Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
6-1 Chapter 6 Product Costing and the Manufacturing Environment Prepared by Douglas Cloud Pepperdine University 6-2 Objectives 1. Understand the inventory requirements and After studying this the related inventory measurement issues of chapter, you and should service, merchandising, manufacturing organizations. be able to: 2. Explain the basic conceptual framework of inventory costing for financial reporting. 3. Describe the manufacturing environment as it relates to product costing systems. Continued 6-3 Objectives 4. Explain the operation of a basic job costing system. 5. Explain the operation of a basic process costing system. 6-4 These financial reporting concepts include some fundamental techniques and prototype is the approaches that managers Financial can applyreporting to a process and of preparing a variety of manufacturing settings firm’s financial statements specific products. in accordance with GAAP. Financial Accounting 6-5 INVENTORY COSTS IN VARIOUS ORGANIZATIONS Organization Service Merchandising Asset Expense Supplies Inventory Supplies Expense Merchandise Inventory Cost of Goods Sold Supplies Inventory Supplies Expense Continued 6-6 INVENTORY COSTS IN VARIOUS ORGANIZATIONS Organization Asset Raw Materials Inventory Manufacturing Work-in Process Inventory Expense Finished Goods Inventory Cost of Goods Sold Manufacturing Supplies Inventory Office Supplies Inventory Office Supplies Expense 6-7 Product Costs for Financial Reporting Raw materials used Manufacturing supplies used Production employees’ wages Depreciation on plant Expired insurance on plant Production supervisors’ salaries Plant maintenance Plant utilities Production equipment rent Plant office supplies used These costs are assigned to the asset inventory These costs are expensed when inventory is sold 6-8 Period Costs for Financial Reporting Nonfactory office supplies used General and administrative salaries Depreciation on showroom Expired insurance on showroom President’s salary Showroom maintenance Nonfactory office utilities Nonfactory office rent These items are expensed as incurred 6-9 THREE PRODUCT COSTS Factory Overhead Cost of the primary raw materials used in production Direct Labor Wages earned by production employees for the actual time spent working on the product Work-in-Process Inventory Finished Goods Inventory Cost of Goods Sold Factory Overhead All other manufacturing costs 6-10 A Closer Look At Manufacturing Overhead Possibly the biggest challenge in measuring the cost of a product is determining the amount of overhead incurred to produce it. 6-11 Problems Resulting From Measuring Product Cost Using Actual Overhead Actual manufacturing overhead cost may not be known until days or weeks after the end of the period, delaying the calculation of unit product cost. 6-12 Problems Resulting From Measuring Product Cost Using Actual Overhead Also, some costs that are seasonal are not incurred each period, thus making the actual cost of product produced in one month greater than that of another, even though nonseasonal costs may have been identical for both months. 6-13 Problems Resulting From Measuring Product Cost Using Actual Overhead Another point… When there is a significant amount of fixed overhead, the costs assigned to products will vary from period to period, depending on the overall volume of activity. 6-14 Using Predetermined Overhead Rates To overcome these problems, most firms use a predetermined manufacturing overhead rate to assign manufacturing overhead costs to products. 6-15 Using Predetermined Overhead Rates A predetermined overhead rate based on direct labor hours Predetermined manufacturing overhead rate per direct labor hour = Predicted total manufacturing overhead cost for the year Predicted total direct labor hours for the year 6-16 Using Predetermined Overhead Rates Manufacturing overhead assigned to Work-In-Process Inventory = Actual direct labor hours x Predetermined manufacturing overhead rate per direct labor hour 6-17 Using Predetermined Overhead Rates Using a predetermined manufacturing overhead rate based on direct labor hours, we can compute the assignment of overhead to Work-in-Process Inventory. 