No, one of the component costs, direct labor, would be added twice. The cost of manufacturing includes direct materials, direct labor, and factory overhead. Both prime cost and conversion cost include the cost of direct labor.
Costs for direct materials and direct labor are charged directly to the work in process account, while the factory overhead costs are first accumulated in the factory overhead account and are then transferred to the work.
Cost of goods sold represents the total manufacturing cost of the goods sold during a given accounting period, while the cost of goods manufactured represents the total manufacturing cost of all goods that were finished during the accounting period. Non-factory costs are charged to selling or general administrative expense accounts and do not affect the determination of manufacturing costs. Costs which benefit both factory and non-factory operations must be allocated in some equitable manner.
Job order costing is appropriate when the output of an enterprise consists of custommade or specially ordered goods. Manufacturers such as machine shops and shipbuilders, merchandisers such as computer retailers, and service firms, such as CPAs and architects, all use job order costing.
Manufacturers such as chemical producers and candy makers, merchandisers such as newspapers and agricultural wholesalers, and services such as hospital X-ray departments and airlines all use process costing. An advantage of accumulating costs by departments process costing or by jobs j ob order costing is that the information provided aids management in achieving control of costs. With a process cost system, management can make departmental comparisons of current period costs with prior period costs and can take corrective action as needed.
If costs were accumulated for the factory as a whole, management would have difficulty identifying specific sources of excessive costs and inefficiencies. The information provided by a job order cost system aids management in the determination of selling prices, the profit on each job, and costs applicable to similar jobs produced in future periods. A job cost sheet is a form on which all of the individual costs applicable to a job are recorded.
Since the job cost sheets show detailed costs and gross profit for each job, they are useful to management in bidding on similar jobs in the future.
Standard costs are reasonably attainable costs which are estimated by management in advance of production. Standard costs are then compared with actual costs, and differences called variances are calculated and analyzed. A standard cost system is not a separate cost accounting system but is applied in conjunction with either process costing or job order costing to increase cost control effectiveness. Square footage occupied by each of the areas would be a good cost allocation base to use in allocating the depreciation expense between the factory operations and the selling and administrative function.
This distinction is important because the depreciation allocated to factory operations is a manufacturing expense that becomes part of inventory cost and eventually cost of goods sold, whereas the portion allocated to selling and administrative expense is a period cost that is always expensed in the period incurred. E No, the performance report should not be prepared just once a year. It should be furnished to managers at regular intervals, in this case monthly, on a timely ba- sis.
If it is not provided in a timely fashion, it will not be effective in controlling fu- ture operations. E Merchandise inventory, January Plus purchases Merchandise available for sale Less merchandise inventory, January E Finished goods, July Plus cost of goods manufactured Finished goods available for sale Less finished goods, July Steel used in an overhead door plant b.
Cloth used in a shirt factory Fiberglass used by a sailboat builder Cleaning solvent for the factory floor Wages of a binder employed in a printing plant Insurance on factory machines Rent paid for factory buildings Wages of the Machining Department supervisor Leather used in a shoe factory Wages of a factory janitor Electric power consumed in operating factory machines Depreciation on corporate offices Fuel used in heating a factory Paint used in the manufacture of jet skis ….
Wages of an ironworker in the construction business Electricity used in lighting sales offices E When direct materials and supplies are purchased, the materials account is debited.
When direct materials and supplies are issued to the factory, the materials account is credited, Work in Process is debited for the cost of the direct materials, and the factory overhead account is debited for the cost of indirect materials. When labor costs are distributed, the payroll account is credited, Work in Process is debited for the cost of direct labor, and Factory Overhead is debited for the cost of indirect labor.
As other costs related to manufacturing are recorded, the factory overhead account is charged. The debit to Work in Process for factory overhead is made by allocating overhead expenses to this account. At the same time, the factory overhead account is credited. The total cost of goods completed is recorded by debiting Finished Goods and crediting Work in Process. E Valley View Manufacturing Co. Materials: Inventory, January Total cost of available materials Less inventory, January Cost of materials used Less indirect materials used Cost of direct materials used in production Direct labor Factory overhead: Indirect materials Indirect labor Total manufacturing cost Add work in process inventory, January Finished goods inventory, January Add cost of goods manufactured Goods available for sale Less finished goods inventory, January E Viejas Manufacturing Co.
