assignmemt

“Cost Accounting give right value to customers providing social responsibility to the society”

Please prepare a presentation choosing any topic from cost accounting that provides social responsiblity in your view.

Project Presentation
Total Marks 10
Project presentation is to demonstrate cost accounting aspects providing social
responsibility
Note: This project is to replace our regular short exam)
Project theme:
Cost Accounting give right value to customers providing social
responsibility to the society”
Examine how social responsibility is influenced by decision-making and cost
optimization.
Please prepare a presentation choosing any topic from cost accounting that provides
social responsibility in your view.
Format:
1. Title
2. Introduction on on the topic chosen from cost accounting providing socisl
responsibility.
3. Define important key words.
4. Methodology used (Questionnaire or empirical study)
5. Interpretations on the method used
6. Discussion on how it effects social responsibility
7. Conclusion
8. References used
Cost Management
Measuring, Monitoring, and Motivating Performance
Chapter 5
Job Costing
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 1
Chapter 5: Job Costing
Learning objectives
•
Q1: How are costs assigned to customized goods and services?
•
Q2: How is overhead allocated to individual jobs?
•
Q3: How does job costing information affect managers’
incentives and decisions?
•
Q4: How are spoilage, rework, and scrap handled in job costing?
•
Q5: What are the quality and behavioral implications of
spoilage?
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 2
Q1: Job Costing versus Process Costing
Job
Costing
• Used when products can be
distinguished from one
another
Process
Costing
• Used when similar products
are mass produced
Hybrid
Costing
• Includes characteristics of
both job and process costing
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 3
Q1: Job Costing versus Process Costing
Job Costing
Process Costing
Discrete
Continuous
Product
Fewer units
Many units
Units
Readily identifiable
Fungible
Job or batch
Processing
department
One
Same as the # of
processing
departments
Operations
Cost object
# of WIP
accounts
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 4
Q1: Assigning Costs to Jobs
Direct
Cost Tracing
Costs
Cost
Cost
Assign-
Object
ment
(Job)
Indirect
Costs
© John Wiley & Sons, 2011
Cost Allocation
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 5
Q1: Job Cost Records
Each job’s costs are maintained on a job cost record.
The job cost records form the subsidiary ledger for
Work in process inventory.
Date Dir. Materials Dir. Labor Overhead
This information comes
from Materials
Requisition Forms
Total
Overhead costs must be
allocated to each job
This information comes
from Labor Time Reports
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 6
Q2: Allocating Overhead Costs to Jobs
•
Direct costs are traced to the individual jobs using
source documents.
•
Overhead costs are indirect and cannot be traced
to individual jobs; they must be allocated.
•
An overhead allocation base must be chosen.
•
The overhead allocation base should be some
measure of activity; it should be a reasonably
good cost driver for overhead costs.
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 7
Q2: Steps in Allocating Overhead
1. Identify the relevant cost object.
2. Identify one or more overhead cost pools and
allocation bases.
3. For each overhead cost pool, calculate an
overhead allocation rate.
4. For each overhead cost pool, allocate costs to the
cost object.
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 8
Q2: Overhead Allocation Rates
•
Companies may use an actual or an estimated
overhead allocation rate.
Actual allocation rate =
•
Actual overhead cost
Actual quantity of the allocation base
The actual allocation rate cannot be
computed until the accounting period is over.
Estimated allocation rate =
•
Estimated overhead cost
Estimated quantity of the allocation base
The estimated allocation rate can be computed at
the beginning of the accounting period (normal
costing).
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 9
Q2: Overhead Allocation Rates
Chausse Manufacturing makes road paving equipment. At the
beginning of the year, overhead costs were estimated to be $450,000.
However, actual overhead was $504,000. Chausse uses direct labor
hours as the cost allocation base. At the beginning of the year, total
direct labor hours were estimated at 10,000 hours, but actual direct
labor hours for the year totaled 12,000 hours. Compute the actual
overhead rate and the estimated overhead rate.
Actual allocation rate =
$504,000
= $42/hr
12,000 hours
Estimated allocation rate =
$450,000
= $45/hr
10,000 hours
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 10
Q2: Actual and Normal Costing
Direct costs
Indirect costs
Actual Costing Normal Costing
Actual costs
Actual costs
Actual rate
Estimated rate
x actual usage x actual usage
of cost
of cost
allocation base allocation base
In normal costing, annual budgeted rates are used
• smoothing effect on numerator
• smoothing effect on denominator
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 11
Q2: Job Costing Example (Service Sector)
Serena-Sturm is an architectural firm with a professional staff of 5 architects
and a support staff of 7. Some projects are done for a fixed fee, while
others are billed for the actual hours spent on the project. You are given the
following information for Serena-Sturm (SS) for 2005. What is the
estimated indirect cost rate if # of projects is used as the cost allocation
base? Is this a good choice for the cost allocation base?
