Chapter 16

Inventory and Operations

Inventory and Operations

Raw Materials CostLabor CostFactory Overhead Cost

Common Elements of Cost Accounting Systems

Inventory and Operations

Raw Materials InventoryGoods in Process InventoryFinished Goods Inventory

Common Elements of Cost Accounting Systems

Flow of Manufacturing CostsRaw Materials Inv

Wages Payable

Factory Overhead

Direct materials Indirect materials

Direct labor Indirect labor

Actual Applied

Goods in Process Inv

Direct materials Direct labor Applied FOH

Cost of Finished Goods

Finished Goods Inv

Finished Goods Available

Cost of Goods Sold

Cost of Goods Sold

Cost of Goods Sold

Job Order Costing

Source Documents

Job order cost sheets (individual jobs)

Materials requisition forms

Labor time tickets

Factory overhead reports

Job Order Costing

Application of Raw Materials Costs

Materials requisition form

Direct materials use recorded in Goods-in-Process Inventory account

Indirect materials use recorded in Factory Overhead Account

Job Order Costing

Application of Factory Labor Costs

Labor tickets

Direct labor cost recorded in Goods-in-Process Inventory account

Indirect labor cost recorded in Factory Overhead account

Job Order Costing

Application of Factory Overhead Costs

Predetermined overhead rate determined:

Expected OH Cost

Expected DL or M Hours

Factory overhead then applied to Goods-in-Process Inventory account

Job Order Costing

Goods in process account includes:

Actual direct materials cost

Actual direct labor cost

Applied overhead

Job Order Costing

Completion of Job Orders

Transfer costs from Goods-in-Process Inventory account to Finished Goods Inventory account

Job Order Costing

Recording the Sale of Finished Goods

Perpetual inventory system: Two “entries”:

Increase Cash (or A/R) and Sales accounts

Increase Cost of Goods Sold and decrease Finished Goods Inventory account

Job Order Costing

Handling of Overapplied and Underapplied Overhead

Close out Factory Overhead account and adjust (increase/decrease) Cost of Goods Sold account

Process Costing

Large quantities, continuous process(es)Materials costs (direct materials)Conversion costs (direct labor and factory OH)Equivalent units (unfinished products)

Materials costs (assume 100% complete)Conversion costs (% partially complete)

Process cost sheets (assign average costs per unit to products)

Process CostingSiruation 1:No Beg. or End. Goods-in-Process Inventory

Direct materials cost Units = Average cost per unit

Conversion costs Units = Average cost per unit

Cost transferred to Finished Goods = Units transferred X Avg cost per unit for DM+ Units transferred X Avg cost per unit for conv.

Process Costing

Situation II: Ending Goods-in-Process inventory

DM cost Equivalent units = Average cost per equivalent unit

Conversion costs Equivalent units = Average cost per equivalent unit

Process Costing

Ending Goods-in-Process inventory (cont.)

Cost transferred to Finished Goods Inventory = (Units transferred X Average cost per equivalent unit for direct materials) + (Units

transferred X Average cost per equivalent unit for conversion costs)

Process Costing

Ending Goods-in-Process inventory (cont.)

Cost remaining in ending Goods-in-Process =(Equivalent units in inventory X Average cost per equivalent unit for direct materials) + (Equivalent units in inventory X Average cost per equivalent unit for conversion costs)

Process Costing

Situation III: Beginning and Ending Goods-in-Process Inventory

Compute equivalent units for direct materials and conversion costs in the usual manner

Average materials cost per equivalent unit = (Beginning direct materials cost + Cost added during period) Equivalent units

Process CostingBeginning and Ending Goods-in-Process Inventory

Average conversion cost per equivalent unit = (Beginning conversion costs + Costs added during period) Equivalent units

Cost transferred to Finished Goods (same calculations as used previously)

Cost remaining in ending Goods-in-Process (same calculations as used previously)

The End