Direct materials used during the period Add inventory of direct materials at the end of the period. Direct materials available during the period Less inventory of direct materials at the beginning of the period Direct materials purchased during the period Total manufacturing costs incurred during the period Less: Direct materials used Factory overhead incurred Direct labor costs incurred during the period Cost of goods available for sale Less finished goods inventory at the end of the period Cost of goods sold during the period Costs of goods sold Gross profit E Work in Process Direct Materials Factory Overhead Indirect Materials Work in Process Direct Labor Factory Overhead Indirect Labor Other inventory factors that should be given consideration in selecting any method are: the dollar amount of the inventories; the magnitude of the price changes; the direction of the price changes, whether rising or falling; and the length of the inventory cycle.
Also, adopting LIFO in periods of rising prices will result in the minimization of income taxes. In a period of rising prices, the balance sheet inventory under either method will most likely be less than the current market prices. However, as shown by the problem, the lowest figure for ending inventory will be reported when LIFO is used.
Accounts payable Form used: materials requisitions. Ending Inventories: Materials Factory Overhead Inventory Short and Over …. Raw and In-Process…………………………………… Conversion Costs………………………………………. Factory Overhead Inventory Over and Short Factory Overhead Repairs and Maintenance Sales Returns and Allowances Factory Overhead Supplies Spoiled Goods Same as 1a above. Same as 1c above. Alternatively, you may wish to challenge them with Part 5 to see if they can determine the relevant items to this decision without first teaching them the concept.
Selling and Administrative Expense Salaries Selling and Administrative Expense Advertising Selling and Administrative Expense Insurance Prepaid Insurance UltraLift Corp. Total cost of available materials Less inventory, October Cost of materials used Less indirect materials used Cost of materials used in production Direct labor Factory overhead Total manufacturing costs Add work in process inventory, October Less work in process inventory, October Net sales Cost of goods sold: Finished goods inventory, October Add cost of goods manufactured see statement Goods available for sale Less finished goods inventory, October Gross profit on sales Selling and administrative expenses Accounts receivable Inventories: Finished goods Work in process Plant and equipment: Machinery Less accumulated depreciation Office equipment Office furniture Total plant and equipment Total assets Liabilities Current liabilities: Accounts payable Retained earnings, October Net income for October Interruptions in materials supply or strike by their own workers resulting in lost sales.
Difficulty of workers to master JIT processes. Inventory carrying costs such as storage space for raw materials, security, insurance, and spoilage and obsolesence should be reduced by a JIT system. Also, a JIT system can reduce nonvalue-added production activities such as moving materials and work in process, storage of work in process and finished goods, and inspection of work in process. Yes, inventory should not be accounted for using traditional job costing techniques.
Products move through the system so rapidly in a JIT environment that it would not be cost effective to track production costs to them while in process. For example, a Raw and In-Process account may replace the Materials account, and the Work in Process and Finished Goods accounts may disappear in a backflush costing system.
Millions discover their favorite reads on issuu every month. Give your content the digital home it deserves. Get it to any device in seconds. Solutions manual for principles of cost accounting 17th edition by vanderbeck. Clarify relevant ethical issues by confi- ment accounting and for inventory costing in dential discussion with an objective ad- the financial statements financial accounting. With regard to methods for computing the c.
Consult your own attorney as to legal cost of goods sold, the difference between obligations and rights. If the ethical issue still exists after ex- the determination of the cost of goods hausting all levels of internal review, available for sale.
Since the manufacturing there may be no other recourse on sig- business makes the products it has availa- nificant matters than to resign from the ble for sale, the cost of goods manufac- organization.
Corporate governance is the means by which beginning finished goods inventory to de- a company is directed and controlled. Good termine the cost of finished goods available corporate governance is important to all for sale.
