Assignment Prompt & Instructions
See attached
– ## DBII.docx
– ## UnitIIStudyGuide.pdf
**## DBII.docx**
Management Applications of Accounting DB II
• Your initial post should be at least 300 words in length.
• Your initial post should include at least one APA-formatted scholarly, professional, or textbook reference with accompanying in-text citation to support any paraphrased, summarized, or quoted material.
Post 2: Response post to a classmate is due by the end of day on Tuesday.
Post 3: Response post to a second classmate or the instructor’s follow-up question is due by the end of day on Tuesday.
• If no initial posts exist to allow for a response to be made, you may submit an additional initial post addressing another aspect of the unit topic.
• Feel free to post more responses to classmates as you read, reflect, and contribute to our discussion.
Do you think both types of accounting, financial and managerial—are necessary to make strategic business decisions? Why, or why not?
Reply 1 David Brogden
Successful businesses understand how both financial and managerial accounting work together. When it comes to financial accounting it is a little more straight forward for business operations. Financial accounting comprehends the financial information needed to analysis how a business is performing (Jacková, 179). Managerial accounting takes a similar approach but allows business managers to understand what direction their business should go and how they operate. Managerial accounting provides high quality information in relation to how much profit a business receives from the services or products they offer (Jacková, 179). Both are important in business operations.
One could view this as a homeowner deciding on how to improve their home. Before one undergoes a massive or short renovation, they must look at their finances to see how much they can afford to spend to get what they desire. Once their finances have been looked at the next item would be to look at contractors and decide what would be the best for their return on investment. Business managers examine how much profit they’ll be able to generate by purchasing what’s needed. They’ll examine the finances of the business to see how much is available and forecast what the item will do for their business.
Another reason why both work is they both work hand in hand with each other. When a business views their financial accounting, they’ll view how they been in the past and use that for a basis of their desired end state (Jacková, 179). Managerial accounting is viewed the same. This accounting method provides detailed information on financial records to understand how the business is operating (Jacková, 179). It is important for a business to understand how both accounting methods work for them. Using both allows a business to forecast revenue and a better strategic competitive advantage for their industry.
Reference
Jacková, A. (2024). The Impact of Management Accounting on Business Competitiveness. Ad Alta: Journal of Interdisciplinary Research, 14(2), 178–181.
Reply 2 Cina McDowell
Yes, it is necessary to have both financial and managerial accounting in place to assist in making strategic business decisions.
Starting with financial accounting it focuses on preparation of income statements, cash flow statements and balance sheets for divisions outside of the company such as investors, banks, creditors and stakeholders. Having transparency allows the company to meet compliance requirements as well as providing historical data. Having full understanding of their debt levels enables the company to use the balance sheet to further their borrowing ability prior to making a large purchase, additions or additional financial investments; it can also be useful in efforts to expand the company or seeking to purchase inventory. This information which can be gathered monthly or quarterly can be audited by a certified public accountant (CPA) to ensure accuracy and make strategic financial decisions.
Managerial accounting assists with internal planning providing more detailed information on costs and efficiency which allows them to make knowledgeable decisions of their operation such as production, pricing, etc. The information also enables the manager to compare products or departments to see how successful a product line may be versus another product. Having a greater understanding of product lines or departments enables managers to adjust department needs, promote products further or seek other products that may be more successful. Having a full understanding of the numbers will allow one to adjust goals as needed and help with everyday operations.
It is important to not rely on just one method, but to have as much information to have a solid company financial report. This transparent information which is both internal (managerial) and external (financial) will assist a company to be successful and long lasting. Information that is transparent can also improve future decisions, increased trust and reduced economic frictions. There can be a cost to transparency as well such as misuse of information and scrutiny (Bischof, et al., 2024).
Bischof, J., Gassen, J., Rohlfing-Bastian, A., Rostam-Afschar, D., & Sureth-Sloane, C. (2024).
Accounting for Transparency: a Framework and Three Applications in Tax, Managerial, and Financial Accounting.
_Schmalenbach Journal of Business Research (SBUR)_,
_76_(4), 573–611.
[https://doi-org.libraryresources.columbiasouthern.edu/10.1007/s41471-024-00200-7](https://doi-org.libraryresources.columbiasouthern.edu/10.1007/s41471-024-00200-7)
**## UnitIIStudyGuide.pdf**
ACC 5301, Management Applications of Accounting 1
Course Learning Outcomes for Unit II
Upon completion of this unit, students should be able to:
2. Apply accounting concepts to the creation of accounting information and reports.
2.1 Prepare reports using both job order and process costing methods.
3. Analyze accounting information used to make strategic business decisions.
3.5 Define job order and process costing.
3.6 Compare and contrast the use of job order and process costing.
Required Unit Resources
Chapter 2: Job-Order Costing for Manufacturing and Service Companies, pp. 2-1 – 2-31
Chapter 3: Process Costing, pp. 3-1 – 3-16
Unit Lesson
Introduction
Welcome to Unit II. In this unit, we will discuss two different costing methods, job order and process costing. It
is important to identify the costs needed to make a product or to provide a service so that the organization
ensures that it is pricing the product properly. In other words, if you manufacture computers and they cost you
$1,000 to make, then you need to price them for sale at more than $1,000 or the company will lose money.
The same is true for pricing services. If the cost to provide a haircut service is $25, you would need to price
the haircut for your customers at more than $25 to stay in business.
In this unit, we will also look at how various costs of products or services are accumulated and tracked using
costing sheets or reports and how the data is entered into the accounting system of the company.
Types of Costs
Regardless of the type of costing method that is selected, costs will fall into two broad categories; product and
period costs. Product costs will be our main focus in this unit.
