horngren16ech14im.docx
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horngren16ech14im
Chapter14
JobCostingandProcess-CostingSystems
LEARNINGOBJECTIVES:
Whenyourstudentshavefinishedstudyingthischapter,theyshouldbeableto:
1.Distinguishbetweenjob-ordercostingandprocesscosting.
2.Preparesummaryjournalentriesforthetypicaltransactionsofajob-ordercostingsystem.
3.UseanABCsysteminajob-orderenvironment.
4.Showhowserviceorganizationsusejob-ordercosting.
5.Explainthebasicideasunderlyingprocesscostingandhowtheydifferfromjob-ordercosting.
6.Computeoutputintermsofequivalentunits.
7.Computecostsandpreparejournalentriesfortheprincipaltransactionsinaprocess-costingsystem.
8.Demonstratehowthepresenceofbeginninginventoriesaffectsthecomputationofunitcostsundertheweighted-averagemethod.
9.Understandtheconceptoftransferred-incostsinaprocess-costingsystemwithsequentialprocess.
10.UsebackflushcostingwithaJITproductionsystem.
CHAPTER14:
ASSIGNMENTS
CRITICALTHINKINGEXERCISES
15.PurposeofAccumulatingJobCosts
16.Job-OrderComparedtoProcessCosting
17.CostAllocationinServiceFirms
18.PurposeofProductCostinginaProcessProductionEnvironment
19.ProcessCostinginaJITEnvironment
EXERCISES
20.JobCostinginBusinessSectors
21.DirectMaterials
22.UseofWIPInventoryAccount
23.Job-CostRecord
24.AnalysisofJob-CostData
25.AnalysisofJob-CostData
26.DiscoveryofUnknowns
27.DiscoveryofUnknowns
28.RelationshipsAmongOverheadItems
29.ProcessingCostinginBusinessSectors
30.ProcessMapandProcessCosting
31.EquivalentUnits
32.BasicProcessCosting
33.UnevenFlow
34.JournalEntries
35.JournalEntries
36.ComputeEquivalentUnits
37.JournalEntries
38.JournalEntries
PROBLEMS
39.JobCostingatDellComputer
40.RelationshipsofManufacturingCosts
41.RelationshipofSubsidiaryandGeneralLedgers,JournalEntries
42.JobCostinginaConsultingFirm
43.WeightedAverageProcessCostingatNally&Gibson
44.ProcessandABC
45.NonprofitBasicProcessCosting
46.TwoMaterials,BasicProcessCosting
47.MaterialsandCartonsinBasicProcessCosting
48.WeightedAverageProcessCostingwithTransferredinCosts
49.BackflushCosting
50.ReviewofChapters13and14
51.ReviewofChapters13and14
52.Nike10-KProblem:
ABCandDistributionCenters
EXCELAPPLICATIONEXERCISE
53.ValueofUnitsProduced
COLLABORATIVELEARNINGEXERCISE
54.JobandProcessCosting
INTERNETEXERCISE
55.ProcessCostingataVarietyofCompanies
()
()
()
CHAPTER14:
OUTLINE
I.DistinctionBetweenJob-OrderCostingandProcessCosting{L.O.1}
Twoextremesofproductcostingarejob-ordercostingandprocesscosting.Job-OrderCosting(orJobCosting)—allocatescoststoproductsthatarereadilyidentifiedbyindividualunitsorbatches(e.g.,construction,printing,aircraft,furniture,special-purposemachinery,andanymanufactureoftailor-madeoruniquegoods).Eachunitorbatchreceivesvaryingdegreesofattentionandskill.
Processcosting—averagescostsoverlargenumbersofnearlyidenticalproducts(e.g.,chemicals,oil,textiles,plastics,paints,flour,canneries,rubber,lumber,foodprocessing,glass,mining,cement,andmeatpacking).Theseindustriesinvolvemassproductionoflikeunits,whichusuallypassincontinuousfashionthroughaseriesofuniformproductionstepscalledoperationsorprocesses.
Job-ordercostingappliescoststospecificjobs,whichmayconsistofeitherasinglephysicalunit(suchasacustomsofa)orafewlikeunits(suchasadozentables)inadistinctbatchorjoblot.Incontrast,processcostingdealswithgreatmassesoflikeunitsandbroadaveragesofunitcosts.Productcostinginvolvesanaveragingprocess.Forinventorypurposes,theunitcostistheresultoftakingsomeaccumulatedcostthathasbeenallocatedtodepartmentsanddividingitbysomemeasureofproduction.Thedifferencebetweenthetwomethodsisinthesizeofthedenominator.Forjob-ordercostingitissmall,andforprocesscostingthedenominatorislarge.Manycompaniesusehybrid-costingsystems,whichareblendsofideasfrombothjobcostingandprocesscosting.
II.IllustrationofJobCosting
A.BasicRecordsofEnriquezMachinePartsCompany
Job-CostRecord(alsocalledJob-CostSheetorJobOrder)—whereallcostsforaparticularproduct,service,orbatchofproductsarerecordedonthejob-costrecord(seeEXHIBIT14-1).Afileofjob-costrecordsforpartiallycompletedjobsprovidessupportingdetailsfortheWork-in-Process(WIP)Inventoryaccount.Afileofcompletedjob-costrecordscomprisestheFinished-Goods(FG)Inventoryaccount.
