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FUNDAMENTALS FOR
MANAGERS
University of Management and Technology
1901 North Fort Myer Drive
Arlington, VA 22209
Voice: (703) 516-0035 Fax: (703) 516-0985
Website: www.umtweb.edu
South-Western 2004
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Chapter 10,
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Chapter 10,
Chapter 10
Accounting Systems for
Manufacturing Businesses
South-Western 2004
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Chapter 10,
Learning Objectives
1. Distinguish the activities
of a manufacturing
business from
After
studying
this
After
studying
this
those of a merchandise or service business.
chapter,
you
should
chapter,
you
should
2. Define and illustrate materials, factory
labor, and factory
be
overhead costs.
be able
able to:
to:
3. Describe accounting systems used by manufacturing
businesses.
4. Describe and illustrate a job order cost accounting system.
Continued
Continued
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Chapter 10,
Learning Objectives
5. Use job order cost information for decision making.
6. Diagram the flow of costs for a service business that uses a
job order cost accounting system.
7. Describe just-in-time manufacturing.
8. Describe and illustrate the use of activity-based costing in a
service business.
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Chapter 10,
Learning Objective
Distinguish the
activities of a
manufacturing
business from those of
a merchandise or
service business.
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Chapter 10,
Merchandising
Merchandising
Reports:
Cost of merchandise sold
Merchandise inventory
Manufacturing
Manufacturing
Reports:
Cost of goods sold
Materials inventory
Work in process inventory
Finished goods inventory
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Chapter 10,
Learning Objective
Define and
illustrate materials,
factory labor, and
factory overhead
costs.
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Chapter 10,
Cost Classifications
Direct
Direct
Materials
Materials
Product
Product
Costs
Costs
Direct
Direct
Labor
Labor
Factory
Factory
Overhead
Overhead
Period
Period
Costs
Costs
Selling
Selling
Expenses
Expenses
Administrative
Administrative
Expenses
Expenses
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Chapter 10,
Manufacturing Costs
Direct Materials:
1. Enters directly into the product.
2. Is significant amount of total product cost.
Direct Labor:
1. Enters directly into manufacturing the product.
2. Is significant amount of total product cost.
Factory Overhead:
Cost other than direct materials cost and direct
labor cost incurred in the manufacturing of product.
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Chapter 10,
Balance Sheet
Materials
Materials
Purchases
Purchases
Direct
Direct
Labor
Labor
Factory
Factory
Overhead
Overhead
Income Statement
Period Costs
Selling
Sellingand
and
Administrative
Administrative
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Chapter 10,
Balance Sheet
Materials
Materials
Inventory
Inventory
Direct
Direct
Labor
Labor
Factory
Factory
Overhead
Overhead
Income Statement
Period Costs
Selling
Sellingand
and
Administrative
Administrative
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Chapter 10,
Balance Sheet
Materials
Materials
Inventory
Inventory
Work
Workin
in
Process
Process
Inventory
Inventory
Income Statement
Period Costs
Selling
Sellingand
and
Administrative
Administrative
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Chapter 10,
Balance Sheet
Materials
Materials
Inventory
Inventory
Work
Workin
in
Process
Process
Inventory
Inventory
Finished
Finished
Goods
Goods
Inventory
Inventory
Cost of Goods
Manufactured
Income Statement
Selling
Sellingand
and
Administrative
Administrative
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Chapter 10,
Balance Sheet
Materials
Materials
Inventory
Inventory
Work
Workin
in
Process
Process
Inventory
Inventory
Finished
Finished
Goods
Goods
Inventory
Inventory
Product
Productcosts
costs
flow
flowthrough
throughthe
the
balance
balancesheet
sheetto
to
the
theincome
income
statement
statement
Income Statement
Cost
Costof
of
Goods
GoodsSold
Sold
Selling
Sellingand
and
Administrative
Administrative
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Chapter 10,
Balance Sheet
Materials
Materials
Inventory
Inventory
Work
Workin
in
Process
Process
Inventory
Inventory
Finished
Finished
Goods
Goods
Inventory
Inventory
Selling
Sellingand
and
Administrative
Administrative
Period
Periodcosts
costsflow
flow
directly
to
the
directly to the
income
incomestatement
statement
Income Statement
Cost
Costof
of
Goods
GoodsSold
Sold
Selling
Sellingand
and
Administrative
Administrative
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Chapter 10,
Learning Objective
Describe
accounting
systems used by
manufacturing
businesses.
