Exercise A Chapter 4 Job Order Costing - Little Things

Exercise A Chapter 4 Job Order Costingea1lo 41little Things Manufa

Identify whether each listed item is a product cost, a period cost, or not an expense. Calculate the manufacturing or sales and administration costs involved in lacrosse stick production, classify costs as direct materials, direct labor, or overhead as applicable. Determine prime and conversion costs for a given set of costs. Calculate purchases made based on beginning and ending raw materials inventory and materials used. Calculate direct labor incurred during a month based on work in process inventories. Determine beginning inventory given cost of goods sold and ending inventory. Compute the predetermined overhead rate based on various allocation bases. Calculate total costs assigned to jobs based on overhead application rates. Assess work in process and finished goods inventory balances based on job sheet data, and determine the predetermined overhead rate based on direct labor hours. Prepare job order cost sheets for different production scenarios, including material, labor, and overhead costs. Record journal entries for production transactions including expenses, overhead allocations, completion, and sales of jobs, as well as factory expenses. Apply overhead costs to jobs using specified rates, and record the assignment of direct materials, labor, and overhead to work in process in journal entries.

Paper For Above instruction

The manufacturing and cost accounting environment requires a rigorous understanding of the flow of costs through production processes and financial statements. This paper systematically addresses the core concepts introduced in Chapter 4 of a typical managerial accounting curriculum, focusing on job order costing, the classification of costs, and the journal entries that record operational activities.

Firstly, it is essential to distinguish between product costs, period costs, and costs that are not expenses. Product costs are directly associated with the manufacture of products and include direct materials, direct labor, and manufacturing overhead. Period costs, on the other hand, pertain to the period in which they are incurred and generally include selling, general, and administrative expenses. Costs like internet services and showroom rental are typically period costs, affecting the income statement in the period incurred, whereas raw materials and factory equipment rentals are product-related costs, being capitalized or expensed as incurred.

In the context of lacrosse stick production, expenses such as carbon fiber and fiberglass are classified as manufacturing costs, with carbon fiber being a direct material and fiberglass potentially as indirect material if used for overhead purposes. Salaries for the production supervisor and factory depreciation are manufacturing overhead costs, generally classified as indirect labor and other overhead, respectively. Contrastingly, advertising and research and development costs are classified as selling and administrative expenses.

The calculation of prime cost involves summing direct materials and direct labor costs, whereas the conversion cost includes direct labor and manufacturing overhead, reflecting the transformation of raw materials into finished goods. For example, if a company incurs specific costs and the beginning and ending inventories are known, calculations can determine materials used or direct labor incurred using the inventory flow formulas.

In accounting for inventory, the beginning raw materials inventory plus purchases equals the raw materials available for use; subtracting raw materials used yields ending inventory. Similarly, work in process and finished goods inventories are evaluated based on their opening and closing balances, and costs assigned to jobs are calculated using predetermined overhead rates, which depend on the chosen allocation base—such as direct labor hours, direct labor expense, or machine hours.

The application of overhead is often based on a fixed rate times an activity measure. For example, if the overhead rate is $1.25 per dollar of direct labor costs, then total overhead applied equals this rate multiplied by the actual direct labor cost incurred. This application provides the total job costs essential for setting product prices, calculating profitability, and managing operational efficiency.

Furthermore, journal entries formalize the recording of costs and transactions. Assigning raw materials to jobs involves debiting work in process and crediting raw materials inventory. Payments for factory expenses, labor, and overhead are reflected in corresponding accounts—such as wages payable and factory utilities. Completed jobs are transferred from work in process to finished goods, and sales transactions reflect revenue recognition and cost of goods sold. Overhead is allocated based on predetermined rates, and the overall system provides a comprehensive view of manufacturing costs, facilitating managerial decision-making and financial reporting.

In conclusion, mastering job order costing requires understanding the classification of costs, inventory flows, application of overhead, and the recording of transactions. Accurate classification and recording of these costs ensure reliable financial information, support effective cost management, and lead to better strategic decisions in manufacturing organizations.

References

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