Chapter Two Professor Mcdermott
Chapter Two Professor Mcdermott
Professor McDermott
Two Types of Costing
Systems
Process Costing
Homogeneous products
Example: Paint, pencils, hammers, etc.
Job Order Costing
Products that are different from one another
Custom built homes
Battleships
Printing shops
Auto repair
Flow of Costs
Raw Materials
Finished Goods
Inventory
Work in
Direct Labor Process
Inventory
Cost of Goods
Factory Sold
Overhead
Journal Entries—Raw
Materials
Raw Materials Inventory $10,000
Accounts Payable $10,000
To record purchase of raw
materials
Journal Entries—Raw
Materials
Raw materials inventory 10,000
Accounts payable 10,000
To record purchase of raw
materials
Note: if more than one Job is being debited, then subsidiary ledgers for
Each job will be debited also. For example if the work in process consisted of
$20,000 of payroll going into Job 1 and $5,000 going into job 2, then you
would also Debit Job 1 WIP $20,000, and Job 2 WIP $5,000. The work in
process and Finished goods are control accounts.
Journal—Transfer from Work
in Process to Finished
Goods
Finished Goods 9,000
Work in Process 9,000
To transfer completed work in
process to finished goods
Journal—Transfer from
Finished Goods To COGS
Cost of Goods Sold 5,000
Finished Goods 5,000
To record sale of finished
goods
Accounts Receivable $7,850
Sales 7,850
To record sale of finished
goods
Overhead
Budgeted overhead
Estimated at the beginning of the year
Used for one purpose—calculation of overhead rate
Actual overhead
Calculated at the end of the year
Found in the general ledger
Overhead applied
The amount of overhead credited from the
Manufacturing Overhead account and debited to
Work in Process using a rate and a base
Overhead Rate Formula
$25,000