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LEARNING OBJECTIVES

LEARNING OBJECTIVES. When you finish this chapter, you should be able to. LEARNING OBJECTIVES. Distinguish activities of manufacturer from merchandising or service firm. Define, illustrate materials, labor, factory overhead costs. Describe accounting systems used by manufacturing businesses.

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LEARNING OBJECTIVES

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  1. LEARNING OBJECTIVES When you finish this chapter, you should be able to

  2. LEARNING OBJECTIVES • Distinguish activities of manufacturer from merchandising or service firm. • Define, illustrate materials, labor, factory overhead costs. • Describe accounting systems used by manufacturing businesses. • Describe, illustrate job order cost system. Continued

  3. LEARNING OBJECTIVES • Use job order cost information for decision making. • Diagram flow of costs for a service business that uses job order cost system. • Describe just-in-time manufacturing • Describe, illustrate activity-based costing in a service business.

  4. LEARNING OBJECTIVE 1 Distinguish activities of manufacturer from merchandising or service firm.

  5. LO 1 MANUFACTURING FIRM DIFFERENCES • Service firms earn revenue from providing services • Merchandising firms earn revenue from selling merchandise inventory • Manufacturing firms • Earn revenue from manufacturing and selling finished goods • Have 3 inventories: materials, work-in-process, finished goods

  6. LEARNING OBJECTIVE 2 Define, illustrate materials, labor, factory overhead costs.

  7. LO 2 EXHIBIT 1 Goodwell Printing Co. has 2 departments

  8. LO 2 GOODWELL PRESSCosts • Cost is payment or commitment to pay cash for future revenues • Manufacturing costs • Direct materials • Direct labor • Manufacturing overhead

  9. LO 2 What are these manufacturing costs?

  10. LO 2 DIRECT MATERIALS COSTS • Cost of direct materials is cost of raw materials used in the manufacture of a product • Goodwell Printing • Paper • Book covers

  11. LO 2 DIRECT LABOR COSTS • Direct labor is • Labor used to convert materials into product • Goodwell Printing • Wages of employees who operate printing presses

  12. LO 2 FACTORY OVERHEAD COSTS • Factory overhead is costs other than materials, labor incurred in manufacturing process • Machine depreciation • Factory insurance

  13. LEARNING OBJECTIVE 3 Describe accounting systems used by manufacturing businesses.

  14. LO 3 What are 2 manufacturing cost accounting systems?

  15. LO 3 COST ACCOUNTING SYSTEMS • Job order costing • Costs accumulated by job for • Custom products, large variety of products • Levi Strauss • Process costing • Costs accumulated by department, process • Oil refineries

  16. LEARNING OBJECTIVE 4 Describe, illustrate job order cost system.

  17. LO 4 EXHIBIT 2 Illustration of 3 perpetual inventories, ending in cost of goods sold.

  18. LO 4 EXHIBIT 3 Materials accounted & requisitioned for each job.

  19. LO 4 ACCOUNTING FOR MATERIALS Cash Flows Balance Sheet Income Statement Receiving report #196 documents materials purchased.

  20. LO 4 REQUISITIONING MATERIALS Cash Flows Balance Sheet Income Statement Materials requisitioned for conversion.

  21. LO 4 DIRECT LABOR Cash Flows Balance Sheet Income Statement Direct labor cost from time cards of job assigned to work-in-process.

  22. LO 4 FACTORY OVERHEAD:Examples • Examples of factory overhead • Indirect materials • Indirect labor • Factory utilities • Factory depreciation • Factory overhead allocated based on activity driver at predetermined rate • Direct labor, direct materials

  23. LO 4 ACCUMULATING FACTORY OVERHEAD COSTS Cash Flows Balance Sheet Income Statement Factory overhead is accumulation of indirect costs of manufacturing process.

  24. LO 4 PREDETERMINED OVERHEAD RATE Goodwell Printers estimates total factory overhead to be $50,000 and direct labor (activity base) to be 10,000 direct labor hours. Predetermined O/H rate = Est. O/H costs/ Est. activity base Predetermined O/H rate = $50,000/10,000 = $5 per direct labor hour

  25. LO 4 ACCUMULATING FACTORY OVERHEAD COSTS Cash Flows Balance Sheet Income Statement Factory overhead assigned to work-in-process inventory based on 850 direct labor hours.

  26. LO 4 DISPOSING OF EXCESS OVERHEAD COSTS Cash Flows Balance Sheet Income Statement Excess overhead costs charged to cost of goods sold expense. -150 CGS

  27. LO 4 JOB #71 Costs to complete Job #71

  28. LO 4 ACCOUNTING FOR JOB #71 Cash Flows Balance Sheet Income Statement Completed job transferred from WIP to finished goods.

  29. LO 4 EXHIBIT 6 Job costs transferred to WIP control sheet

  30. LO 4 EXHIBIT 7 Finished goods ledger account

  31. LO 4 SALE Cash Flows Balance Sheet Income Statement Sale of finished goods costing $20,000 for $28,000. 28,000 Sales -20,000 CGS

  32. LO 4 PERIOD COSTS Period costs are non-manufacturing costs

  33. LEARNING OBJECTIVE 5 Use job order cost information for decision making.

  34. LO 5 BASIS FOR DECISION MAKING • When 2 jobs for the same product have different costs, what is the problem? • Inexperienced labor? • Poor quality materials? • Tools need repair? • Carelessness? • Incorrect instructions?

  35. LO 5 EXHIBIT 10

  36. LEARNING OBJECTIVE 6 Diagram flow of costs for a service business that uses job order cost system.

  37. LO 6 EXHIBIT 11 Job costs in service industry

  38. LEARNING OBJECTIVE 7 Describe just-in-time manufacturing.

  39. LO 7 EXHIBIT 12 Just in time (JIT) reduces costs, requires new approach.

  40. LEARNING OBJECTIVE 8 Describe, illustrate activity-based costing in a service business.

  41. LO 8 EXHIBIT 13 Hopewell Hospital accumulates costs by specific activities.

  42. LO 8 USING ACTIVITY BASED COSTING Assigning costs based on different activities is basis of patient billing. Helps manage costs.

  43. CHAPTER 10 THE END

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