6-18 Using Predetermined Overhead Rates Late in 2004, Harmon Manufacturing Company predicted a 2005 activity level of 25,000 direct labor hours with manufacturing overhead totaling $187,500. Predetermined manufacturing overhead rate per direct labor hour = Predicted total manufacturing overhead cost for the year Predicted total direct labor hours for the year 6-19 Using Predetermined Overhead Rates Late in 2004, Harmon Manufacturing Company predicted a 2005 activity level of 25,000 direct labor hours with manufacturing overhead totaling $187,500. $7.50 per direct labor hour = $187,500 25,000 direct-labor hours 6-20 Using Predetermined Overhead Rates If 2,000 direct labor hours were used in September, what would be the applied overhead? 2,000 x $7.50 = $15,000 6-21 The Manufacturing Environment In process manufacturing, a single product (or a closely related set of products) is produced on a continuous basis 6-22 The Manufacturing Environment In job order production, products are manufactured in singles units or in batches of identical units. 6-23 The Manufacturing Environment The production order contains a job’s unique identification number and assigns a unique identification number to a job 6-24 The Manufacturing Environment Job Cost Sheet Direct Materials July 1 3 100 lbs. @ $ 0.25 = $ 25 75 oz. @ $1.40 = 105 Direct Labor July 1 3 3 hrs. @ $10.00 = $ 30 7 hrs @ $10.00 = 70 Factory Overhead July 7 10 dlh x $2 = $ 20 A job-cost sheet is a document used to accumulate the cost for a specific job in a job-cost system 6-25 Production Files and Records A file is simply a collection of related records. A record is a related set of alphabetic and/or numeric data items. 6-26 Basic Production Records Raw Materials Inventory Record Part No________________ Date Purchased Unit Total Units Cost Cost Description_________________ Issued Unit Units Cost Total Cost Balance Unit Total Units Cost Cost 6-27 Basic Production Records Finished Goods Inventory Record Product No________________ Description____________________ Date Received From Factory Unit Total Units Cost Cost Sold Unit Units Cost Total Cost Balance Unit Total Units Cost Cost 6-28 Basic Production Records Bill of Materials Raw Materials Requirements Per Unit of Product Product No________________ Description___________________ Part Number Description Quantity Per Unit 6-29 Basic Production Records Operations List Production Operations and Times Per Unit of Product Product No_______________ Description___________________ Department Number Operation Description Machine/Labor Requirements Set-up Time Operating Time 6-30 Job Cost System Records (Production Order) Production Order Job No.___________________ Start Date __________________ Product No_________ Description_________________ Quantity_____ Raw Materials Part Number Description Continued Total Quantity 6-31 Job Cost System Records (Production Order) Operations Department Number Operation Description Labor/Machine Requirements Start Time Stop Time Total Time Authorized by ___________________ Date ________________ 6-32 Job Cost System Records (Job Cost Sheet) Job-Cost Sheet Job No.___________________ Start Date __________________ Product No_________ Description_________________ Quantity_____ Raw Materials Cost Date Department Requisition Number Continued Description Total Cost 6-33 Job Cost System Records (Job Cost Sheet) Conversion Costs: Direct Labor or Machine Work Ticket Date Department Number Description Continued Total Time Total Cost 6-34 Job Cost System Records (Job Cost Sheet) Applied Overhead Date Department Total Cost of Job Unit Cost Basis of Application Total Cost 6-35 Job Cost System Records (Material Requisition Form) Materials Requisition Form Requisition No. _________ Job No. _______ Date _______________ Department __________________ Part Number Description Total Quantity Unit Cost Total Cost Issued by________________ Received by __________________ 6-36 Job Cost System Records (Work Ticket) Work Ticket Work Ticket No. _________ Date_________________ Department______________________ Job. No. _____ Time Started _________ Time Completed __________ Employee/Machine Operator _____________________ Office Use Total Time ______ Rate ______ Total Cost ________ 6-37 Impact of Computers on Manufacturing Automatic identification systems (AIS) allow inventory and production information to be entered into a computer without writing or keying. 6-38 Impact of Computers on Manufacturing Computer-aided design (CAD) involves the use of computers to design products. 