ACCY 307 Chapter Notes - Chapter 5: Direct Labor Cost
Class
1
Chapter 5: Job Costing
I. Explain product costs and cost flows through the manufacturing process
a. Product costs= involved in the purchasing or making of a product and are the direct and indirect costs of
producing goods or services
i. These costs are accumulated on B/S as inventory until product is sold
ii. Examples: direct materials, direct labor
b. Period costs= operating costs that are not related to the purchasing or making of a product
i. These costs are expensed as incurred
ii. Examples: selling and administrative expenses (SG&A)
c. Merchandising companies= purchase inventory from suppliers
i. Calculate cost of goods sold as follows:
1. COGS= Beg. merchandise inventory + Purchases – Ending merchandise inventory
ii. Purchases= include the cost of the products themselves plus costs such as freight, duty, taxes that
are incurred in bringing the inventory to the seller’s location
d. Manufacturing companies= produce inventory in-house
i. Calculate cost of goods sold as follows:
1. COGS= Beg. finished goods inventory + COGM – Ending finished goods inventory
ii. Cost of goods manufactured (COGM) includes 3 components:
1. Direct materials used
2. Direct labor
3. Manufacturing overhead
a. Indirect expenses, such as indirect labor and materials, utilities and rent for the
plant, etc.
iii. COGM= Beg. work-in-process inventory + Manufacturing cost – End work-in-process inventory
1. Manufacturing cost= total direct materials used + total direct labor + total manufacturing
OH
2. Direct materials used= Beg. raw materials + Raw materials purchases – End raw
materials
3. Direct labor cost= obtained from company ledger
4. Manufacturing overhead= obtained from company ledger
II. Describe how costs are assigned to customized goods and services
a. Job costing= assigns costs to custom products or services
i. Best used when products can be distinguished from one another
ii. Operations: discrete
iii. Product: fewer units
iv. Units: readily identifiable
v. Cost object: job or batch
vi. # of WIP accounts: one
b. Process costing= allocates both direct and overhead costs to continuous-flow processing lines
i. Best used when similar products are mass produced
ii. Operations: continuous
iii. Product: many units
iv. Units: same or similar
v. Cost object: procession department
vi. # of WIP accounts: same as the # of processing departments
III. Allocate overhead costs to individual jobs
a. Allocating Overhead Costs to Jobs
i. Allocating overhead to individual products is a 2-stage process:
