Users of reports : External users: stockholders, cerditors, lendors, general public, government.
Types of reports: Financial Statements: Income statement, Retianed Earnings statement, Balance sheet, and Cash flows statement.
Purpose of Reports: Helps those external users make decisions: credit terms, investment, and other decisions
Focus of Reports:
Pertains to company as a whole
Uses GAAP structure
Composed from a multitude or combination of other more individual data.
Nature of Reports: Monetary
Verifictaion of Reports: Audited by CPA
Users of reports : Internal users: managers, supervisors, and other employees
Types of reports: Internal reports: job cost sheet, cost of goods manufactured, production cost report, etc.
Purpose of Reports: Assists the internal users in the planning and control decision-making process.
Focus of Reports:
Pertains to departments, sections of the business
Very detailed reporting
No GAAP constraints
Nature of Reports: Monetary and Non-monetary information.
Verifictaion of Reports: No independent audits
Used for companies that mass produce a product. The uniform production allows cost to be spread evenly.
IPhone X process = $92,562,500 TC / 250,000 units = $370.25 per unit
Unique product or batch of units produced uniquely or in small batches.
Cost of all labor and materials will be recorded on a job cost sheet, shown below.
Uniqueness of product. Job costing is used for unique products, and process costing is used for standardized products.
.Size of job. Job costing is used for very small production runs, and process costing is used for large production runs
Record keeping. Much more record keeping is required for job costing, since time and materials must be charged to specific jobs. Process costing aggregates costs, and so requires less record keeping.
Customer billing. Job costing is more likely to be used for billings to customers, since it details the exact costs consumed by projects commissioned by customers.
A sheet like this encompasses all the cost associated with a products cost. Here are some important notes about allocating Manufacturing Overhead (MOH):
Predetermined MOH rate
= Total estimated manufacturing overhead costs / Total estimated amount of the allocation base
With this, you find the MOH allocated to a job by
= Predetermined MOH rate (above) x Actual amount of allocation base used by the job
Page 118 of your textbook covers a similar example.
Image Credit: https://www.accountingformanagement.org/job-cost-sheet/
Under - Allocation*:
Dr. Cost of Goods Sold XXX
Cr. Manufacturing Overhead XXX
*An inverse relationship is represented with Over-Allocation. Instead debit MOH and credit CGS!!
IF YOU WANT TO TEST YOUR JOB/PROCESS COSTING SKILLS, HERE'S SOME PRACTICE QUESTIONS!!
Why companies use ABC:
1) Improved accuracy
2) Detailed information on costs of activities & associated drivers helping mangers assess value added activities
Activity cost allocation rate = Total estimated activity cost pool / Total estimated activity allocation base
Allocation of activity's cost = Activity cost allocation rate X Actual amount of activity allocation base used by job
This image illustrates how costs are calculated from the beginning of the manufacturing process all the way to the selling of a finished good.
Manufacturing cost is the back bone of the product. Knowing that three main cost go into it:
Direct Materials Cost + Direct Labor Cost + Manufacturing Overhead Cost.
In this video, Nico explains the process of calculating manufacturing costs to the sale of goods.
If you want a more in-depth look at the difference between job order costing and process costing, watch this video which goes over the conceptual difference and expands on it with an example for each.
Want a better understanding on absorption costing and variable costing? Check out the website link below! https://www.coursesidekick.com/accounting/study-guides/sac-managacct/absorption-costing
Still not sure about cost types?
Try to solve these practice exercies by defining what type of cost each example falls under.
Practice variances problems with this worksheet!