# CHAPTER 2. Job Order Costing 1, 2, 3, 4 5, 6, 7, 8 1, 2, 3, 4

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1 CHAPTER 2 Job Order Costing ASSIGNMENT CLASSIFICATION TABLE Study Objectives Questions Brief Exercises Do It! Exercises A Problems B Problems 1. Explain the characteristics and purposes of cost accounting. 1, 2, 3, 4 2. Describe the flow of costs in a job order costing system. 5, 6, 7, 8 1, 2, 3, 4 1 1, 2, 3, 4, 6, 7, 8, 9, 11 1A, 2A, 3A, 5A 1B, 2B, 3B, 5B 3. Explain the nature and importance of a job cost sheet. 9, 10, 11, , 2, 3, 6, 7, 8, 10, 12 1A, 2A, 3A, 5A 1B, 2B, 3B, 5B 4. Indicate how the predetermined overhead rate is determined and used. 13, 14, 15 6, 7 2 2, 3, 5, 6, 7, 8, 11, 12, 13 1A, 2A, 3A, 4A, 5A 1B, 2B, 3B, 4B, 5B 5. Prepare entries for jobs completed and sold , 3, 4, 6, 7, 8, 9, 10, 11 1A, 2A, 3A, 5A 1B, 2B, 3B, 5B 6. Distinguish between under- and overapplied manufacturing overhead. 17, , 12, 13 1A, 2A, 4A, 5A 1B, 2B, 4B, 5B Copyright 2010 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 5/e, Instructor s Manual (For Instructor Use Only) 2-1

2 ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allotted (min.) 1A 2A 3A 4A 5A 1B 2B 3B 4B 5B Prepare entries in a job order cost system and job cost sheets. Prepare entries in a job order cost system and partial income statement. Prepare entries in a job order cost system and cost of goods manufactured schedule. Compute predetermined overhead rates, apply overhead, and calculate under- or overapplied overhead. Analyze manufacturing accounts and determine missing amounts. Prepare entries in a job order cost system and job cost sheets. Prepare entries in a job order cost system and partial income statement. Prepare entries in a job order cost system and cost of goods manufactured schedule. Compute predetermined overhead rates, apply overhead, and calculate under- or overapplied overhead. Analyze manufacturing accounts and determine missing amounts. Simple Moderate Simple Simple Complex Simple Moderate Simple Simple Complex Copyright 2010 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 5/e, Instructor s Manual (For Instructor Use Only)

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4 STUDY OBJECTIVES 1. EXPLAIN THE CHARACTERISTICS AND PURPOSES OF COST ACCOUNTING. 2. DESCRIBE THE FLOW OF COSTS IN A JOB ORDER COST ACCOUNTING SYSTEM. 3. EXPLAIN THE NATURE AND IMPORTANCE OF A JOB COST SHEET. 4. INDICATE HOW THE PREDETERMINED OVERHEAD RATE IS DETERMINED AND USED. 5. PREPARE ENTRIES FOR JOBS COMPLETED AND SOLD. 6. DISTINGUISH BETWEEN UNDER- AND OVERAPPLIED MANUFACTURING OVERHEAD. 2-4 Copyright 2010 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 5/e, Instructor s Manual (For Instructor Use Only)

5 CHAPTER REVIEW Cost Accounting Systems 1. (S.O. 1) Cost accounting involves the measuring, recording, and reporting of product costs. From the data accumulated, both the total cost and unit cost of each product is determined. 2. A cost accounting system consists of accounts for the various manufacturing costs. These accounts are fully integrated into the general ledger of a company. An important feature of a cost accounting system is the use of a perpetual inventory system. Such a system provides information immediately on the cost of a product. The two basic types of cost accounting systems are (a) a job order cost system and (b) a process cost system. 3. Under a job order cost system, costs are assigned to each job or to each batch of goods. 4. A process cost system is used when a large volume of similar products are manufactured. Process costing accumulates product-related costs for a period of time instead of assigning costs to specific products or job orders. Job Order Cost Flow 5. (S.O. 2) The flow of costs in job order cost accounting parallels the physical flow of the materials as they are converted into finished goods. There are two major steps in the flow of costs: (a) accumulating the manufacturing costs incurred and (b) assigning the accumulated costs to the work done. 6. No effort is made when costs are incurred to associate the costs with specific jobs. 7. The assignment of manufacturing costs involves entries to Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold. 8. The cost of raw materials purchased are debited to Raw Materials Inventory when materials are received. 9. Factory labor costs are debited to Factory Labor when they are incurred. The cost of factory labor consists of (1) gross earnings of factory workers, (2) employer payroll taxes on the earnings, and (3) fringe benefits incurred by the employer. 10. Manufacturing overhead costs are recognized daily as incurred and periodically through adjusting entries. The costs are debited to Manufacturing Overhead. Assigning Manufacturing Costs to Work in Process 11. (S.O. 3) The assignment of manufacturing overhead costs to work in process involves debits to Work in Process Inventory and credits to Raw Materials Inventory, Factory Labor, and Manufacturing Overhead. Copyright 2010 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 5/e, Instructor s Manual (For Instructor Use Only) 2-5

8 LECTURE OUTLINE A. Cost Accounting Systems. 1. Cost accounting involves the measuring, recording, and reporting of product costs. From the data accumulated, companies determine both the total cost and the unit cost of each product. 2. A cost accounting system consists of accounts for the various manufacturing costs. These accounts are fully integrated into the general ledger of a company. An important feature of a cost accounting system is the use of a perpetual inventory system that provides immediate, up-to-date information on the cost of a product. 3. There are two basic types of cost accounting systems: TEACHING TIP ILLUSTRATION 2-1 identifies the two basic types of cost accounting systems and their characteristics. a. A job order system, where the company assigns costs to each job or to each batch of goods, and b. A process cost system, used when a company manufactures a large volume of similar products. MANAGEMENT INSIGHT Many companies suffer from poor cost accounting and sometimes make products they should not be selling. The managers of a diversified company thought they were making money, but a consulting firm found that the company had seriously underestimated costs. What type of costs do you think the company had been underestimating? 2-8 Copyright 2010 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 5/e, Instructor s Manual (For Instructor Use Only)

9 Answer: It is most likely that the company failed to estimate and track overhead. In a highly diversified company, overhead associated with the diesel locomotive jobs may have been lost in the total overhead pool for the entire company. B. Job Order Cost Flow. 1. 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. TEACHING TIP ILLUSTRATION 2-2 provides an overview of the cost flows through the general ledger accounts in a job order cost system. Emphasize the two steps of (1) accumulating manufacturing costs incurred, and then (2) assigning accumulated costs to products. 2. There are two major steps in the flow of costs: a. Accumulating the manufacturing costs incurred; these costs are accumulated in three accounts: Raw Materials Inventory, Factory Labor, and Manufacturing Overhead, and b. Assigning the accumulated costs to Work in Process Inventory and eventually to Finished Goods Inventory and Cost of Goods Sold. 3. Three entries are made to accumulate the manufacturing costs incurred. TEACHING TIP ILLUSTRATION 2-3 provides an example of the journal entries required to accumulate the cost of raw materials, factory labor, and actual manufacturing overhead. Copyright 2010 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 5/e, Instructor s Manual (For Instructor Use Only) 2-9

### CHAPTER 2. Job Order Costing. Brief A B Study Objectives Questions Exercises Do It! Exercises Problems Problems

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### CHAPTER 2. Job Order Costing 1, 2, 3, 4 5, 6, 7, 8 1, 2, 3, 4

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### QUESTIONS. any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

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