CHAPTER 20

Cost accounting involves measuring, recording, and reporting product costs.

● Two basic types:

- A job order cost system.
- A process cost system.

Job Order Cost System

● Costs are assigned to each job or batch.
● Each job or batch has its own distinguishing characteristics.
● Compute the cost per job.
● Measure costs for each job completed – not for set time periods.
● Examples: Menu, Wedding Invitation, etc.

Job Order Cost Flow

● The flow of costs (direct materials, direct labor, and manufacturing overhead) in
job order cost accounting parallels the physical flow of the materials as they are
converted into finished goods.
- Manufacturing costs are assigned to Work in Process (WIP).
- Cost of completed jobs is transferred to Finished Goods.
- When units are sold, the cost is transferred to the Cost of Goods Sold.

1. Accumulating manufacturing costs.

● Raw materials
Raw Materials Inventory X
 Account payable X

Example: Wallace purchases 2,000 lithium batteries (Stock No. AA2746) at $5 per unit
($10,000) and 800 electronic modules (Stock No. AA2850) at $40 per unit ($32,000) for
a total cost of $42,000 ($10,000 + $32,000). The entry to record this purchase on January
4 is:

● Factory Labor Cost: (Consists of three costs)

⮚ Gross earnings of factory workers.
⮚ Employer payroll taxes on these earnings.
⮚ Fringe benefits incurred by the employer.
Factory Labor X

Factory Wages Payable X

Employer Payroll Taxes Payable X

Example: Wallace incurs $32,000 of factory labor costs. Of that amount, $27,000 relates
to wages payable and $5,000 relates to payroll taxes payable in February. The entry to
record factory labor for the month is:

● Manufacturing Overhead Cost:

Manufacturing OH X
 Account Payable X

Accumulative Depreciation X

Example: Using assumed data, the summary entry for manufacturing overhead in
Wallace Company is:

2. Assigning manufacturing costs to Work in process.

Note: Những từ thường thấy để nhận biết khi nào phân bổ vào WIP: incur, assign, the
assignment of, etc.
Manufacturing costs are assigned to Work in Process with:
Debit Credit
Work in Process Inventory X
Raw Materials Inventory X
Factory Labor X
Manufacturing Overhead X

Job cost sheet

⮚ Used to record cost chargeable to specific jobs.
⮚ Constitutes the subsidiary ledger for the Work in Process account.
⮚ Each entry to a Work in Process Inventory nust be accompanied by a
corresponding posting to one or more job cost sheets.
● Raw materials.
⮚ Materials requisition slip.
⮚ The entry:
 WIP Inventory X

MOH X

Direct Materials X

Example: Wallace uses $24,000 of direct materials and $6,000 of indirect materials in
January, the
entry is:

● Factory Labor Costs.

⮚ Time tickets:
⮚ The entry:
WIP Inventory X

MOH X

Factory Labor X

Example: The time tickets are later sent to the payroll department, which applies the
employee’s hourly wage rate and computes the total labor cost. If the $32,000 total
factory labor cost consists of $28,000 of direct labor and $4,000 of indirect labor, the
entry is:

● Manufacturing Overhead.
 ● Operating Activities:
⮚ Direct labor costs:
⮚ Direct labor hours.
⮚ Machine hours.
⮚ Any other activity that is an equitable base for applying overhead cost to job.
Note: Khi tính POR thì phải dùng số được ước tính/dự kiến (estimated, expect,…),
không được sử dụng số thực tế đã xảy ra (actual) để tính POR.
Assigned to Work in Process during the period to get timely information about the
cost of a completed job.

Example: Wallace Company uses direct labor cost as the activity base. Assuming that
the company expects annual overhead costs to be $280,000 and direct labor costs for the
year to be $350,000, computed the overhead rate.

Wallace applies manufacturing overhead to work in process when it assigns

direct labor costs. Calculate the amount of applied overhead assuming direct labor costs
were $28,000.
$28,000 x 80% = $22,400
The following entry records this application.

