Download The timecard/labor ticket is keyed and verified into the production

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:
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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