Job-Order, Process, and Hybrid Costing Systems

The two most common types of costing systems are job order costing and process costing. In a job order system, the amount recorded in the work in process inventory account is the total cost to date of various jobs. The Work in Process Inventory account is a controlling account that is supported by several subaccounts (the entries for individual jobs).

Product costs flow from raw materials inventory to working inventory to finished goods inventory to cost of goods sold. Because the employees worked to make inventory, the cost of their labor is added to work in process inventory. In addition to recording the effects in the Work in Process Inventory control account, Benchmore adjusted the Boat 103 job cost statement to reflect the labor used on the job.

See Appendix 12.5; the $8,000 labor cost is entered on both the work-in-process inventory control account and on the job cost sheet for boat 103. Benchmore transferred costs from the work-in-process inventory control account to the finished-goods inventory control account.

Benchmore paid $12,000 cash to production employees for work on Boats 104 and 105

Assets 5 Liabilities 1 Equity Revenue 2 Expenses 5 Net Income Work in Process

Benchmore applied estimated manufacturing overhead costs to the Boat 104 and Boat 105 jobs

Benchmore paid $10,100 cash for utilities and other indirect product costs

Cash 1 Overhead

Assets 5 Liabilities 1 Equity Revenue 2 Expenses 5 Net Income Manufacturing Work in Process

Recall that the estimated overhead costs were previously recorded in the work in the process inventory and on the work cost sheets (events 5 and 9).

Benchmore recognized $4,000 of actual manufacturing equipment depreciation

Benchmore counted the production supplies on hand at year-end and recognized actual overhead cost for the supplies used

Benchmore sold Boat 101 for $91,000 cash

Assets 5 Liabilities 1 Equity Revenue 2 Expenses 5 Net Income Production Manufacturing

Supplies 1 Overhead

Benchmore recognized cost of goods sold for Boat 101

Assets 5 Liabilities 1 Equity Revenue 2 Expenses 5 Net Income Book Value of

Benchmore closed the Manufacturing Overhead account, reducing cost of goods sold by $400

BENCHMORE BOAT COMPANY

PROCESS COSTING SYSTEM ILLUSTRATED

CHECK YOURSELF 12.1

Janis paid $84,000 cash to purchase raw materials

JANIS JUICE COMPANY

Janis processed $26,720 of whole fruit to produce juice extract
Assets 5 Liabilities 1 Equity Revenue 2 Expenses 5 Net Income Raw Materials
Cash 1 Inventory
Janis paid $38,000 cash to production employees who worked in the extraction department
Assets 5 Liabilities 1 Equity Revenue 2 Expenses 5 Net Income Raw Materials— WIP—
Fruit 1 Extraction
Assets 5 Liabilities 1 Equity Revenue 2 Expenses 5 Net Income
Cash 1 Extraction
Janis applied estimated manufacturing overhead costs to the extraction department work in process inventory
Assets 5 Liabilities 1 Equity Revenue 2 Expenses 5 Net Income Manufacturing WIP—
Overhead 1 Extraction
Janis finished processing some of the whole fruit and transferred the related cost from the extraction department Work in Process Inventory account to the mixing
Assets 5 Liabilities 1 Equity Revenue 2 Expenses 5 Net Income WIP— WIP—
Extraction 1 Mixing
Janis mixed (used) $24,400 of additives with the extract transferred from the extraction department
Additives 1 Mixing
Janis paid $48,000 cash to production employees who worked in the mixing department
Assets 5 Liabilities 1 Equity Revenue 2 Expenses 5 Net Income
Cash 1 Mixing
Janis applied estimated manufacturing overhead costs to the mixing department work in process inventory
Overhead 1 Mixing
Janis finished mixing some of the juice extract with additives and transferred the related cost from the mixing department Work in Process Inventory account to the
Assets 5 Liabilities 1 Equity Revenue 2 Expenses 5 Net Income WIP— WIP—
Mixing 1 Packaging
Janis added containers and other packaging materials costing $32,000 to work in process in the packaging department
Containers 1 Packaging
Janis paid $43,000 cash to production employees who worked in the packaging department
Janis applied estimated manufacturing overhead costs to the packaging department work in process inventory
Janis finished packaging some of the juice and transferred the related cost from the packaging department Work in Process Inventory account to the Finished
Janis sold 490,000 cans of juice for $1 per can
Assets 5 Liabilities 1 Equity Revenue 2 Expenses 5 Net Income WIP—
Janis paid $106,330 cash for actual overhead costs
Assets 5 Liabilities 1 Equity Revenue 2 Expenses 5 Net Income Manufacturing
Assets 5 Liabilities 1 Equity Revenue 2 Expenses 5 Net Income 490,000 5 NA 1 490,000 490,000 2 NA 5 490,000
Assets 5 Liabilities 1 Equity Revenue 2 Expenses 5 Net Income (338,100) 5 NA 1 (338,100) NA 2 338,100 5 (338,100)
Janis recognized cost of goods sold for the 490,000 cans of juice sold in Event 15
Janis paid $78,200 cash for selling and administrative expenses
Janis closed the Manufacturing Overhead account and increased the Cost of Goods Sold account by $3,130