Product costs are those that directly relate to the product or service. The components of product costs are
direct material, direct labor, and overhead. Some examples of direct materials include hardware components
needed to make computers, grains and sugar needed to make cereal, and medical supplies needed to treat
patients. Examples of direct labor costs include the wages of the factory workers that assemble the
computers, the wages of those who mix the ingredients to make the cereal, and the wages of the nurses who
treat the patients. Overhead costs consist of the cost of electricity to run the factory or hospital, the cost of
property taxes for the factory or hospital, or the salary of the onsite quality control managers. These costs all
directly relate to making the product or providing the service.
In contrast, period costs are related to the business in general. These costs include selling and administrative
costs. An example of selling costs is advertising or the cost of fundraising for a hospital. Administrative costs
are the salary of the CEO of the organization or the rent on the corporate headquarters office building.
These costs do not directly relate to making the product or providing the service but are necessary expenses
of the company.
UNIT II STUDY GUIDE
Job Order and Process Costing
ACC 5301, Management Applications of Accounting 2
UNIT x STUDY GUIDE
Title
Types of Costing Methods
There are two main types of costing methods presented in this unit: job order costing and process costing.
Job order costing shows how product costs are accumulated for a particular job. This method is primarily
used when a product's or service's costs can be specifically identified. An example would be the cost of
manufacturing a special order computer or building a house. Each cost associated that the product or service
(direct material, direct labor and overhead) is logged into a job cost sheet similar to the example below:
This tracking of costs will help the manager determine the proper selling price for the product or service.
In contrast, process costing is primarily used by companies that manufacture large amounts of very similar
products like cereal manufacturers. Each piece of cereal cannot be specifically identified as in the job order
costing example related to special order computers. In processing costing, this involves the product or service
going through a series of steps or processes. For example, in cereal manufacturing, the ingredients would
need to be mixed, baked, and packaged—to name a few of the processes involved. Each of those processes
would come with a cost that needs to be accounted for to determine the total cost of the cereal. For example,
ingredients (direct materials) are added in the mixing process, workers (direct labor) run the mixing
machines, and electric costs are incurred to run the mixing machines in the cereal factory (overhead). These
costs are accumulated on a production cost report for a period of time, typically a month, as shown in the
example below:
Cost sheet that is meant to help the manager determine the proper selling price for a product.
ACC 5301, Management Applications of Accounting 3
UNIT x STUDY GUIDE
Title
Accounting for Costs
As we look at job order and processing costing in this unit, we also need to discuss cost terminology
associated with these two costing methods from an accounting point of view. As products are being made or
services are being performed, the costs are being accumulated, as we have seen in a job cost sheet and/or a
production cost report. These costs then need to be entered in the company's accounting system so that all
costs over time are accounted for within the company. The accounting system will have a series of accounts
that accumulate the final cost of the product or service. We are going to start off with the accounts associated
with job order costing.
A basic review of product costs for a computer manufacturer is shown below:
The cost of the direct materials (computer components in this case) are entered into the Raw Materials
Inventory account when they are purchased. The cost of the components will remain in that account until they
are needed to make the computers. When it is time to start making the computers, a requisition or order form
Production cost reports help to see the actual total cost of the product.
Formula for Product Costs
(Klootwijk, n.d.; Bialasiewicz, n.d.; Photomall, n.d.)
ACC 5301, Management Applications of Accounting 4
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will be generated and sent to the storage area asking that these components to be moved to the factory floor
so that workers can assemble the computers. This moves the costs of the components from Raw Materials
Inventory to Works in Process Inventory.
Once the materials are on the factory floor, they need to be "converted" into a finished product (computer).
Therefore, the term conversion costs includes both direct labor and factory overhead, which are costs needed
to convert those raw materials into a computer. As these computers are being assembled, the direct
materials, direct labor, and faculty overhead costs continue to accumulate in the Works in Process Inventory.
All these costs will remain in the Works in Process Inventory until the product is completely finished. Once the
product is finished, all accumulated costs will move to the Finished Goods Inventory account.
The costs to make the computer will remain in Finished Goods Inventory until the computer is actually sold,
then the cost of making the computer will transfer to Cost of Goods Sold.
Cost moves from Raw Materials Inventory to Works in Process Inventory
(Klootwijk, 2019; Rawpixelimages, n.d.)
Cost moves from Works in Process Inventory to Finished Goods Inventory
(Rawpixelimages, n.d.; Raja Rc, n.d.)
ACC 5301, Management Applications of Accounting 5
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At this point, you may be wondering, why so many accounts? The answer is that each inventory account
needs to be tracked separately. This way, a manager can easily determine how much money the company
has, as a whole, in parts (Raw Materials) versus how much money the company has in partially finished
products (Works in Process), versus how much money the company has in completed products (Finished
Goods) sitting on the shelf waiting to be sold. Once the products are sold and the costs in Finished Goods are
transferred to Cost of Goods Sold, the manager will be able to determine if the company is making a gross
profit on the sale of the computers it just manufactured. This is a much easier method then to total up the
individual job order cost sheets for each computer every time the manager wants to know if the company, as
a whole, is making a profit on its computers.
Now we are ready to move to the accounts for process costing. As we already know, product costs still
involve direct materials, direct labor, and overhead. In this example, we will be looking at a cereal
manufacturer. In process costing, since the cost per individual flake of cereal would be impossible to
calculate because there are millions of flakes of cereal being made that all look identical, we look at the
process of making cereal as a whole. In our example, we look at three processes or departments: mixing,
baking, and packaging.