6-39 Impact of Computers on Manufacturing Computer-aided manufacturing (CAM) involves the use of computers to control machine operations. 6-40 Impact of Computers on In their advanced stages, factories Manufacturing utilizing flexible manufacturing systems and computer-integrated manufacturing are sometimes referred Flexible manufacturing “lights-out factories” because systems (FMS) areto anas extension Computer-integrated of computer-aided they can be operated in the dark. manufacturing (CIM) is the manufacturing techniques extension of CAD, CAM, through a seriesultimate of and FMS concepts to a completed manufacturing operations. automated and computercontrolled factory. 6-41 Basic Manufacturing Cost Flows Raw Materials Beginning balance $ xx (1) Purchases xx Total available xx Accounts Payable (1) Increase $ xx Step 1: The cost of purchased raw materials and manufacturing supplies are recorded in Raw Materials and Manufacturing Supplies, respectively. 6-42 Basic Manufacturing Cost Flows Raw Materials Beginning balance $ xx (1) Purchases xx Total available xx (2) Direct materials -xx Ending balance $ xx Step 2: As primary raw Work-in-Process materials are Inventory Beginning balance $ xx requisitioned to the Current manufacturing costs: factory, direct (2) Direct materials xx materials are transferred from Raw Materials to Work-in-Process. 6-43 Basic Manufacturing Cost Flows Step 3: Direct labor costs are assigned to Wages PayableWork-in-Process on the basis of Work-in-Process Inventory to balance processing raw (3) Current employeetime devoted Beginning $ xx earnings $ materials. xx Current manufacturing costs: Other labor costs Direct materials $xx associated(2) with production (3) Direct labor xx employees are initially assigned to Manufacturing Overhead. Indirect labor to Manufacturing Overhead (NEXT SLIDE) 6-44 Basic Manufacturing Cost Flows Manufacturing Overhead Beginning balance Current: (3) Indirect labor $ xx $xx 6-45 Basic Manufacturing Cost Flows Steps 4, 5, Manufacturing Supplies and 6: Other production $ xx related costs are also assigned to xx Manufacturing Overhead. Manufacturing Overhead Beginning balance (1) Purchases Total available xx (4) Issued -xx Ending balance $ xx Accumulated Depreciation: Factory Assets (5) Increase +xx Other Payables (6) Increase +xx Beginning balance Current: (3) Indirect materials $xx (4) Manufacturing. Supplies xx (5) Depreciation xx (6) Miscellaneous xx Total $ xx -xx $ xx 6-46 Basic Manufacturing Cost Flows Manufacturing Overhead Beginning balance $ xxWork-in-Process Inventory Current: Beginning balance $ xx (3) Indirect materials $xx Current manufacturing costs: (4) Manufacturing. Supplies xx (2) Direct materials $xx (5) Depreciation xx (3) Direct labor xx (6) Miscellaneous xx -xxApplied overhead (7) xx Total $ xx Steps 7: Costs assigned to Manufacturing (7) Applied overhead -xx Ending balance xx periodically Overhead$are reassigned (applied) to Work-inProcess. 6-47 Basic Manufacturing Cost Flows Steps 8: When products are completed, Work-in-Process theirInventory accumulated production Beginning balance $ xx on a job cost costs are totaled Current manufacturing costs: sheet and transferred from (2) Direct materials $xx Work-in-Process to Finished (3) Direct labor xx Finished Goods Inventory (7) Applied overheadGoods Inventory. xx +xx Total work-in-process (8) Cost of goods mfg. Ending balance Beginning balance $ xx (8)-xx Cost of goods mfg. Total $ xxavailable $ xx -xx xx 6-48 Basic Manufacturing Cost Flows Finished Goods Inventory Beginning balance (8) Cost of goods mfg. Total available (9) Cost of goods sold Ending balance $ xx -xx xx -xx $ xx Cost of Goods Sold (9) Cost of goods sold $xx Steps 9: Later when the products are sold, their costs are transferred from Finished Goods Inventory to Cost of Goods Sod. 6-49 Examine Exhibit 6-6 in the textbook for a possible pattern of cost flows Exhibit 6-7 for a factory containing only machine-intensive manufacturing operations. 