Handout#2 Acct.

Front 1

Used to account organization's product costs and to provide timely and accurate unit cost information for pricing, cost planning and control, inventory valuation, and financial statement preparation.

Enables managers to measure and recognize costs throughout the management process.

Provides a measurement and recognition structure for matching the rrecording of the revenues earned from product or service sales to their related cash flows.

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Product Costing System

Hint 1

LO1

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Used by companies that make unique or special-order products, such as custom-tailored suits.

Measures and recognizes the coat of direct materials, direct labor, and over head to a specific batch of product or a specific job order by using JOCC (job order cost cards).

Back 2

Job order costing system

Hint 2

LO1

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Usually an electronic or paper document on which all costs incurred in the production of a particular job order-a completed unit-are recorded and matched with the job's revenues.

Back 3

Job order cost card

Hint 3

LO1

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Used by companies that produce large amounts of similar products or liquid products or that have long, continuous production runs of identical products.

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Process costing system

Hint 4

LO1

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Usually an electronic or paper document prepared every period for each process, department and work cell and is explained fully in the nest chapter.

Back 5

Process cost report

Hint 5

LO1

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Typical product costing system combines parts of job order costing and process costing to create a hybrid system known as an..

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Operations Costing system

Hint 6

LO1

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The purchasing process begins with a request for specific quantities of direct and indirect materials that are needed for a sales or order but are not currently available in the materials storeroom.

Step1: Purchsase of Materials

Step2: Transfer of Direct materials to production

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1)Materials

Hint 7

LO2

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Payroll costs include salaries and wages for direct and indirect production labor as well as non production-related employee.

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2)Labor

Hint 8

LO2

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Indirect materials and indirect labor have been the only costs debited to the overhead account.

Other indirect production costs, such as utilities, property, taxes, insurance, and depreciation.

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3)Overhead

Hint 9

LO2

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When custom job or a batch of general-purpose golf cats is completed and ready for sale, the products are moved from the manufacturing area to rhe finished goods storeroom.

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4)Completed Units

Hint 10

LO2

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When a company uses perpetual inventory system, as Custom does, 2 accounting entries are made when product are sold. 1-sales invoice and records the quantity and selling price of products sold//2-delivery of products to a customer, records the quantity and cost of the product shipped.

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5)Sold Units

Hint 11

LO2

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Has space for direct materials, direct labor, and overhead costs.

It also include: job order #, product specs, customer name, date of order, project completion date, cost summary.

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Manufacturer's job order cost card

Hint 12

LO3

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Computation of Unit Cost

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Product unit cost = Total costs for job / Number of good(salable) units produced

Eg. $3880/2 = $1940

Hint 13

LO3

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Require the customer to pay all cost incurred in performing the job plus a predetermined amount of profit.

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Cost plus contacts

Hint 14

LO3

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Process of assigning a collection of indirect costs, such as overhead, to a specific cost object, such as product or service.

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Cost allocation

Hint 15

LO4

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Might be direct labor hours, direct labor costs, unit produced, pr another activity base that has a cause and effect relationship to the cost.

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Cost driver

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LO4

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The clection of indirect costs assigned to a cost object--to increase in amount.

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Cost pool

Hint 17

LO4

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1. Planning the overhead rate -- before a period beginsPredetermined overhead rate = estimated overhead costs /estimatef cost driver activity

2.Applying the Overhead rate -- unit of product or service are produced during the period

Overhead Applied = predetermined overhead rate x actual cost driver activity

3. Recording actual overhead costs -- recorded as they are incurred during the period

4.Reconciling the applied and actual overhead amounts -- at the end of period, the difference between the applied and actual overhead costs is calculated and reconciled.

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4 steps in process of allocating overhead costs to products or services.

Hint 18

LO4

LO4

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If the overhead applied to production during the period are greater than the actual overhead costs, the difference in the amounts represents OVERAPPLIED OVERHEAD COSTS.

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Overapplied overhead

Hint 19

LO4

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If the overhead applied to production during the period are less than the actual overhead costs, the difference in the amounts represents UNDERAPPLIED OVERHEAD COSTS.

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Underapplied overhead

Hint 20

LO4

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1)Traditional Approach -- to applying overhead costs to a product or service is to use a single plantwide overhead rate. Useful when companies manufacture only one product or a few very similar products, not applied to mass production.

2)Activity-based costing (ABC) -- more accurate method of assigning overhead cost to products or services, applied in mass production.

Back 21

Allocating Overhead (2)

Hint 21

LO4

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Production unit cost information and the management process (PPEC)

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1)Planning

2)Performing

3)Evaluating

4)Communicating

Hint 22

LO5

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Manager's unit cost kowledge help them set reasonable selling prices ang estimate the cost of their products or services.

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Planning

Hint 23

LO5

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Mangers make decisions every day about controlling costs managing yhe company's activity volume, ensuring quality and negotiating prices.

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Performing

Hint 24

LO5

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Watch for changes in cost and quality

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Evaluating

Hint 25

LO5

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Internal and external users analyze the data in the performance evaluation reports to determine wether the business is achieving cost goals. When manager report to stakeholders, they prepare financial statements.

Back 26

Communicating

Hint 26

LO5

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Internal and external users analyze the data in the performance evaluation reports to determine wether the business is achieving cost goals. When manager report to stakeholders, they prepare financial statements.

Back 27

Communicating

Hint 27

LO5