Remember, in process costing, costs are accumulated by process rather than by each individual piece of
cereal, so the cost of the materials, labor, and overhead are included within that department or process as a
whole. The accounts are the same as job order costing: Works in Process, Finished Goods, and Cost of
Goods Sold. Raw Materials inventory is not included as a separate inventory account since those
Cost moves from Finished Goods Inventory to Cost of Goods Sold
(Raja Rc, n.d.)
Process costing for cereal involves mixing, baking, and packaging.
(Rh2010, n.d.; Alipko, n.d.; Dusanpetkovic1, n.d.).
ACC 5301, Management Applications of Accounting 6
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materials are added at the start of the first process (mixing in our example). There is, however, a separate
Works in Process account for each department or process, unlike job order costing, to make sure the cereal
and all costs (direct material, direct labor, and overhead) are included in the Works in Process account for
that department.
In this illustration, the cost of the grain, the wages of the people that mix the ingredients, and the overhead
costs for that department are all accumulated into Works in Process-Mixing. When the mixing is complete, the
product and all of the associated costs are transferred to the next department in the process (baking in our
example). In theory, this resets the Works in Process-Mixing account to 0 since all of the costs are transferred
to the next department. In practice, the company is just making another batch of cereal so the cost of that
next batch would be in the Works in Process-Mixing account in a continuous cycle.
In Works in Process Inventory-Baking, additional costs are added to this account. These would be the wages
of the workers who bake the cereal and any additional factory overhead. If additional materials are added
during this process, that would be added in as well. In our example, we are going to say all materials (grains)
are only added in the beginning of the process. When the baking is complete, the product and all of the
associated costs are transferred to the next department in the process (packaging in our example). In theory,
this resets the Works in Process-Baking account to zero since all of the costs are transferred to the next
department. In practice, the company is just making another batch of cereal so the cost of that next batch
would be in the Works in Process-Baking account in a continuous cycle.
Works in Process Inventory-Mixing costs move to Works in Process Inventory-Baking costs.
(Rh2010, n.d.; Rsooll, n.d.; Seventyfour, n.d.; Gicamatescu, n.d.; Alipko, n.d.)
ACC 5301, Management Applications of Accounting 7
UNIT x STUDY GUIDE
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In Works in Process Inventory-Packaging, additional costs are added to this account. These would be the
wages of the workers who package the cereal and any additional factory overhead. If additional materials are
added during this process, those would be added in as well. In our example, we are not adding any additional
materials. When the packaging is complete, the product and all of the associated costs are transferred to the
Finished Goods Inventory account, just like in job order costing waiting to be sold. In theory, this resets the
Works in Process-Packaging account to 0 as with the other Works in Process accounts in this example. All
costs are now in the Finished Goods Inventory account waiting to be sold.
Works in Process Inventory-Packaging Costs to Move to Finished Goods
(dusanpetkovic1, n.d.; Rsooll, n.d.; Seventyfour, n.d.; Gicamatescu, n.d.; , Gades, n.d.)
ACC 5301, Management Applications of Accounting 8
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The costs to make the cereal will remain in Finished Goods Inventory until the cereal is actually sold, then the
cost of making the cereal will transfer to Cost of Goods Sold.
At this point, again, you may be wondering why so many accounts? The answer is basically the same, so
managers can make informed decisions about their products and control costs at a process level. As you saw
in this example, the costs are accumulated as the product moves from one process or department to another.
This is where a manager can look at Works in Process for any department and determine if the cost for that
process is too high or on target by simply looking at one account.
Conclusion
Now that we have defined the common costing methods used and the cost terminology associated with job
order and process costing, let's review some specific examples of how this cost information can help
Works in Process Inventory-Packaging costs move to Finished Goods.
(dusanpetkovic1, n.d.; Rsooll, n.d.; Seventyfour, n.d.; Gicamatescu, n.d.; , Gades, n.d.)
Cost moves from Finished Goods Inventory to Cost of Goods Sold
(Gades, n.d.; Chamaki, n.d.)
ACC 5301, Management Applications of Accounting 9
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managers make business decisions. One key example of how cost information is used in business is to
determine the cost for a particular product or service so that a proper selling price for the product or service
can be set. In addition, by using the costing data sheets, a manager can also determine where most of the
costs incur. In other words, does the product have high material costs, labor costs, or overhead costs? This
may give the manager a good idea as to where costs can be cut or where operations can be improved to
ensure the company is making a profit.
References
Alipko. (n.d.). ID 234612672 [Photograph]. Adobe Stock. https://stock.adobe.com/images/factory-for-making-
cookies-and-sweets/234612672
Bialasiewicz, K. (n.d.). ID 43276410 [Photograph]. Dreamstime. https://www.dreamstime.com/stock-photo-
factory-workers-production-process-horizontal-view-image43276410
Chamaki, F. (n.d.). Labeled box lot [Photograph]. Unsplash. https://unsplash.com/photos/wkvKZR4e2OI
Dusanpetkovic1. (n.d.). ID 234912943 [Photograph]. Adobe Stock. https://stock.adobe.com/images/close-up-
of-worker-holding-boxes-and-putting-them-on-pile-food-factory-interior/234912943
Gades, S. (n.d.). 90s kid’s cereal [Photograph]. Unsplash. https://unsplash.com/photos/HlnTtGV0Yfg
Gicamatescu. (n.d.). ID 23250631 [Photograph]. Dreamstime. https://www.dreamstime.com/stock-image-
factory-image23250631
Klootwijk, M. (n.d.). ID 144472949 [Photograph]. Dreamstime. https://www.dreamstime.com/harddisk-close-
up-details-computer-parts-selective-focus-image144472949
Photomail. (n.d.). ID 48001812 [Photograph]. Dreamstime. https://www.dreamstime.com/stock-photo-large-
factory-building-large-modern-building-large-modern-exhibition-hall-under-blue-sky-appearance-
commercial-image48001812
Raja Rc. (n.d.). ID 8751056 [Photograph]. Dreamstime. https://www.dreamstime.com/royalty-free-stock-
image-computer-image8751056
Rawpixelimages. (n.d.). ID 99197266 [Photograph]. Dreamstime. https://www.dreamstime.com/stock-photo-
closeup-hands-computer-mainboard-microprocessor-electronics-parts-closeup-hands-computer-
mainboard-microprocessor-image99197266
Rh2010. (n.d.). ID 197239731 [Photograph]. Adobe Stock. https://stock.adobe.com/images/filling-flour-into-
the-professional-kneader-for-bread-baking-at-the-bakery-manufacturing/197239731
Rsooll. (n.d.). ID 86059344 [Photograph]. Dreamstime. https://www.dreamstime.com/stock-photo-ears-cereal-
hand-dry-yellow-stalks-wheat-man-photographed-close-up-small-depth-field-ripe-grain-
image86059344
Seventyfour. (n.d.). ID 210003342 [Photograph]. Adobe Stock. https://stock.adobe.com/images/two-
confectionery-factory-employees-in-white-coats-working-with-dough-mixing-machine/210003342
ACC 5301, Management Applications of Accounting 10
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Suggested Unit Resources
View the following videos by accessing the Unit II Additional Unit Resources folder in the unit.
The video Making a Hollywood Movie: Job Order Costing will highlight some of the features of job order and
process costing systems. In addition, it will demonstrate the use of a predetermined overhead rate.
You can access a transcript for this video by hovering over the PDF button at the bottom of the video and
then clicking on the word “Transcript.” Alternatively, you can click on the “cc” button at the bottom of the video
to turn on closed captions.
The video Jones Soda: Process Costing will explain how process costing varies from job order costing and
how costs are accumulated under a process costing system.
You can access a transcript for this video by hovering over the PDF button at the bottom of the video and
then clicking on the word “Transcript.” Alternatively, you can click on the “cc” button at the bottom of the video
to turn on closed captions.
Learning Activities (Nongraded)
Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit
them. If you have questions, contact your instructor for further guidance and information.
After watching both videos in the Suggested Unit Resources, you may want to study the Flash Cards for
Chapters 2 and 3 found in the Additional Unit Resources folder to reinforce the material presented in this unit.
**## UnitIIStudyGuide.pdf**
ACC 5301, Management Applications of Accounting 1
Course Learning Outcomes for Unit II
Upon completion of this unit, students should be able to:
2. Apply accounting concepts to the creation of accounting information and reports.
2.1 Prepare reports using both job order and process costing methods.
3. Analyze accounting information used to make strategic business decisions.
3.5 Define job order and process costing.
3.6 Compare and contrast the use of job order and process costing.
Required Unit Resources
Chapter 2: Job-Order Costing for Manufacturing and Service Companies, pp. 2-1 – 2-31
Chapter 3: Process Costing, pp. 3-1 – 3-16
Unit Lesson
Introduction
Welcome to Unit II. In this unit, we will discuss two different costing methods, job order and process costing. It
is important to identify the costs needed to make a product or to provide a service so that the organization
ensures that it is pricing the product properly. In other words, if you manufacture computers and they cost you
$1,000 to make, then you need to price them for sale at more than $1,000 or the company will lose money.
The same is true for pricing services. If the cost to provide a haircut service is $25, you would need to price
the haircut for your customers at more than $25 to stay in business.
In this unit, we will also look at how various costs of products or services are accumulated and tracked using
costing sheets or reports and how the data is entered into the accounting system of the company.
Types of Costs
Regardless of the type of costing method that is selected, costs will fall into two broad categories; product and
period costs. Product costs will be our main focus in this unit.
Product costs are those that directly relate to the product or service. The components of product costs are
direct material, direct labor, and overhead. Some examples of direct materials include hardware components
needed to make computers, grains and sugar needed to make cereal, and medical supplies needed to treat
patients. Examples of direct labor costs include the wages of the factory workers that assemble the
computers, the wages of those who mix the ingredients to make the cereal, and the wages of the nurses who
treat the patients. Overhead costs consist of the cost of electricity to run the factory or hospital, the cost of
property taxes for the factory or hospital, or the salary of the onsite quality control managers. These costs all
directly relate to making the product or providing the service.
In contrast, period costs are related to the business in general. These costs include selling and administrative
costs. An example of selling costs is advertising or the cost of fundraising for a hospital. Administrative costs
are the salary of the CEO of the organization or the rent on the corporate headquarters office building.
These costs do not directly relate to making the product or providing the service but are necessary expenses
of the company.
UNIT II STUDY GUIDE
Job Order and Process Costing
ACC 5301, Management Applications of Accounting 2
UNIT x STUDY GUIDE
Title
Types of Costing Methods
There are two main types of costing methods presented in this unit: job order costing and process costing.
Job order costing shows how product costs are accumulated for a particular job. This method is primarily
used when a product's or service's costs can be specifically identified. An example would be the cost of
manufacturing a special order computer or building a house. Each cost associated that the product or service
(direct material, direct labor and overhead) is logged into a job cost sheet similar to the example below:
This tracking of costs will help the manager determine the proper selling price for the product or service.
In contrast, process costing is primarily used by companies that manufacture large amounts of very similar
products like cereal manufacturers. Each piece of cereal cannot be specifically identified as in the job order
costing example related to special order computers. In processing costing, this involves the product or service
going through a series of steps or processes. For example, in cereal manufacturing, the ingredients would
need to be mixed, baked, and packaged—to name a few of the processes involved. Each of those processes
would come with a cost that needs to be accounted for to determine the total cost of the cereal. For example,
ingredients (direct materials) are added in the mixing process, workers (direct labor) run the mixing
machines, and electric costs are incurred to run the mixing machines in the cereal factory (overhead). These
costs are accumulated on a production cost report for a period of time, typically a month, as shown in the
example below:
Cost sheet that is meant to help the manager determine the proper selling price for a product.
ACC 5301, Management Applications of Accounting 3
UNIT x STUDY GUIDE
Title
Accounting for Costs
As we look at job order and processing costing in this unit, we also need to discuss cost terminology
associated with these two costing methods from an accounting point of view. As products are being made or
services are being performed, the costs are being accumulated, as we have seen in a job cost sheet and/or a
production cost report. These costs then need to be entered in the company's accounting system so that all
costs over time are accounted for within the company. The accounting system will have a series of accounts
that accumulate the final cost of the product or service. We are going to start off with the accounts associated
with job order costing.
A basic review of product costs for a computer manufacturer is shown below:
The cost of the direct materials (computer components in this case) are entered into the Raw Materials
Inventory account when they are purchased. The cost of the components will remain in that account until they
are needed to make the computers. When it is time to start making the computers, a requisition or order form
Production cost reports help to see the actual total cost of the product.
Formula for Product Costs
(Klootwijk, n.d.; Bialasiewicz, n.d.; Photomall, n.d.)
ACC 5301, Management Applications of Accounting 4
UNIT x STUDY GUIDE
Title
will be generated and sent to the storage area asking that these components to be moved to the factory floor
so that workers can assemble the computers. This moves the costs of the components from Raw Materials
Inventory to Works in Process Inventory.
Once the materials are on the factory floor, they need to be "converted" into a finished product (computer).
Therefore, the term conversion costs includes both direct labor and factory overhead, which are costs needed
to convert those raw materials into a computer. As these computers are being assembled, the direct
materials, direct labor, and faculty overhead costs continue to accumulate in the Works in Process Inventory.
All these costs will remain in the Works in Process Inventory until the product is completely finished. Once the
product is finished, all accumulated costs will move to the Finished Goods Inventory account.
The costs to make the computer will remain in Finished Goods Inventory until the computer is actually sold,
then the cost of making the computer will transfer to Cost of Goods Sold.
Cost moves from Raw Materials Inventory to Works in Process Inventory
(Klootwijk, 2019; Rawpixelimages, n.d.)
Cost moves from Works in Process Inventory to Finished Goods Inventory
(Rawpixelimages, n.d.; Raja Rc, n.d.)
ACC 5301, Management Applications of Accounting 5
UNIT x STUDY GUIDE
Title
At this point, you may be wondering, why so many accounts? The answer is that each inventory account
needs to be tracked separately. This way, a manager can easily determine how much money the company
has, as a whole, in parts (Raw Materials) versus how much money the company has in partially finished
products (Works in Process), versus how much money the company has in completed products (Finished
Goods) sitting on the shelf waiting to be sold. Once the products are sold and the costs in Finished Goods are
transferred to Cost of Goods Sold, the manager will be able to determine if the company is making a gross
profit on the sale of the computers it just manufactured. This is a much easier method then to total up the
individual job order cost sheets for each computer every time the manager wants to know if the company, as
a whole, is making a profit on its computers.
Now we are ready to move to the accounts for process costing. As we already know, product costs still
involve direct materials, direct labor, and overhead. In this example, we will be looking at a cereal
manufacturer. In process costing, since the cost per individual flake of cereal would be impossible to
calculate because there are millions of flakes of cereal being made that all look identical, we look at the
process of making cereal as a whole. In our example, we look at three processes or departments: mixing,
baking, and packaging.
Remember, in process costing, costs are accumulated by process rather than by each individual piece of
cereal, so the cost of the materials, labor, and overhead are included within that department or process as a
whole. The accounts are the same as job order costing: Works in Process, Finished Goods, and Cost of
Goods Sold. Raw Materials inventory is not included as a separate inventory account since those
Cost moves from Finished Goods Inventory to Cost of Goods Sold
(Raja Rc, n.d.)
Process costing for cereal involves mixing, baking, and packaging.
(Rh2010, n.d.; Alipko, n.d.; Dusanpetkovic1, n.d.).
ACC 5301, Management Applications of Accounting 6
UNIT x STUDY GUIDE
Title
materials are added at the start of the first process (mixing in our example). There is, however, a separate
Works in Process account for each department or process, unlike job order costing, to make sure the cereal
and all costs (direct material, direct labor, and overhead) are included in the Works in Process account for
that department.
In this illustration, the cost of the grain, the wages of the people that mix the ingredients, and the overhead
costs for that department are all accumulated into Works in Process-Mixing. When the mixing is complete, the
product and all of the associated costs are transferred to the next department in the process (baking in our
example). In theory, this resets the Works in Process-Mixing account to 0 since all of the costs are transferred
to the next department. In practice, the company is just making another batch of cereal so the cost of that
next batch would be in the Works in Process-Mixing account in a continuous cycle.
In Works in Process Inventory-Baking, additional costs are added to this account. These would be the wages
of the workers who bake the cereal and any additional factory overhead. If additional materials are added
during this process, that would be added in as well. In our example, we are going to say all materials (grains)
are only added in the beginning of the process. When the baking is complete, the product and all of the
associated costs are transferred to the next department in the process (packaging in our example). In theory,
this resets the Works in Process-Baking account to zero since all of the costs are transferred to the next
department. In practice, the company is just making another batch of cereal so the cost of that next batch
would be in the Works in Process-Baking account in a continuous cycle.
Works in Process Inventory-Mixing costs move to Works in Process Inventory-Baking costs.
(Rh2010, n.d.; Rsooll, n.d.; Seventyfour, n.d.; Gicamatescu, n.d.; Alipko, n.d.)
ACC 5301, Management Applications of Accounting 7
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In Works in Process Inventory-Packaging, additional costs are added to this account. These would be the
wages of the workers who package the cereal and any additional factory overhead. If additional materials are
added during this process, those would be added in as well. In our example, we are not adding any additional
materials. When the packaging is complete, the product and all of the associated costs are transferred to the
Finished Goods Inventory account, just like in job order costing waiting to be sold. In theory, this resets the
Works in Process-Packaging account to 0 as with the other Works in Process accounts in this example. All
costs are now in the Finished Goods Inventory account waiting to be sold.
Works in Process Inventory-Packaging Costs to Move to Finished Goods
(dusanpetkovic1, n.d.; Rsooll, n.d.; Seventyfour, n.d.; Gicamatescu, n.d.; , Gades, n.d.)
ACC 5301, Management Applications of Accounting 8
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The costs to make the cereal will remain in Finished Goods Inventory until the cereal is actually sold, then the
cost of making the cereal will transfer to Cost of Goods Sold.
At this point, again, you may be wondering why so many accounts? The answer is basically the same, so
managers can make informed decisions about their products and control costs at a process level. As you saw
in this example, the costs are accumulated as the product moves from one process or department to another.
This is where a manager can look at Works in Process for any department and determine if the cost for that
process is too high or on target by simply looking at one account.
Conclusion
Now that we have defined the common costing methods used and the cost terminology associated with job
order and process costing, let's review some specific examples of how this cost information can help
Works in Process Inventory-Packaging costs move to Finished Goods.
(dusanpetkovic1, n.d.; Rsooll, n.d.; Seventyfour, n.d.; Gicamatescu, n.d.; , Gades, n.d.)
Cost moves from Finished Goods Inventory to Cost of Goods Sold
(Gades, n.d.; Chamaki, n.d.)
ACC 5301, Management Applications of Accounting 9
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managers make business decisions. One key example of how cost information is used in business is to
determine the cost for a particular product or service so that a proper selling price for the product or service
can be set. In addition, by using the costing data sheets, a manager can also determine where most of the
costs incur. In other words, does the product have high material costs, labor costs, or overhead costs? This
may give the manager a good idea as to where costs can be cut or where operations can be improved to
ensure the company is making a profit.
References
Alipko. (n.d.). ID 234612672 [Photograph]. Adobe Stock. https://stock.adobe.com/images/factory-for-making-
cookies-and-sweets/234612672
Bialasiewicz, K. (n.d.). ID 43276410 [Photograph]. Dreamstime. https://www.dreamstime.com/stock-photo-
factory-workers-production-process-horizontal-view-image43276410
Chamaki, F. (n.d.). Labeled box lot [Photograph]. Unsplash. https://unsplash.com/photos/wkvKZR4e2OI
Dusanpetkovic1. (n.d.). ID 234912943 [Photograph]. Adobe Stock. https://stock.adobe.com/images/close-up-
of-worker-holding-boxes-and-putting-them-on-pile-food-factory-interior/234912943
Gades, S. (n.d.). 90s kid’s cereal [Photograph]. Unsplash. https://unsplash.com/photos/HlnTtGV0Yfg
Gicamatescu. (n.d.). ID 23250631 [Photograph]. Dreamstime. https://www.dreamstime.com/stock-image-
factory-image23250631
Klootwijk, M. (n.d.). ID 144472949 [Photograph]. Dreamstime. https://www.dreamstime.com/harddisk-close-
up-details-computer-parts-selective-focus-image144472949
Photomail. (n.d.). ID 48001812 [Photograph]. Dreamstime. https://www.dreamstime.com/stock-photo-large-
factory-building-large-modern-building-large-modern-exhibition-hall-under-blue-sky-appearance-
commercial-image48001812
Raja Rc. (n.d.). ID 8751056 [Photograph]. Dreamstime. https://www.dreamstime.com/royalty-free-stock-
image-computer-image8751056
Rawpixelimages. (n.d.). ID 99197266 [Photograph]. Dreamstime. https://www.dreamstime.com/stock-photo-
closeup-hands-computer-mainboard-microprocessor-electronics-parts-closeup-hands-computer-
mainboard-microprocessor-image99197266
Rh2010. (n.d.). ID 197239731 [Photograph]. Adobe Stock. https://stock.adobe.com/images/filling-flour-into-
the-professional-kneader-for-bread-baking-at-the-bakery-manufacturing/197239731
Rsooll. (n.d.). ID 86059344 [Photograph]. Dreamstime. https://www.dreamstime.com/stock-photo-ears-cereal-
hand-dry-yellow-stalks-wheat-man-photographed-close-up-small-depth-field-ripe-grain-
image86059344
Seventyfour. (n.d.). ID 210003342 [Photograph]. Adobe Stock. https://stock.adobe.com/images/two-
confectionery-factory-employees-in-white-coats-working-with-dough-mixing-machine/210003342
ACC 5301, Management Applications of Accounting 10
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Suggested Unit Resources
View the following videos by accessing the Unit II Additional Unit Resources folder in the unit.
The video Making a Hollywood Movie: Job Order Costing will highlight some of the features of job order and
process costing systems. In addition, it will demonstrate the use of a predetermined overhead rate.
You can access a transcript for this video by hovering over the PDF button at the bottom of the video and
then clicking on the word “Transcript.” Alternatively, you can click on the “cc” button at the bottom of the video
to turn on closed captions.
The video Jones Soda: Process Costing will explain how process costing varies from job order costing and
how costs are accumulated under a process costing system.
You can access a transcript for this video by hovering over the PDF button at the bottom of the video and
then clicking on the word “Transcript.” Alternatively, you can click on the “cc” button at the bottom of the video
to turn on closed captions.
Learning Activities (Nongraded)
Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit
them. If you have questions, contact your instructor for further guidance and information.
After watching both videos in the Suggested Unit Resources, you may want to study the Flash Cards for
Chapters 2 and 3 found in the Additional Unit Resources folder to reinforce the material presented in this unit.
**## DBII.docx**
Management Applications of Accounting DB II
• Your initial post should be at least 300 words in length.
• Your initial post should include at least one APA-formatted scholarly, professional, or textbook reference with accompanying in-text citation to support any paraphrased, summarized, or quoted material.
Post 2: Response post to a classmate is due by the end of day on Tuesday.
Post 3: Response post to a second classmate or the instructor’s follow-up question is due by the end of day on Tuesday.
• If no initial posts exist to allow for a response to be made, you may submit an additional initial post addressing another aspect of the unit topic.
• Feel free to post more responses to classmates as you read, reflect, and contribute to our discussion.
Do you think both types of accounting, financial and managerial—are necessary to make strategic business decisions? Why, or why not?
Reply 1 David Brogden
Successful businesses understand how both financial and managerial accounting work together. When it comes to financial accounting it is a little more straight forward for business operations. Financial accounting comprehends the financial information needed to analysis how a business is performing (Jacková, 179). Managerial accounting takes a similar approach but allows business managers to understand what direction their business should go and how they operate. Managerial accounting provides high quality information in relation to how much profit a business receives from the services or products they offer (Jacková, 179). Both are important in business operations.
One could view this as a homeowner deciding on how to improve their home. Before one undergoes a massive or short renovation, they must look at their finances to see how much they can afford to spend to get what they desire. Once their finances have been looked at the next item would be to look at contractors and decide what would be the best for their return on investment. Business managers examine how much profit they’ll be able to generate by purchasing what’s needed. They’ll examine the finances of the business to see how much is available and forecast what the item will do for their business.
Another reason why both work is they both work hand in hand with each other. When a business views their financial accounting, they’ll view how they been in the past and use that for a basis of their desired end state (Jacková, 179). Managerial accounting is viewed the same. This accounting method provides detailed information on financial records to understand how the business is operating (Jacková, 179). It is important for a business to understand how both accounting methods work for them. Using both allows a business to forecast revenue and a better strategic competitive advantage for their industry.
Reference
Jacková, A. (2024). The Impact of Management Accounting on Business Competitiveness. Ad Alta: Journal of Interdisciplinary Research, 14(2), 178–181.
Reply 2 Cina McDowell
Yes, it is necessary to have both financial and managerial accounting in place to assist in making strategic business decisions.
Starting with financial accounting it focuses on preparation of income statements, cash flow statements and balance sheets for divisions outside of the company such as investors, banks, creditors and stakeholders. Having transparency allows the company to meet compliance requirements as well as providing historical data. Having full understanding of their debt levels enables the company to use the balance sheet to further their borrowing ability prior to making a large purchase, additions or additional financial investments; it can also be useful in efforts to expand the company or seeking to purchase inventory. This information which can be gathered monthly or quarterly can be audited by a certified public accountant (CPA) to ensure accuracy and make strategic financial decisions.
Managerial accounting assists with internal planning providing more detailed information on costs and efficiency which allows them to make knowledgeable decisions of their operation such as production, pricing, etc. The information also enables the manager to compare products or departments to see how successful a product line may be versus another product. Having a greater understanding of product lines or departments enables managers to adjust department needs, promote products further or seek other products that may be more successful. Having a full understanding of the numbers will allow one to adjust goals as needed and help with everyday operations.
It is important to not rely on just one method, but to have as much information to have a solid company financial report. This transparent information which is both internal (managerial) and external (financial) will assist a company to be successful and long lasting. Information that is transparent can also improve future decisions, increased trust and reduced economic frictions. There can be a cost to transparency as well such as misuse of information and scrutiny (Bischof, et al., 2024).
Bischof, J., Gassen, J., Rohlfing-Bastian, A., Rostam-Afschar, D., & Sureth-Sloane, C. (2024).
Accounting for Transparency: a Framework and Three Applications in Tax, Managerial, and Financial Accounting.
_Schmalenbach Journal of Business Research (SBUR)_,
_76_(4), 573–611.
[https://doi-org.libraryresources.columbiasouthern.edu/10.1007/s41471-024-00200-7](https://doi-org.libraryresources.columbiasouthern.edu/10.1007/s41471-024-00200-7)
**## UnitIIStudyGuide.pdf**
ACC 5301, Management Applications of Accounting 1
Course Learning Outcomes for Unit II
Upon completion of this unit, students should be able to:
2. Apply accounting concepts to the creation of accounting information and reports.
2.1 Prepare reports using both job order and process costing methods.
3. Analyze accounting information used to make strategic business decisions.
3.5 Define job order and process costing.
3.6 Compare and contrast the use of job order and process costing.
Required Unit Resources
Chapter 2: Job-Order Costing for Manufacturing and Service Companies, pp. 2-1 – 2-31
Chapter 3: Process Costing, pp. 3-1 – 3-16
Unit Lesson
Introduction
Welcome to Unit II. In this unit, we will discuss two different costing methods, job order and process costing. It
is important to identify the costs needed to make a product or to provide a service so that the organization
ensures that it is pricing the product properly. In other words, if you manufacture computers and they cost you
$1,000 to make, then you need to price them for sale at more than $1,000 or the company will lose money.
The same is true for pricing services. If the cost to provide a haircut service is $25, you would need to price
the haircut for your customers at more than $25 to stay in business.
