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Job Costing System-Group #5 Narrative: The time card/labor ticket is keyed in and verified to the production labor transaction file. The time card/labor ticket is then sent to the payroll department. The materials requisition is keyed in and verified to the materials issuance transaction file. Both the production labor transaction file and the materials issuance transaction file are merged into the production cost transaction file. The materials & labor usage report and scrap & lost time report are printed from the production cost transaction file. The computer system takes the production cost transaction file (containing all actual costs) and allocates the costs amongst the open job file (direct labor and material) and the manufacturing overhead file (indirect labor and material). The computer prints an overhead residual analysis and applies the overhead to the open job file using the manufacturing overhead file and the standard cost file (for standard overhead rates of application). From the open job file, a job status query can be performed, displayed on the monitor, and a job status report is printed. From the production cost transaction file and standard cost file, standard cost variance analysis is performed (where budgeted or standard costs are compared to actual costs) and standard cost variance reports are printed. Notes by sections on the flowchart: Introduction: Companies that produce individual products or batches of products that are unique use a job-order costing system1. This is the case when a company manufactures goods to a customer’s unique specifications. Companies using job-order systems include construction companies, producers of equipment and tools, shipbuilding companies, and printing companies. In the context of job-order costing, a job is an individual product or batch for which a company needs cost information. When the items that make up the job are completed and sold, the company can match the cost of the job with the revenue it produced and obtain an appropriate measure of gross profit. Section 1 & 2: The employees turn in a document called “The time card / Labor ticket” into a department and it will be entered into the database. That information can be accessed by the payroll department. The document, which is used to trace direct and indirect labor cost to production, is called a time ticket. The time ticket indicates how much time was spent on which job by which employee. Note that when several employees all work on the same job, the time card data will be aggregated and then applied to each job. In addition, the document called material requisition will be entered into another database called materials issuance transaction file. Material requisition is a document used to request the release of materials from a company’s storage area to production. This requisition indicates the type, quantity and cost of material as well as the job number to which it will be assigned. The information from both the production labor transaction file and materials issuance transaction file will then be combined and produce another database called production cost transaction file. When labor is merged with material in the production process (both direct and indirect), a further aspect of labor control, which is of concern in both cost and management accounting, is its efficiency. Section 3 & 4: The costs from the actual production cost transaction file are printed and displayed as information on two separate documents. These documents are (1) the materials and labor usage report, and (2) the scrap and lost time report. These reports will give its reader (probably a supervisor or someone in a managerial capacity) an idea of what materials were used, how much labor was used, the amount of scrap that came out of the project during its construction, and the amount of time lost during the building phase. Also, the scrap and lost time report should say why time was lost, how much was lost, and why there was scrap material. Section 5: Manufacturing overhead (Actual) includes all costs necessary for the production of goods, but which cannot be tied to specific goods themselves. This includes indirect labor, indirect materials, property tax, insurance, supervisory 1 In comparison with job-order costing system, a process costing system generally produces large quantities of identical items. salaries, heat and light. Determining factory overhead costs is more complicated because the cost accountant cannot calculate total actual factory overhead costs for an accounting period until it ends. Applied Overhead: To provide timely product costing data and to decrease fluctuations in overhead costs assigned to inventory, a company estimates its overhead costs for an attainable volume to arrive at a factory overhead application rate. Overhead Rate: estimated overhead / estimated activities. Overhead is applied to jobs by multiplying the predetermined rate times the actual measure of the activity base that was incurred during the period and associated with each job. Analyzing the individual overhead cost factors will show all cost factors in terms of the fixed and variable values. Such a detailed analysis can be summed and restated as a total cost flexible budget formula that would allow total costs at all activity levels to be computed. Accountants analyze the affects of changes in product mix, and help control overhead. To record overhead in the accounting system, we maintain one general ledger account which is debited for actual overhead costs and credited for applied overhead. Underapplied overhead means that the amount of overhead applied to WIP is less than actual overhead; overapplied overhead means that the amount of overhead applied to WIP is greater than actual overhead. Total Actual Total Applied Section 6: The files from the open job file (work in progress) database can be displayed or accessed on an online output device such as a terminal, monitor, or screen through job status query. Also, the files from the open job file database can be printed which will produce a document called job status report, which can be viewed by the management. Section 7: The actual production cost transaction files database and budgeted standard cost file database are both accessed in order to perform standard cost variance analysis, which is a process that produces a document called standard cost variance reports. The standard cost file database is also been accessed along with actual manufacturing overhead file database to perform the overhead application process. 1. Standard cost file (budgeted) database: this database includes predetermined costs that are developed from analyses of past operating costs, quantities, and times. Standard costs are usually expressed as the cost per unit of a finished product. (note: Standard costing is expensive to use because the management accounting system must keep separate records of actual costs to compare with what should have been spent.) 2. The actual cost of the production (job) from the production cost transaction files database is compared with the standard costs from the standard cost file database to compute variances. This process is called the standard cost variance analysis. 3. From the standard cost variance analysis, a standard cost variance report will be prepared to provide information on operations and managerial performances. 4. Variance analysis is a four-step approach. a. Compute the variance. i. If the variance is insignificant, actual operating results are close to or equal to anticipated operation conditions, no corrective actions is needed. b. Determine the cause of any significant variance. c. Identify the performance measures of those activities. d. Take action to correct the problem and/or continue to improve operations. In conclusion: The purpose of a cost accounting system is to determine the costs of products manufactured or services provided and to record those costs in the accounting records. In a manufacturing company, a cost accounting system records two transactions in addition to those recorded in the inventory system. They are the transfer of material, labor, and overhead into production, and the transfer of completed production into finished goods inventory. Labor costs include the pay earned by all workers directly involved in the process. Overhead costs include those required for manufacturing but not directly associated with the products. Examples are factory power, factory heating, and pay for factory supervisors. Here is the J/E: Dr. WIP Cr. Raw Material Cr. Direct Labor Cr. Factory Overhead Ways to improve inventory subprocess: 1 2 3 4 5 Barcodes: is a pattern of parallel bars and spaces carrying information in the relative widths of these features. Bar codes represent data in a machine-readable form, and are one of the most efficient means of capturing data automatically. Real Time Locating System (RTLS): uses battery-operated radio tags that lasts 5 years and a cellular locating system to detect the presence and location of the tags anywhere from 50 to 1000 ft Acousto-Magnetic (AM) tags: small, self adhesive labels with simulated barcode to deceive shoplifters which can be deactivated at the point of sale at the counter; used to protect any non-metallic products Radio Frequency (RF) labels: paper thin, self adhesive labels with simulated barcode which can be deactivated at the point of sale at the counter, like AM tags but much more preferred by retailers due to more system choices to compliment store layouts, more label choices than and a lower investment Radio Frequency Identification (RDIF): consists of an antenna, an transponder (RF tag) and transreceiver (decoder); the antenna emits radio signals to activate tag and read and write data onto it, transreceiver and transponder acts as a reader which emits radio waves ranging from 1 inch to 1000 ft or so. When tags pass through electromagnetic zone it detects the readers signal, and reader decodes data in silicon chip then passes to host computer for processing