Janis used cost per equivalent unit to allocate the total cost incurred in the extraction department between the amount transferred to the mixing department and the amount in the extraction department's ending work in process inventory as follows. The effects of transferring $110,000 from the issuing department's work in process inventory to the mixing department's work in process inventory follow. Conceptually, the liquid extract transferred from the extraction department is a raw material in the blending department.

Using the predetermined overhead rate calculated in Event 4, Janis determined that it should apply labor 3 0.80 overhead rate) of overhead to the mixing department's work-in-process inventory. Janis allocated the total product costs incurred in the mixing department between the amount transferred to the packaging department and the amount in the mixing department's ending work-in-process inventory as follows. This system is conceptually very simple, especially when there is no beginning or ending work in process inventory.

The effects of transferring $219,300 from the mixing department's work in process inventory to the packaging department's work in process inventory are as follows. Find the ending balance in the mixing department's work-in-process inventory account in Exhibit 12.9. Also find the entry that transfers $219,300 of product cost from the blending department's work-in-process inventory account to the packaging department's work-in-process inventory account.

Using the predetermined overhead rate calculated in Event 4, Janis decided that it should apply labor 3 0.80 overhead costs) to the packaging department's work in process inventory. Janis allocated the total product costs in the packaging department between the amount transferred to finished goods inventory and the amount in the packaging department's ending work in process inventory as follows. The effects of transferring $331,200 from the Packaging Department's work in process inventory to finished goods inventory follow.

Find the ending balance on the packaging department's Work in Process account in Exhibit 12.9. Also find the entry that transfers $331,200 in product costs from the packaging department's Work in Process account to the Finished Goods Inventory account. Therefore, overhead was underapplied by indicating that too little overhead was transferred to process inventory work, finished goods inventory, and cost of goods sold.

CHECK YOURSELF 12.2

FOCUS ON INTERNATIONAL ISSUES

Matching products with appropriate costing systems Required

MULTIPLE-CHOICE QUESTIONS

Identifying the appropriate costing system

Job-order or process costing system and a pricing decision

Job-order costing in a manufacturing company

If Ferguson wants to make a profit equal to 20 percent of the cost, at what price should it sell the boat. If the boat is not sold at the end of the year, what amount will appear in the work-in-process inventory and finished goods inventory on the balance sheet for boat 25. Is the amount of inventory you calculated in Requirement c the actual or the estimated cost per the boat.

Job-order costing in a manufacturing company

Record the entry to close the amount of underapplied or overapplied overhead for the year to cost of goods sold (in the cost category) in the horizontal financial statement model.

Job-order costing in a service company

Job-order costing system

Process costing system—determine equivalent units

Cost allocation in a process system

Assuming that 1,200 equivalent units of product were in ending work in process inventory, determine the amount of cost transferred from the Assembly Department's Work in Process inventory account to the Finished Goods Inventory account. Assuming that 5,600 units of product were transferred from the assembly department's work in process inventory to the finished goods inventory, determine the amount of the assembly department's cost of ending work in process inventory. What was the cost of finished goods inventory transferred out of the assembly department.

In the last accounting period, the finishing department of the company transferred 4,200 sets of skis to finished products. At the end of the accounting period, 450 sets of skis were rated at 40 percent.

