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Chapter 5

Chapter 5

3 Pages
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Department
Accounting
Course Code
ACC 410
Professor
Vanessa Magness

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Chapter 5: Job Costing
Product Costs and Cost Flows
Product Costs: costs involved in either making or purchasing a product (manufacturing,
inventorable costs, direct or indirect costs)
Period Costs: operating costs that are not part of making or purchasing a product, such as sales
and administrative expenses (ex: sales or administrative expenses)
Manufacturing companies may have leftover inventories in the raw materials account, work in
process account, and the finished goods account at the end of the accounting period
Managers need to prepare the cost of goods sold schedule and cost of goods manufactured
schedule as a part of preparing the income statement
What goes into making the product
Direct materials that become part of a product (cost object)
Direct labour that includes the wages paid to the operator or assembly worker
Manufacturing overhead (includes indirect expenses that go into making the product,
such as utilities, machine amortization, plant insurance, maintenance and repair,
indirect materials, indirect labour, etc.
Prime Costs: direct materials and direct labour
Conversion costs: direct labour and manufacturing overhead (these two costs convert materials
into finished goods)
Calculating Cost of Goods Sold for Merchandising Companies
COGS = Beginning merchandise inventory + purchases Ending merchandise inventory
Calculating cost of goods sold for Manufacturing Companies
COGS = Beginning finished goods inventories + Cost of goods manufactured end finished
goods inventory
Product Cost Flows
raw materials purchased for production are first recorded in the raw materials inventory
account
when raw materials are used directly in production, they are moved into the work-in-process
inventory account
when raw materials are used indirectly, they are moved into the manufacturing overhead
control account (expense account)
direct labour goes into work in process inventory account
indirect labour costs are accumulated in the manufacturing overhead control account
Once product is fully completed, products are transferred from work in process to finished
goods account and into the cost of goods sold account when products are sold
Measuring and Monitoring Product Costs
past costs and past cost information are used when producing financial statements and other
reports of an organizations profits, monitor operations, develop estimated costs for bids, make
long term decisions such as whether to introduce a new product
Process Costing: allocates both direct and overhead costs to continuous-flow processing lines; approa
is generally used for mass-produced products
ex: industries that use process costing are food and beverage manufacturers, petroleum
refiners, plastic and metal manufacturers
Job Costing: process of assigning costs to custom products or services (frequently used in service
industry organizations, such as hospitals, accounting firms, and repair shops)
Source documents: manual or electronic records created to capture and provide information about
transactions or events
Job Cost Record: cost and activity information gathered from source documents is used to record cost
in a subsidiary ledger for a new job
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Description
Chapter 5: Job Costing Product Costs and Cost Flows Product Costs: costs involved in either making or purchasing a product (manufacturing, inventorable costs, direct or indirect costs) Period Costs: operating costs that are not part of making or purchasing a product, such as sales and administrative expenses (ex: sales or administrative expenses) Manufacturing companies may have leftover inventories in the raw materials account, work in process account, and the finished goods account at the end of the accounting period Managers need to prepare the cost of goods sold schedule and cost of goods manufactured schedule as a part of preparing the income statement What goes into making the product Direct materials that become part of a product (cost object) Direct labour that includes the wages paid to the operator or assembly worker Manufacturing overhead (includes indirect expenses that go into making the product, such as utilities, machine amortization, plant insurance, maintenance and repair, indirect materials, indirect labour, etc. Prime Costs: direct materials and direct labour Conversion costs: direct labour and manufacturing overhead (these two costs convert materials into finished goods) Calculating Cost of Goods Sold for Merchandising Companies COGS = Beginning merchandise inventory + purchases Ending merchandise inventory Calculating cost of goods sold for Manufacturing Companies COGS = Beginning finished goods inventories + Cost of goods manufactured end finished goods inventory Product Cost Flows raw materials purchased for producti
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