

associated with a given job is the job cost sheet.

Let’s investigate

Job Order Costing

The Job Cost SheetRoseCo Job Cost Sheet

Job Number A - 143 Date Initiated 3-4-X9Date Completed

Department B3 Units CompletedItem Wooden cargo crate

Direct Materials Direct Labor Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate Amount

Cost Summary Units ShippedDirect Materials Date Number BalanceDirect LaborManufacturing OverheadTotal CostUnit Cost




Direct Materials Direct Labor Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate AmountX7-6890 116$

Cost Summary Units ShippedDirect Materials 116$ Date Number BalanceDirect LaborManufacturing OverheadTotal CostUnit Cost




Direct Materials Direct Labor Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate AmountX7-6890 116$ 36 8 88$

Cost Summary Units ShippedDirect Materials 116$ Date Number BalanceDirect Labor 88$ Manufacturing OverheadTotal CostUnit Cost

Accumulate direct labor

costs by means of a

work record, such as a time ticket, for each

employee.


Job Number A - 143 Date Initiated 3-4-X9Date Completed 3-5-X9

Department B3 Units Completed 2Item Wooden cargo crate

Direct Materials Direct Labor Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate AmountX7-6890 116$ 36 8 88$ 8 4$ 32$

Cost Summary Units ShippedDirect Materials 116$ Date Number BalanceDirect Labor 88$ Manufacturing Overhead 32$ Total Cost 236$ Unit Cost 118$

Apply manufacturing overhead to jobs using a predetermined overhead rate (POHR) based on

direct labor hours (DLH).

Let’s summarize the document flow we have

been discussing in a job order

costing system.

Job Order CostingDocument Flow Summary


Materials Ledger CardsMaterials

Ledger CardsMaterials Ledger CardsMaterialsRequisition

Direct materials

The materials requisition

indicates the cost of direct

materialto charge to

jobsand the cost of

indirect material to charge to overhead.

Indirect materials

Job Cost Sheets

Job Cost Sheets

Job Cost Sheets

Job Cost Sheets

Manufacturing Overhead Account


Employee time tickets indicate

the cost of direct labor

to charge tojobs

and the cost of indirect labor

to charge to overhead.

Job Cost Sheets


Job Cost Sheets

Job Cost Sheets

Job Cost Sheets

Direct Labor

Indirect Labor

Employee Time TicketEmployee Time

TicketEmployee Time TicketEmployee Time

Ticket


EmployeeTime Ticket

MaterialsRequisition

OtherActual OHCharges

IndirectMaterial

IndirectLabor

OverheadApplied

withPOHR


Job Cost Sheets


Let’s examine the cost flows in a

job order costing system. We will use T-accounts and start with

materials.

Flow of Costs in Job CostingFlow of Costs in Job CostingFlow of Cost in Job Costing

• MaterialPurchases

• Direct

Material

• Direct Material

Mfg. Overhead• Indirect Material

Work in Process(Job Cost Sheet)

• Indirect Material

Materials Inventory

Flow of Costs in Job CostingFlow of Costs in Job Costing

Next let’s add labor costs and

applied manufacturing overhead to the job order cost flows. Are you

with me?


• Direct Labor

Mfg. Overhead

Work in Process(Job Cost Sheet)

• Indirect Material

• Direct

Material

• OverheadApplied to Work

inProcess

• IndirectLabor

• Direct Labor

• Overhead

Applied

• IndirectLabor

the difference is closed to cost of goods sold.

When Actual Applied factory factoryoverhead overhead

=/

Labor


If Manufacturing Effect of Closing toOverhead is . . . Cost of Goods Sold

UNDERAPPLIED INCREASE(Applied OH is less Cost of Goods Sold

than actual OH)

OVERAPPLIED DECREASE(Applied OH is greater Cost of Goods Sold

than actual OH)

Closing Under- or OverappliedManufacturing Overhead

Closing Under- or OverappliedManufacturing Overhead

Now let’s complete the

goods and sell them. Still with

me?


• Cost ofGoodsMfd.

Finished Goods

• Cost ofGoodsSold

• Cost ofGoodsMfd.

Cost of Goods Sold

• Cost ofGoodsSold

Work in Process(Job Cost Sheet)• Direct

Material• Direct Labor

• Overhead

Applied


cost sheet

Documents