6-50 Job Costing A critical concept in job costing is the relationship between the job cost sheets and the account Work-in-Process Job JobCost CostSheet Sheet 6-51 Job Costing When costs are assigned to work-in-process the costs are also assigned to job cost sheets When jobs are completed the costs are determined by looking at the sheet for the completed job. That amount is transferred from work-in-process to finished goods inventory The balance in work-in-process is equal to the costs assigned to the jobs in process 6-52 Job Costing Job 425 Job 426 Job 427 Total Beginning balance $58,600 $51,300 $ 0 $109,900 Current costs: Direct materials 4,800 3,600 23,500 31,900 Direct labor 6,000 9,000 10,000 25,000 Applied overhead 2,400 3,600 4,000 10,000 Total $71,800 $67,500 $37,500 $176,800 This information is used to determine the total cost of goods manufactured. 6-53 Job Costing Job 428 Job 429 Job 430 Total Beginning balance $ 0 $ 0 $ 0 $ 0 Current costs: Direct materials 22,400 10,000 8,200 40,600 Direct labor 9,450 3,800 2,800 16,050 Applied overhead 3,780 1,520 1,120 6,420 Total $35,630 $15,320 $12,120 $63,070 This information indicates ending balance in Work in Process Inventory 6-54 Job Costing Review The job-cost sheets for completed jobs provide the cost of each job, allowing management to properly cost and price the job. The job-cost sheets for incomplete jobs should sum to the ending balance in the Work-in-Process Inventory account. 6-55 STATEMENT OF COST OF GOODS MANUFACTURED Fox Brothers, Inc. Statement of Cost of Goods Manufactured For the Month Ending August 31, 2004 Current manufacturing costs: Cost of materials placed in production: Raw materials, 8/1/04 $36,000 Purchases 30,000 Total available $66,100 Raw materials, 8/31/04 -11,800 $54,300 Direct labor 34,450 Manufacturing overhead 13,780 $102,530 Work-in-Process, 8/1/04 109,900 Total costs in process $212,430 Transfer to the Work-in-Process, 8/31/04 - 35,630 income statement Cost of goods manufactured $176,800 6-56 INCOME STATEMENT Fox Brothers, Inc. Income Statement For the Month Ending August 31, 2004 Sales Cost of goods sold: From the Finished goods inventory, 8/1/04 statement of Cost of goods manufactured cost of goods Total goods available for sale manufactured Finished goods inventory, 8/31/04 Gross profit Selling and administrative expenses Net income $400,000 $75,000 176,800 $251,800 -37,500 214,300 $185,700 - 90,000 $ 95,700 6-57 Process Costing If products are produced in a continuous manufacturing environment, where production does not have a distinct beginning The cost of a single unit is equal and end, it is necessary to use a to the total product costs process costing system. assigned a “process” or “department” during an accounting period divided by the number of units produced. 6-58 Cost of Production Report A cost of production report is the key document. It is a useful way of organizing and accounting for costs in a process costing environment. A cost of production report contains-- Summary of units in process Equivalent units Total costs to be account for and cost per equivalent unit Accounting for total cost 6-59 Cost of Production Report Assume 90 units in the ending inventory are 40 percent complete. The equivalent units are determined as follows: 90 units in ending inventory x 0.40 = 36 6-60 Cost of Production Report Micro System Co. Cost of Production Report For the Month Ending July 31, 2004 Summary of units in process: Beginning Units started In process Completed Ending 4,000 36,000 40,000 -35,000 5,000 Top 6-61 Cost of Production Report Equivalent units in process: Units completed Plus equivalent units in end. inv. Equivalent units in process Materials Conversion 35,000 5,000 40,000 Total cost to be accounted for and cost per equivalent units/process: Materials Work-in-Process, beginning $ 16,000 Current cost 144,000 Total cost in process $160,000 Equivalent units in process 40,000 Cost per equivalent unit in process $ 4.00 35,000 1,000 36,000 Middle Conversion Total $ 9,000 $ 25,000 108,900 252,900 $117,900 $277,900 36,000 $ 3.275 $ 7.275 6-62 Cost of Production Report Matches total cost in process Bottom Accounting for total cost Transferred out (35,000 x $7.275) Work-in-Process, ending: Materials Conversion (1,000 x $3.275) Total cost accounted for $254,625 $20,000 3,275 23,275 $277,900 6-63 The flow of Costs Through Work-inProcess Inventory is as follows: Work-in-Process Inventory Beginning balance Current manufacturing costs: Direct materials $144,000 Direct labor 62,200 Applied overhead 46,700 Total Cost of goods manufactured Ending balance $ 25,000 252,900 $277,900 -254,625 $ 23,275 6-64 Chapter 6 The End 6-65