MGT 5 Lecture 2: Job Order Costing

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University of California - San Diego
Rady School of Management
Wade Lindenberger

Announcements ● Make sure your iClicker is registered, questions start tonight ○ Frequency: DC (hold power for 2 sec, then press letters) ○ Will be at the beginning and end of class; same question for both iClicker ● First quiz next class; chapter 1 and 2, key concepts will be posted on TEd ○ Work through pre-class problems and supplement problems until everything becomes more natural ○ Pieces of the flow chart for cost of goods manufactured ● First hw assignment will be due next week ● Groups will be formed tonight for consulting project Review of Chapter 1 ● Visual flow of COG Manufacturing and COGS (see spreadsheet posted on TEd) ● Three main inventories: raw material, WIP, and finished goods ● Income statement: sales - COGS ○ Beginning Inv + COG Purchased - Ending Inv = COGS Toronto Film Festival Video ● Job Cost ○ Cost to each job; ie. each movie produced ○ Used for custom orders ● Process Cost ○ Recording information is time-consuming ○ Used for manufacturing orders ● Cost accounting are make films cost efficient Chapter 2: Job Order Costing Learning Objectives 1. Describe cost systems and the flow of costs in a job order system. 2. Use a job cost sheet to assign costs to work in progress. a. Debits made to WIP Inv b. Credits made to RM Inv, Factory Labor, and Manufacturing Overhead 3. Demonstrate how to determine and use the predetermined overhead rate. 4. Prepare entries for manufacturing and service jobs completed and sold. 5. Distinguished between under and overapplied manufacturing overhead. Cost Accounting ● Measuring, recording, and reporting product costs ● Accounts are fully integrated into the general ledger ● Two types: Job and Process Process Cost System ● Used when a large volume of similar products are manufactured (cereal, refining of petroleum, production of ice cream, etc) ● Costs are accumulated for a time period (week, months, quarters) ● Example: Potato chips ○ Harvest -> Clean -> Slice -> Fry -> Bag; Similar products are produced over a specific time period, each have a cost Job Order Cost System ● Costs are assigned to each job or batch ● Important feature -- each job or batch has its own distinguishing characteristics ● Objective is to compute the cost per job ● Measures costs for each job completed--not for set time period ● Example: Films ○ Animated Film: computer programmers, musical composers, etc. Job Order Cost Flow ● Flow of cost parallels the physical flow of the materials as they are converted into finished goods ● See slides for visuals Accumulating Manufacturing Costs ● Raw Materials Cost ○ Example on slide ● Factory Labor Cost ○ Gross earnings of factory workers ○ Employer payroll taxes on these earnings ○ Fringe benefits (sick pay, pensions, vacation pay) incurred by the employer ● Manufacturing Overhead Costs ○ Many types (ie. property taxes, depreciations, insurance, and repairs related to the manufacturing process) ○ Cost unrelated to manufacturing process are expensed ○ Costs related to manufacturing process are accumulated in Manufacturing Overhead account
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