SUMMARY
 3. Assigning costs to Finished Goods.

Finished Goods Inventory X

WIP Inventory X

When a job is finished, Wallace makes an entry to transfer its total cost to finished goods
inventory.

4. Assigning costs to Cost of Goods Sold.

Account Receivable/Cash X
Sales Revenue X
Cost of Goods Sold X
Finished Goods Inventory X

Note: 2 entries luôn đi chung với nhau.

Example: On January 31, Wallace Company sells on account Job No. 101. The job cost
$39,000, and it sold for $50,000. The entries to record the sale and recognize cost of goods sold
are:
Under- or Overapplied Manufacturing Overhead

● Underapplied overhead means that the overhead assigned to work in process is less than
the overhead incurred. (Actual > Applied) –( a debit balance in MOH)

● Overapplied overhead means that the overhead assigned to work in process is greater
than the overhead incurred. (Applied > Actual) –( a credit balance in MOH)

⮚ Underapplied overhead is debited to COGS, credited to MOH

⮚ Overapplied overhead is credited to COGS, debited to MOH
⮚ Under-applied OH => OH applied = Actual OH – underapplied
⮚ Over-applied OH => OH applied = Actual OH + overapplied
Example: Wallace has a $2,500 credit balance in Manufacturing Overhead at December 31.
The adjusting entry for the overapplied overhead is:
a)
No. Account Title Dr. Cr.
1 Raw materials inventory 4900
 Account payable 4900
Factory labor (time ticket) 4800
Cash 4800
Manufacturing overhead 1300
Accumulated depreciation 900
Account payable 400
Work in process inventory 4900
Manufacturing overhead 1500
Raw materials inventory 6400
Work in process inventory 3600
Manufacturing overhead 1200
Factory Labor 4800
Work in process inventory (3600 x 1,25) 4500
2 Manufacturing overhead 4500

Manufacturing Total
Job Direct material Direct labor overhead costs
Rodgers 1700 1560 1950 5210
Steven 1300 900 1125 3325
Limton 2200 1780 2225 6205
$14.740

Finished goods inventory 14740

Work in process inventory 14740
Cash 18900
3 Sales revenue 18900
 Cost of good sold 14740
Finished goods inventory 14740

b) T-account
Work in process inventory
Completed
5540 14740
Beginning Balance job
Direct materials 4900
Direct labor 3600
Manufacturing overhead
4500
applied
Ending balance 3800
c)
Work in process inventory 3800
Cost of unfinished jobs
(2000 + 800 + 1000) 3800

=> Costs of unfinished goods is the Koss

d)
Cost of goods manufactured schedule
Beginning work in process 5540
Direct material used 4900
Direct labor 3600
Manufacturing overhead applied 4500
Total manufacturing cost 13000
Total cost of work in process 18540
Less: Ending work in process 3800
Cost of goods manufacturing 14740

a)
Predetermined overhead rate of
Department D =
Estimated manufacturing
overhead cost : Direct labor
cost 1200000/1500000*100% 80%
Predetermined overhead rate of
Department E =
Estimated manufacturing
overhead cost : Direct labor
hours 1500000/125000 $12
Predetermined overhead rate of
Department K =
Estimated manufacturing
overhead cost : Machine hours 900000/120000 $7,5
b)
Department D E K
Direct materials used 140000 126000 78000
Direct labor cost 120000 110000 37500
Manufacturing overhead 120000*80% = 96000 12*11000=132000 7,5*10400=78000
Total manufacturing costs 356000 368000 193500
c) T-account
Manufacturing overhead of Department D
99000 96000
Bal. 3000

 Underapplied overhead $3000

Manufacturing overhead of Department E

124000 132000
Bal. 8000

 Overapplied overhead $8000

Manufacturing overhead of Department K

79000 78000
Bal. 1000

 Underapplied overhead $1000