BUDGETED
ACTUAL
Direct Costs:
Professional labor costs
Professional labor hours
Professional labor rate/hour
$400,000
10,000
$40
$420,000
12,000
$35
Indirect Costs:
Designers, drafters
Office costs
Office salaries & wages
Travel & entertainment
Total indirect costs
$360,000
40,000
45,000
5,000
$450,000
$360,000
80,000
56,800
7,200
$504,000
1,000
3,600
1,200
4,000
Other Information:
Number of projects
Number of blueprints prepared
© John Wiley & Sons, 2011
Estimated indirect cost rate =
$450,000/1,000 projects =
$450/project
Terrible choice for a cost
allocation base; ignores
resource consumption of
the projects.
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 12
Q2: Job Costing Example (Service Sector)
SS has a costing system with a single direct cost pool. If SS uses a single
indirect cost pool, determine both the estimated and actual indirect cost
rates using (a) number of professional labor hours and (b) number of
blueprints prepared as cost allocation bases.
BUDGETED
ACTUAL
Direct Costs:
Professional labor costs
Professional labor hours
Professional labor rate/hour
$400,000
10,000
$40
$420,000
12,000
$35
Indirect Costs:
Designers, drafters
Office costs
Office salaries & wages
Travel & entertainment
Total indirect costs
$360,000
40,000
45,000
5,000
$450,000
$360,000
80,000
56,800
7,200
$504,000
Other Information:
Number of projects
Number of blueprints prepared
© John Wiley & Sons, 2011
1,000
3,600
1,200
4,000
Potential Cost
Allocation Base
Actual
Rate
Estimated
Rate
Professional
labor hours
$504,000
12,000 hrs
= $42/hr
$450,000
10,000 hrs
= $45/hr
Number of
blueprints
$504,000
4,000 bpts
= $126/bpt
$450,000
3,600 bpts
= $125/bpt
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 13
Q2: Job Costing Example (Service Sector)
SS was asked to prepare a fixed fee bid for an out-of-town project called
The Culebra Complex. The budgeted professional hours for this project
was 400, and the job is expected to require the preparation of 7 blueprints.
Compute the budgeted project cost using (a) professional labor hours and
(b) number of blue prints prepared as a cost driver for indirect costs.
Potential Cost
Allocation Base
Professional
labor hours
Number of
blueprints
Estimated
Rate
$45/hr
$125/bpt
Costs
Cost Allocation Base
Professional
Number of
labor hours
blueprints
Direct costs
$40/hr x
400 hrs =
$16,000
$40/hr x
400 hrs =
$16,000
Indirect costs
$45/hr x
400 hrs =
$18,000
$125/bpt x
7 bpts =
$875
$34,000
$16,875
Total
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 14
Q2: Why Are Costs so Different?
Why do the different cost allocation bases yield vastly different project costs?
BUDGETED
Direct Costs:
Professional labor costs
Professional labor hours
Professional labor rate/hour
$400,000
10,000
$40
Indirect Costs:
Designers, drafters
Office costs
Office salaries & wages
Travel & entertainment
Total indirect costs
$360,000
40,000
45,000
5,000
$450,000
Other Information:
Number of projects
Number of blueprints prepared
1,000
3,600
Costs
Direct costs
Indirect costs
Total
Cost Allocation Base
Professional
Number of
labor hours
blueprints
$16,000
$16,000
$18,000
$875
$34,000
$16,875
If professional labor hours is a good
measure of activity, then this project is
expected to be 400 hrs/10,000 hrs, or
4% of the year’s activity.
If # of blueprints is a good measure of activity, then this project is
expected to be 7 bpts/3,600 bpts, or less than 0.2% of the year’s activity.
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 15
Q2: Job Costing in Manufacturing
Logo lamps makes desk lamps stamped with the customer’s logo.
Shipping & Receiving
© John Wiley & Sons, 2011
Materials
Storage
Finished Goods
Storage
Sheet Metal
Stamping
Inspection &
Packing
Painting
Area
Assembly
Area
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 16
Q2: Journal Entries in Job Costing
• Flow of costs matches flow of the goods through
the factory
• Source documents used to update accounts for
direct costs
• Normal costing is used, so overhead is charged to
jobs based on estimated overhead rates
• Overhead cost control is a temporary account
used in normal costing
• debit Overhead cost control for actual overhead costs
• credit Overhead cost control when overhead allocated to WIP
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 17
Q2: Flow of Costs in Job Costing
Shipping & Receiving
When raw materials
Finished Goods
Materials
are received, costs
Storage
are debited to raw Storage
materials inventory;
Sheet Metal no distinction between
Inspection &
Stamping
direct and indirect Packing
materials is made at
this stage.
Assembly
Area
Painting
Area
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 18
Q2: Flow of Costs in Job Costing
Shipping & Receiving
Materials
Storage
When raw materials are sent to the
Finished
Goods costs
factory floor, direct
materials
Storage forms) are
(per materials requisition
debited to Work in process inventory.
Sheet Metal
Stamping
Indirect materials Inspection
costs are&debited to
Packing
Overhead cost
control.
Assembly
Area
Painting
Area
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 19
Q2: Flow of Costs in Job Costing
When Shipping
labor costs
are incurred, direct
& Receiving
labor costs (per time records) are
debited to Work in process inventory.
Finished Goods
Materials
Storageto
StorageIndirect labor costs are debited
Overhead cost control.
© John Wiley & Sons, 2011
Sheet Metal
Stamping
Inspection &
Packing
Painting
Area
Assembly
Area
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 20
Q2: Flow of Costs in Job Costing
Shipping & Receiving
When a Materials
job is completed,
Storage
costs are removed from WIP
inventory and transferred to
Sheet
Metal
FG
inventory.
© John Wiley & Sons, 2011
Finished Goods
Storage
Stamping
Inspection &
Packing
Painting
Area
Assembly
Area
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 21
Q2: Flow of Costs in Job Costing
Shipping & Receiving
When a job is shipped to a
Materials
customer, costs
are removed
Storage
from FG inventory and
transferred to CGS;
Sheet Metal
The revenue
Stampingand the
Finished Goods
Storage
Inspection &
Packing
receivable are also recorded.
Assembly
Area
Painting
Area
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 22
Q2: Journal Entries in Job Costing
The materials storeroom receives a shipment of direct and
indirect materials that cost $12,500. Prepare the journal entry.
Raw materials inventory
12,500
Accounts payable
12,500
Materials are sent to the stamping and assembly areas. The
cost of the direct materials is $1,400 and the cost of the
indirect materials is $800. Prepare the journal entry.
Work in process inventory
Overhead cost control
Raw materials inventory
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
1,400
800
2,200
Slide # 23
Q2: Journal Entries in Job Costing
Wages totaling $2,000 are accrued; 75% of these costs are
direct labor and 25% are indirect labor. Prepare the journal
entry.
Work in process inventory
Overhead cost control
1,500
500
Wages Payable
2,000
Overhead costs are allocated to work in process using an
allocation rate of 200% of direct labor costs. Prepare the
journal entry.
Work in process inventory
Overhead cost control
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
3,000
3,000
Slide # 24
Q2: Journal Entries in Job Costing
Job #1208, with a total cost of $2,200 is completed. Prepare
the journal entry.
Finished goods inventory
2,200
Work in process inventory
2,200
Job #1208 is shipped to the customer, who is billed for $4,000.
Prepare the journal entry.
Accounts receivable
Cost of goods sold
Sales
Finished goods inventory
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
4,000
2,200
4,000
2,200
Slide # 25
Q2: Disposition of Misallocated Overhead
• Under normal costing, actual overhead is different
from allocated overhead.
• Misallocated overhead is the difference between
actual and allocated overhead.
• At the end of the year, the Overhead cost control
account is closed out to WIP, FG & CGS.
• Misallocated overhead (if material) is prorated to
the 3 accounts based on a ratio of their account
balances; if immaterial it is closed to CGS.
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 26
Q2: Disposition of Misallocated Overhead
Suppose budgeted overhead was $100,000 fixed overhead plus variable
overhead of $10/DL hour. Expected DL hours were 50,00, so that the
estimated overhead rate was $12/DL hour. Actual DL hours totaled 40,000
for the year and actual overhead was $550,000. At the end of the year,
WIP, FG & CGS had the account balances shown below. Prepare the yearend entry to close the Overhead cost control account.