Process costing system

Selecting the appropriate costing system

Option 2 Option 3

Job-order costing system

Record the closing entry for excess or underutilized production costs in the horizontal inventory model, assuming the amount is negligible. Prepare a cost of goods manufactured and sold schedule, an income statement, and a balance sheet for 2012.

Process costing system

These amounts represent aggregate data for the entire year and are not shown in the exact order of collection and payment.). Record the closing entry for overapplied or underapplied manufacturing overhead, assuming the amount is immaterial.

Process costing system cost of production report

Determining inventory cost using a process costing system

Process costing system with second department

Matching products with appropriate costing systems Required

Identifying the appropriate costing system

Job-order or process costing

Job-order costing in a manufacturing company

Record the entry to close the amount of underapplied or overapplied manufacturing overhead to cost of goods sold (in the cost category) in the horizontal financial statement model.

Job-order costing in a service company

Determine missing information for a job order

Process costing: determining equivalent units

Allocating costs in a process costing system

Assuming that 4,000 equivalent units of the product were in ending production inventory, determine the cost amount transferred from the work-in-process inventory account to the ending goods inventory account. Assuming that 12,000 equivalent units of the product were transferred from work-in-process inventory to finished goods inventory, determine the cost of the ending work-in-process inventory. What was the cost of finished goods inventory transferred from work in progress.

At the end of August, work in process inventory consisted of 5,000 cases estimated to be 40 percent complete.

Process costing: supply missing information

Selecting the appropriate costing system

Job-order costing system

The company paid $176 cash for indirect labor costs and $240 cash for manufacturing supplies, all of which were used during 2012. Prepare a schedule of cost of goods manufactured and sold, a statement of income and a balance sheet for 2012.

Process costing system cost of production report

Determining inventory cost using process costing

Process costing system

The total costs allocated between finishing work in the process inventory and the finished goods inventory. Divide the total costs between the final work in the process inventory and the units transferred to the molding department.

Process costing system with second department

Business Application Case Comprehensive job-order costing problem This problem covers concepts that were presented in Chapters 11 and 12 concerning job-order

Actual overhead excluding indirect materials and indirect labor for the year was $4,400, which was paid in cash. Other parts, such as the engine, are purchased from external suppliers and then modified internally. Although most bicycles are made to order for a specific individual, the shop occasionally builds a bicycle without a pre-arranged buyer.

These bikes are sometimes intended to be entered in a custom bike competition and then sold. The store has been around for 10 years, but for simplicity's sake, assume there is no beginning stock for 2011. At the end of the year, four of these projects had been completed and three of these four had been sold.

Rent on office space 6,000 Rent on factory space 20,000 Indirect materials 11,000 Maintenance costs for factory equipment 3,000 Utility costs for office space 1,000 Utility costs for factory space 2,000 Depreciation on factory equipment 8,000 4 labor hours expected to work directly on the car, expected to work. 6500. Close the manufacturing overhead account to transfer any overapplied or underapplied expenses to the cost of goods sold account. Determine the amount of overapplied or underapplied expenses that existed at the end of the year.

Group Assignment Job-order costing system

Tip: Although not required, it can be helpful to organize the data using a horizontal financial statement model, although it will still be necessary to prepare a work cost statement for each individual task. had not yet completed the inspection process. Divide the class into groups of four or five students each and divide the groups into three sections. Assign task 1 to the first section of groups, task 2 to the second section, and task 3 to the third section.

Use the input from the three representatives to prepare the income statement and part of the balance sheet. Would converting to a costing system improve the accuracy of the reported net income amount?

Research Assignment Identifying appropriate product costing systems for three real world companies

Writing Assignment Determining the proper costing system Professor Julia Silverman received the following e-mail message

Ethical Dilemma Amount of equivalent units

Spreadsheet Assignment Using Excel

Write a return e-mail replying to Mr. Insert a section in the table to allocate manufacturing costs between finished goods and ending work in process.

Spreadsheet Assignment Mastering Excel Refer to the job cost sheet in Exhibit 12.3

Insert a section in the spreadsheet to allocate manufacturing costs between finished goods and final work in progress. 1) All cells containing numbers below row 7 must be formulas so that changes to the data in rows 3 to 6 will automatically be reflected in the rest of the spreadsheet.

Cost 4 Units 5 Cost Per Unit Beginning inventory $26,000