Thejob-costrecordsummarizesinformationcontainedonsourcedocuments.MaterialsRequisitions—recordsofmaterialsusedinparticularjobs.LaborTimeTickets(orTimeCards)—recordthetimeaparticulardirectlaborerspendsoneachjob.Withcurrenttechnology(e.g.,onlinedataentry,barcoding,andopticalscanning),job-costrecordsandsourcedocumentsarelikelytobecomputerfiles,notpaperrecords.
Aseachjobbegins,ajob-costrecordisprepared.Asunitsareworkedon,entriesaremadeonthejob-costrecord.Threeclassesofcostsareaccumulatedonthejob-costrecordasunitspassthroughthedepartments:
materialrequisitionsarethesourceofdirect-materialscosts,timeticketsprovidedirect-laborcosts,andbudgetedoverheadrates(i.e.,aseparaterateforeachoverheadcostpool)areusedtoapplyfactoryoverheadtoproducts.(Thecomputationofthesebudgetedrateswillbedescribedlaterinthischapter.)
Relevantinformationisprovidedforillustratingtheuseofajob-ordercostingsystemforEnriquezMachinePartsCompany(seeEXHIBIT14-2).
B.ApplyingDirectMaterialsandDirectLaborCosts
C.ApplyingFactoryOverheadCosts
D.FinishedGoods,Sales,andCostofGoodsSold
B–DExplanationofTransactions{L.O.2}
SeeEXHIBIT14-2forexplanationsofthejournalentriesrequiredtorecordthetransactionsofEnriquez.ThesetransactionsillustratehowthevariousmanufacturingcostsarebeingaccumulatedinWIP,transferredtoFG,andeventuallyreflectedinCostofGoodsSold(COGS).
III.Activity-BasedCosting/ManagementinaJob-CostingEnvironment
{L.O.3}
Activity-basedcostingusuallyincreasescostingaccuracybecauseitfocusesonthecause–effectrelationshipbetweenworkperformed(activities)andtheconsumptionofresources(costs).
A.IllustrationofABCinaJobOrderEnvironment
SeeEXHIBIT14-3forDellComputerCorporation’svaluechainandABCsystem.Delladoptedactivity-basedcostingbecauseoftheaggressivecostreductiontargetssetbytopmanagement,andtheneedtounderstandproduct-lineprofitability.Byusingthevaluechainperspective,Delltargetedthenon-value-addedcostsforreduction(e.g.,preparationactivityintheproductionfacility).Marketing,distribution,andcustomerserviceareestimatedduringthebudgetingprocessandincludedinthemarkupusedtopriceajob.
IV.JobCostingInServiceAndNonprofitOrganizations{L.O.4}
Innonprofitorganizations,the“product”isusuallynotcalleda“joborder”.Itmaybecalledaprogramorclassofservice.A“program”isanidentifiablegroupofactivitiesthatfrequentlyproducesoutputsintheformofservicesratherthangoods(e.g.,asafetyprogram,aneducationprogram,andafamilycounselingprogram).Costsorrevenuesmaybetracedtoindividualhospitalpatients,individualsocialwelfarecases,andindividualuniversityresearchprojects.However,departmentsoftenworksimultaneouslyonmanyprograms,sothe“job-order”costingchallengeisto“apply”thevariousdepartmentcoststothevariousprograms.Onlythencanmanagersmakewiserdecisionsregardingtheallocationoflimitedresourcesamongcompetingprograms.Inserviceindustries(e.g.,repairing,consulting,legal,and/oraccountingservices),eachcustomerorderisadifferentjobwithaspecialaccountorordernumber.
A.BudgetsandControlofEngagements
Anexampleisprovidedillustratingtheuseofcostdataforcontrollinganauditingengagementforanaccountingfirm.Ifafixedauditfeehasbeenquoted,theprofitabilityofanengagementdependsonwhethertheauditcanbeaccomplishedwithinthebudgetedtime.
B.AccuracyofCostsofEngagements
Managersofservicefirms(e.g.,auditingandconsultingfirms)frequentlyuseeitherthebudgetedor“actual”costsofengagementsasguidestopricing,andallocateeffortamongparticularservicesorcustomers.Hence,theaccuracyofcostsofvariousengagementsmayaffectdecisions.
V.ProcessCostingBasics{L.O.5}
Allproductcostingusesaveragingtodeterminecostsperunitofproduction.Process-costingsystemsapplycoststolikeproductsthatareusuallymass-producedincontinuousfashionthroughaseriesofproductionprocesses.Theseprocessesusuallyoccurinseparatedepartments,althoughasingledepartmentsometimescontainsmorethanoneprocess.
A.ProcessCostingComparedwithJobCosting
SeeEXHIBIT14-5forthemajordifferencesbetweenjob-ordercostingandprocesscosting.Processcostingrequiresseveralwork-in-process(WIP)accounts,oneforeachprocess(ordepartment).Asgoodsmovefromprocesstoprocess,theircostsaretransferredaccordingly.SeeEXHIBIT14-6forprocesscostingatNally&Gibson(alimestonequarrycompany).
Processmanufacturingsystemsvaryindesign.TheprocessesrequiredformanufacturecanbesequentialasshowninPANELBofEXHIBIT14-5andinEXHIBIT14-6,ortheycansimultaneouslyproducesubcomponentsofafinalproductt
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