Once the merchandise is sold, the related inventory costs are transferred to cost of goods sold. These companies simply record the cost of the purchase in an inventory account and account for any returns and allowances, discounts, and shipping costs. Question: Financial accounting classes cover how merchandising companies, such as Sears and Lowe’s, account for the cost of the goods that they purchase from a supplier and later sell to a customer. Distinguish between job costing and process costing.We use Custom Furniture Company as an example throughout the chapter to explain how a job costing system works and to provide information that will address Dan’s concerns. No problem, I’ll have the information for you by the end of the day. I would also like to see the gross profit generated by each table. It would be helpful to break these costs out for direct materials, direct labor, and manufacturing overhead. Let’s start by looking at actual product costs for the three costliest tables produced in May. I can pull together the information for you. We use a job cost accounting system that tracks costs for each table you produce. Have you compared the actual cost of each table with your original estimates? I’m not sure why this is happening, especially since we price our furniture 70 percent above estimated production costs.īasing prices on estimated costs is a good approach, but it only works if your estimates are accurate. Leslie, last month’s income statement shows we are struggling to make a decent profit. He approaches Leslie, the full-time accountant for Custom Furniture Company, to get more information. Because sales prices are based on a markup of estimated costs, Dan is questioning the accuracy of his estimates. When Dan received the company’s income statement for May, he was surprised by the lack of profits. Although not required, you may find it helpful to refer to the Chapter 1 "What Is Managerial Accounting?" discussion of Custom Furniture Company.) (Note that this is the same company as the example in the last part of Chapter 1 "What Is Managerial Accounting?". The sales price of each table varies significantly, from $1,000 to more than $30,000. Each table is unique and built to customer specifications for use in homes (coffee tables and dining room tables) and offices (boardroom and meeting room tables). Chapter 2 How Is Job Costing Used to Track Production Costs?ĭan Stevens recently started Custom Furniture Company, a manufacturing company that specializes in building custom wood tables for individuals and organizations.
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