Week 2 - Team C A ssignment Essays - Business Economics, Economy

Week 2 - Team C A ssignment Essays - Business Economics, Economy Week 2 - Team C A ssignment A CC / 4 00 November 2 , 2015 Mark Tischler Figure 2: T-accounts for Assume table is finished and sold Figure 3: Time Tickets and Materials Requisition Form Figure 5: T-accounts for Assume table is finished and sold, bookshelves are finished and China Cabinet is n ot finished This learning team learning activity required us to walk through the simulation of job order costing process for a manufacturer of a custom-made furniture that makes three different pieces of furniture - table, bo ok shelves and china cabinets. We walked through the manufacturing process of a table, bookshelf, and a china cabinet and flow through as well as the corresponding flow of costs through the accounting systems and the T accounts. We were also required to track the costs of direct materials, direct labor and manufacturing overhead. Part of this process was filling out labor cost sheets in order to accurately track three different jobs (table, bookshelves, and china cabinet ) . This process allowed our team to understand the entire production process from raw materials to finished goods as well as understanding how to these costs are treated in the accounting system. Job order costing systems are used for projects that are unique, custom, and non-repetitive. The primary purpose of activity based costing system focuses on generating more accurate costs and is used by several companies that produce custom made, non-mass products product (i.e. custom made tables, or private jets). When calculating costs for job order costing, overhead costs are allocated to each individual job, while direct costs are traced. In our example, first, the raw materials (both direct and indirect) were purchased from outside suppliers and place d in the raw material warehouse. Then, direct labor cost s involving two employees ( one (Employee A) in cutting and another (Employee B) in finishing departments) were tracked by using the time tickets. The direct materials are also tracked by using the materia ls request form, in which the direct labor worker requests the materials (for example wood, glass etc. ) needed to begin the work on a particular job. To complete the job cost sheet, manufacturing overhead must be allocated. In a normal costing system, a predetermined overhead rate is used estimated by the company. A predetermined overhead rate is determined by dividing total overhead by actual direct labor hours. This overhead rate is then applied the number of direct labor hours incurred by each job. If the applied overhead amounts are more than actual, then we have over applied overhead. These amounts tend to balance our from month to month, and the amount of over or under applied overhead at the year-end is usually not material and the balances may be closed directly to the cost of goods sold in the income statement. A major activity of allocating overheads in job order cost system involves selecting an activity base which is based on actual cause or driver of the Company to consume the resources. This is important as some products require less activity while others require more. For departments that are more capital intensive, machine hours should be used as an allocation base, while for manual labor intensive departments, direct labor hours should be used as an allocation base. This is an important aspect of allocation overhead in activity based costing, as activities that cause or drive overhead, called cost drivers must be properly determined. In this simulation, we were already given applied manufacturing overhead and used direct labor hours as a driver of for finishing department and machine hours as a dr iver for the cutting department. Contrary of activity based costing, a plant-wide cost driver is best to use when allocating all of the company's overheads to its production output. Plant wide rate is the amount per machine hour, labor hour, or a percentage of product's direct costs. References: Electronic Reading: Job Order Costing, a simulation and vehicle for conceptual discussion; derived from University of Phoenix Website Williams, J. R., Haka, S. F., Bettner , M. S., Carcello , J. V. (2015). Financial managerial accounting: The basis for business decisions (17th ed ). New York, NY: McGraw-Hill Companies