Transparency Master 17(2)-1

COST ACCOUNTING SYSTEMS

Focus: Information
to
manufacturing operations

manage

Information Provided:
1. Product costs to be used for pricing
and other management decisions.
2. Inventory and Cost of Goods Sold
balances to be reported on financial
state-ments.
3. Costs incurred by each manufacturing
department or process to be used for
cost control.
Types of Systems:
1. Job Order
2. Process Cost

Transparency Master 17(2)-2

OVERHEAD
If actual overhead < overhead applied

Overapplied overhead

If actual overhead > overhead applied

Underapplied overhead

What happens to overapplied or underapplied overhead at the end of

the accounting period?

Overapplied
Overhead

If Amount Is
Immaterial

If Amount Is
Material

Recorded as a
head
decrease to
Cost of Goods
Sold

Recorded as a

Underapplied Recorded as an
Overhead
increase to
Cost of Goods
Sold

Transparency Master 17(2)-3

Reason
Too much over

decrease to
allocated to the
Work in Process, products; excess
Finished Goods, is removed
and Cost of
Goods Sold
Recorded as an
increase to
Work in Process,
Finished Goods,
and Cost of
Goods Sold

Too little
overhead
allocated to the
products;
additional is
added

JOURNAL ENTRIES IN A JOB ORDER

COST ACCOUNTING SYSTEM
Record the following entries for Jen Manufacturing.
1. Purchased materials costing $20,000 on
account.
2. Materials costing $13,000 were requisitioned for
use in making specific customer jobs. An
additional $1,000 in materials was requisitioned
for general factory use.
3. $7,800 was paid to direct laborers. An additional
$9,500 was paid to factory employees who do
not work directly on Jen's products.
4. Factory overhead expenses totaling $5,000 were
paid in cash.
5. $3,700 in depreciation was recorded on factory
machines.
6. Overhead was applied to production using a
predetermined rate of $24.50 per direct labor
hour. Jen used 780 direct labor hours during the
period.
7. Jobs costing $38,000 were completed.
8. Jobs costing $32,000 were sold to credit
customers for $55,000.

Transparency Master 17(2)-6

JOB ORDER COSTING IN A

SERVICE BUSINESS
John Meyer, CPA, does tax and audit work. He
estimates his overhead costs for the current year will
be:
Wages paid to receptionist........................ $17,000
Supplies.......................................................
8,000
Depreciation on office equipment............
2,000
Advertising..................................................
1,300
Rent and utilities.........................................
4,000
$32,300
John uses direct labor hours to allocate overhead
costs to jobs performed for clients. He estimates that
he will work 1,900 hours conducting audits and
preparing tax returns this year. John uses $60 per
hour for his wage rate when computing the cost of
any work performed for a client.
John spent 12 hours preparing a tax return for Sharon
Ward. What was the cost to prepare Sharon's return?