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Chapter 10,
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Chapter 10,
Learning Objective
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Chapter 10,
$ 3,000
Job 72
4,000 units of Algebra
Direct Materials
Direct Labor
Factory Overhead
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Chapter 10,
$ 3,000
2,000
Job 72
4,000 units of Algebra
Direct Materials
Direct Labor
Factory Overhead
$11,000
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Chapter 10,
$ 3,000
2,000
Job 72
4,000 units of Algebra
Direct Materials
Direct Labor
Factory Overhead
$11,000
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Chapter 10,
$ 3,000
2,000
3,500
Job 72
4,000 units of Algebra
Direct Materials
Direct Labor
Factory Overhead
$11,000
7,500
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Chapter 10,
Predetermined
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Chapter 10,
Predetermined
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Chapter 10,
$50,000 estimated
factory overhead costs
10,000 estimated
direct labor hours
Predetermined
factory overhead rate
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Chapter 10,
$50,000 estimated
factory overhead costs
10,000 estimated
direct labor hours
Predetermined
factory overhead rate
$5 per direct
labor hour
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Chapter 10,
$50,000 estimated
factory overhead costs
10,000 estimated
direct labor hours
Direct
Factory
Labor
Overhead
Hours
Applied
Job 71 350 x $5 = $1,750
Job 72 500 x $5 = $2,500
Predetermined
factory overhead rate
$5 per direct
labor hour
For each direct labor
hour worked, factory
overhead applied is $5.
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Chapter 10,
$ 3,000
2,000
3,500
Job 72
4,000 units of Algebra
Direct Materials
Direct Labor
Factory Overhead
$11,000
7,500
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Chapter 10,
$ 3,000
2,000
3,500
1,750
Job 72
4,000 units of Algebra
Direct Materials
Direct Labor
Factory Overhead
$11,000
7,500
2,500
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Chapter 10,
Total of debits to
Work in Process
$ 3,000
2,000
3,500
1,750
$10,250
Job 72
4,000 units of Algebra
Direct Materials
Direct Labor
Factory Overhead
$11,000
7,500
2,500
$21,000
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Chapter 10,
Goodwell Printers
Income Statement
For the Month Ended December 31, 2004
Sales
Cost of goods sold
Gross profit
Selling and admin. expenses:
Sales salaries expense
Office salaries expense
Total selling and admin.
expenses
Income from operations
$28,000
20,150
$ 7,850
$2,000
1,500
3,500
$ 4,350
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Chapter 10,
Learning Objective
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Chapter 10,
Job 144
Item: 200 folding chairs
Materials
Quantity
(board feet)
Direct materials:
1,600
Wood
Direct materials per chair
Materials
Price
Materials
Amount
$3.50
$5,600
$28
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Chapter 10,
Job 163
Item: 200 folding chairs
Materials
Quantity
(board feet)
Direct materials:
2,000
Wood
Direct materials per chair
Materials
Price
Materials
Amount
$3.50
$7,000
$35
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Chapter 10,
Learning Objective
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Chapter 10,
Wages Payable
Direct labor xxx
Indirect labor xxx
Direct labor
xxx Completed jobs xxx
Applied overhead xxx
Completed jobs (xxx)
Indirect labor
xxx
Supplies used
xxx
Applied overhead (xxx)
Supplies
Used
Factory
Overhead
Cost of Services
xxx
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Chapter 10,
Learning Objective
Describe just-in-time
manufacturing.
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Chapter 10,
Issue
Just-in-Time
Manufacturing
Traditional
Manufacturing
Inventory
Reduces inventory.
Lead time
Setup time
Production layout
Emphasizes product-oriented
layout.
Emphasizes process-oriented
layout.
Continued
Continued
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Chapter 10,
Issue
Just-in-Time
Manufacturing
Traditional
Manufacturing
Emphasizes team-oriented
employee involvement.
Emphasizes work of
individuals, following
manager instructions.
Emphasizes pull
manufacturing.
Emphasizes push
manufacturing.
Quality
Tolerates defects.
Suppliers
Emphasizes supplier
partnering.
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Chapter 10,
Learning Objective
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Chapter 10,
ActivityBase
Usage
1 admission
2 images
4 hours
Pathological testing
Dietary and laundry
Activity
Admitting
Radiological testing
Operating room
Activity
Rate
Activity
Cost
$ 180
640
800
1 specimen
120
7 days
1,050
Total
$2,790
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Chapter 10,
HOPEWELL HOSPITAL
Customer (Patient) Profitability Report
For the Period Ending December 31, 2004
Adcock,
Kim
Revenues
Birini,
Brian
Conway,
Don
Wilson,
Mary
$9,500
$21,400
$5,050
$3,300
$ 400
$1,000
$ 300
$ 200
180
180
180
180
Radiological testing
1,280
2,560
1,280
640
Operating room
2,400
6,400
1,600
800
Pathological testing
240
600
120
120
4,200
14,700
1,050
1,050
$8,700
$25,440
$4,530
$2,990
$ 800
$(4,040)
$ 520
$ 310
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Chapter 10,