WIP
FG
CGS
$ 100,000 5%
200,000 10%
1,700,000 85%
$2,000,000
Overhead cost control
$550,000
Work in process inventory
3,000
Finished goods inventory
Cost of goods sold
Overhead cost control
7,000
59,500
70,000
$480,000 ($12/DL hr x 40,000 DL hrs)
$70,000
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 27
Q3: Uses & Limitations of Job Costing Information
• Job cost information is used for
•
•
•
•
Financial statement preparation
Income tax returns
Bidding for jobs
Comparing expected to actual costs (diagnostic control)
• Job cost information may not be useful for nonroutine short term decision making as allocated
fixed costs may not be relevant
• Accountant’s judgment is used to determine:
•
•
•
Direct vs. allocated costs
Type and number of overhead pools
Type of cost driver
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 28
Q4: Job Costing and Spoilage – Terminology
• Spoilage – unacceptable units that are discarded or
sold for disposal costs
– Normal spoilage arises under efficient operating
conditions & is treated as an inventoriable cost
– Abormal spoilage is not part of normal operations & is
treated as a period cost
• Reworked units – unacceptable units that are
reprocessed and sold
• Scrap – left over direct materials that are discarded
or sold for a minimal amount
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 29
Q4: Job Costing and Spoilage
In job costing, spoilage could be normal spoilage that
coincidentally occurred on this job, but was not due to
any demanding aspects of this job
– spoilage costs removed from Work in process inventory
– spoilage costs are debited to Overhead cost control
– in this case a job without spoilage has the same
manufacturing cost per unit as a job where spoilage
occurred
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 30
Q4: Job Costing and Spoilage
In job costing, spoilage could be abnormal spoilage
that coincidentally occurred on this job, but was not
due to any demanding aspects of this job
– spoilage costs removed from Work in process inventory
– spoilage costs are debited to Loss from abnormal
spoilage
– in this case a job without spoilage has the same
manufacturing cost per unit as a job where spoilage
occurred
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 31
Q4: Job Costing and Spoilage
In job costing, spoilage could be spoilage that
occurred on this job due to the job’s demanding
specifications
– spoilage costs are not removed from Work in process
inventory
– in this case a job without spoilage has a lower
manufacturing cost per unit than a job where this type of
spoilage occurred
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 32
Q4: Job Costing and Spoilage Example
On January 1 Leia Corp. budgeted the following factory overhead:
Factory rent
$40,000
Leia expected to use 28,000 DL hours this
Utilities
10,000
year; overhead is allocated to WIP using
Normal spoilage
6,000
DL hours. Job #3 shows total costs of
$56,000
$12,200. An inspection reveals that 20%
of Job #3 must be scrapped and sold for $100. Prepare the journal entry to record
the spoilage and the sale of the scrap if the spoilage is considered normal and is not
due to the demanding specifications of Job #3. If Job #3 was originally a batch of
10,000 units, what is the manufacturing cost per unit for the good units in Job #3?
Overhead cost control
Cash
2,340
100
Work in process inventory
2,440
(20% x $12,200)
Mfg cost/unit = ($12,200 – $2,440)/8,000 good units = $1.22/unit.
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 33
Q4: Job Costing and Spoilage Example
On January 1 Leia Corp. budgeted the following factory overhead:
Factory rent
$40,000
Leia expected to use 28,000 DL hours this
Utilities
10,000
year; overhead is allocated to WIP using
Normal spoilage
6,000
DL hours. Job #3 shows total costs of
$56,000
$12,200. An inspection reveals that 20%
of Job #3 must be scrapped and sold for $100. Prepare the journal entry to record
the spoilage and the sale of the scrap if the spoilage is considered abnormal. If Job
#3 was originally a batch of 10,000 units, what is the manufacturing cost per unit for
the good units in Job #3?
Loss from abnormal spoilage 2,340
Cash
100
Work in process inventory
2,440
(20% x $12,200)
Mfg cost/unit = ($12,200 – $2,440)/8,000 good units = $1.22/unit.
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 34
Q4: Job Costing and Spoilage Example
On January 1 Leia Corp. budgeted the following factory overhead:
Factory rent
$40,000
Leia expected to use 28,000 DL hours this
Utilities
10,000
year; overhead is allocated to WIP using
Normal spoilage
6,000
DL hours. Job #3 shows total costs of
$56,000
$12,200. An inspection reveals that 20%
of Job #3 must be scrapped and sold for $100. Prepare the journal entry to record
the spoilage and the sale of the scrap if the spoilage occurred to the demanding
specifications of Job #3. If Job #3 was originally a batch of 10,000 units, what is the
manufacturing cost per unit for the good units in Job #3?
Cash
100
Work in process inventory
100
Mfg cost/unit = ($12,200 – $100)/8,000 good units = $1.5125/unit.
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 35
Q5: Effect of Spoilage Accounting
on Manager Behavior
• If spoilage costs are ignored, there is no incentive
for managers to control these costs.
• If company has a zero defect policy, all spoilage is
considered abnormal; the loss on the income
statement may force managers to control spoilage.
• If rework costs are not accounted for separately,
managers may rework units that should be
scrapped.
© John Wiley & Sons, 2011
Chapter 5: Job Costing
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 36
College of Administration and Finance Sciences
Add Project Title
Course Name: Cost Accounting
Student’s Name:
Course Code: ACCT 301
Student’s ID Number:
Semester: 1st Sem 2023-2024/ 1445 H
CRN:
Instructor: Dr Fathimunisa Hanfy
Marks Obtained: – -/10
High/Middle/Low
Introduction
Importance
Definitions
Methodology
Cost Accounting data
Interpretations
Interpretations
Discussion
Conclusion
References
Thank you Note