Since the merchandiser purchases rather than makes goods to sell, the cost of stakeholders because, due to recent account- purchases is added to beginning merchan- ing scandals, the need for ethical conduct in dise inventory to compute the cost of goods managing corporate affairs has never. The recent accounting scandals where Key elements of the Sarbanes-Oxley Act Materials—this account represents the cost include: certification by the CEO and CFO of materials on hand that will be used in the that the financial statements fairly reflect the manufacturing process.
VanDerbeck, Chapter 01 3 Manufacturers, such as aircraft producers cost but required an inordinate amount of and home builders, make tangible products time to trace directly to the products being by applying labor and technology to raw ma- manufactured. They may have as many as three in- Prime cost is the cost of direct materials and ventory accounts: Finished Goods, Work in direct labor; it represents cost specifically Process, and Raw Materials.
Merchandisers, identified with the product. They have only one inventory convert raw materials into finished goods. Service businesses, such as airlines and sports fran- No, one of the component costs, direct labor, chises, provide intangible benefits such as would be added twice. The cost of manufactur- transportation and entertainment. They have ing includes direct materials, direct labor, and no inventory account.
Both prime cost and conver- A perpetual inventory system involves main- sion cost include the cost of direct labor. Costs for direct materials and direct labor are sues, and new balances of all goods in charged directly to the work in process ac- stock. Under a periodic inventory system no count, while the factory overhead costs are attempt is made to record the cost of mer- chandise sold at the time of sale.
At the end first accumulated in the factory overhead ac- of the accounting period a physical inventory count and are then transferred to the work. Cost of goods sold represents the total cost of goods sold and the ending inventory. The basic elements of production cost are: a given accounting period, while the cost of a. Direct materials. Direct labor. Factory overhead. Direct materials—the cost of those materi- Non-factory costs are charged to selling or als which become part of the item being general administrative expense accounts manufactured and can be readily identified and do not affect the determination of manu- with it.
Costs which benefit both Indirect materials—the cost of those items factory and non-factory operations must be which are necessary for the manufacturing allocated in some equitable manner. Job order costing is appropriate when the tured. Manufac- employees who are required for the manu- turers such as machine shops and ship- facturing process but who do not work di- builders, merchandisers such as computer rectly on the item being manufactured. Manufacturers such as As manufacturing processes have become increasingly automated, direct labor cost as chemical producers and candy makers, mer- a percentage of total product cost has de- chandisers such as newspapers and agricul- creased for many companies.
An advantage of accumulating costs by de- Standard costs are reasonably attainable partments process costing or by jobs j ob costs which are estimated by management order costing is that the information provid- in advance of production. Standard costs ed aids management in achieving control of are then compared with actual costs, and costs.
With a process cost system, man- differences called variances are calculated agement can make departmental compari- and analyzed.
A standard cost system is not sons of current period costs with prior period a separate cost accounting system but is costs and can take corrective action as applied in conjunction with either process needed. If costs were accumulated for the costing or job order costing to increase cost factory as a whole, management would have control effectiveness. Square footage occupied by each of the ar- cessive costs and inefficiencies.
The infor- eas would be a good cost allocation base to mation provided by a job order cost system use in allocating the depreciation expense aids management in the determination of between the factory operations and the sell- selling prices, the profit on each job, and ing and administrative function.
This distinc- costs applicable to similar jobs produced in tion is important because the depreciation future periods. A job cost sheet is a form on which all of the turing expense that becomes part of invento- individual costs applicable to a job are rec- ry cost and eventually cost of goods sold, orded.
Since the job cost sheets show de- whereas the portion allocated to selling and tailed costs and gross profit for each job, administrative expense is a period cost that they are useful to management in bidding on is always expensed in the period incurred.
E No, the performance report should not be prepared just once a year. It should be furnished to managers at regular intervals, in this case monthly, on a timely ba- sis.
If it is not provided in a timely fashion, it will not be effective in controlling fu- ture operations. E Merchandise inventory, January Items Materials Labor Overhead Expense a. Cloth used in a shirt factory Fiberglass used by a sailboat builder Cleaning solvent for the factory floor Wages of a binder employed in a printing plant Insurance on factory machines
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