In this unit, we will also look at how various costs of products or services are accumulated and tracked using
costing sheets or reports and how the data is entered into the accounting system of the company.
Types of Costs
Regardless of the type of costing method that is selected, costs will fall into two broad categories; product and
period costs. Product costs will be our main focus in this unit.
Product costs are those that directly relate to the product or service. The components of product costs are
direct material, direct labor, and overhead. Some examples of direct materials include hardware components
needed to make computers, grains and sugar needed to make cereal, and medical supplies needed to treat
patients. Examples of direct labor costs include the wages of the factory workers that assemble the
computers, the wages of those who mix the ingredients to make the cereal, and the wages of the nurses who
treat the patients. Overhead costs consist of the cost of electricity to run the factory or hospital, the cost of
property taxes for the factory or hospital, or the salary of the onsite quality control managers. These costs all
directly relate to making the product or providing the service.
In contrast, period costs are related to the business in general. These costs include selling and administrative
costs. An example of selling costs is advertising or the cost of fundraising for a hospital. Administrative costs
are the salary of the CEO of the organization or the rent on the corporate headquarters office building.
These costs do not directly relate to making the product or providing the service but are necessary expenses
of the company.
UNIT II STUDY GUIDE
Job Order and Process Costing
ACC 5301, Management Applications of Accounting 2
UNIT x STUDY GUIDE
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Types of Costing Methods
There are two main types of costing methods presented in this unit: job order costing and process costing.
Job order costing shows how product costs are accumulated for a particular job. This method is primarily
used when a product's or service's costs can be specifically identified. An example would be the cost of
manufacturing a special order computer or building a house. Each cost associated that the product or service
(direct material, direct labor and overhead) is logged into a job cost sheet similar to the example below:
This tracking of costs will help the manager determine the proper selling price for the product or service.
In contrast, process costing is primarily used by companies that manufacture large amounts of very similar
products like cereal manufacturers. Each piece of cereal cannot be specifically identified as in the job order
costing example related to special order computers. In processing costing, this involves the product or service
going through a series of steps or processes. For example, in cereal manufacturing, the ingredients would
need to be mixed, baked, and packaged—to name a few of the processes involved. Each of those processes
would come with a cost that needs to be accounted for to determine the total cost of the cereal. For example,
ingredients (direct materials) are added in the mixing process, workers (direct labor) run the mixing
machines, and electric costs are incurred to run the mixing machines in the cereal factory (overhead). These
costs are accumulated on a production cost report for a period of time, typically a month, as shown in the
example below:
Cost sheet that is meant to help the manager determine the proper selling price for a product.
ACC 5301, Management Applications of Accounting 3
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Accounting for Costs
As we look at job order and processing costing in this unit, we also need to discuss cost terminology
associated with these two costing methods from an accounting point of view. As products are being made or
services are being performed, the costs are being accumulated, as we have seen in a job cost sheet and/or a
production cost report. These costs then need to be entered in the company's accounting system so that all
costs over time are accounted for within the company. The accounting system will have a series of accounts
that accumulate the final cost of the product or service. We are going to start off with the accounts associated
with job order costing.
A basic review of product costs for a computer manufacturer is shown below:
The cost of the direct materials (computer components in this case) are entered into the Raw Materials
Inventory account when they are purchased. The cost of the components will remain in that account until they
are needed to make the computers. When it is time to start making the computers, a requisition or order form
Production cost reports help to see the actual total cost of the product.
Formula for Product Costs
(Klootwijk, n.d.; Bialasiewicz, n.d.; Photomall, n.d.)
ACC 5301, Management Applications of Accounting 4
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will be generated and sent to the storage area asking that these components to be moved to the factory floor
so that workers can assemble the computers. This moves the costs of the components from Raw Materials
Inventory to Works in Process Inventory.
Once the materials are on the factory floor, they need to be "converted" into a finished product (computer).
Therefore, the term conversion costs includes both direct labor and factory overhead, which are costs needed
to convert those raw materials into a computer. As these computers are being assembled, the direct
materials, direct labor, and faculty overhead costs continue to accumulate in the Works in Process Inventory.
All these costs will remain in the Works in Process Inventory until the product is completely finished. Once the
product is finished, all accumulated costs will move to the Finished Goods Inventory account.
The costs to make the computer will remain in Finished Goods Inventory until the computer is actually sold,
then the cost of making the computer will transfer to Cost of Goods Sold.
Cost moves from Raw Materials Inventory to Works in Process Inventory
(Klootwijk, 2019; Rawpixelimages, n.d.)
Cost moves from Works in Process Inventory to Finished Goods Inventory
(Rawpixelimages, n.d.; Raja Rc, n.d.)
ACC 5301, Management Applications of Accounting 5
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At this point, you may be wondering, why so many accounts? The answer is that each inventory account
needs to be tracked separately. This way, a manager can easily determine how much money the company
has, as a whole, in parts (Raw Materials) versus how much money the company has in partially finished
products (Works in Process), versus how much money the company has in completed products (Finished
Goods) sitting on the shelf waiting to be sold. Once the products are sold and the costs in Finished Goods are
transferred to Cost of Goods Sold, the manager will be able to determine if the company is making a gross
profit on the sale of the computers it just manufactured. This is a much easier method then to total up the
individual job order cost sheets for each computer every time the manager wants to know if the company, as
a whole, is making a profit on its computers.
Now we are ready to move to the accounts for process costing. As we already know, product costs still
involve direct materials, direct labor, and overhead. In this example, we will be looking at a cereal
manufacturer. In process costing, since the cost per individual flake of cereal would be impossible to
calculate because there are millions of flakes of cereal being made that all look identical, we look at the
process of making cereal as a whole. In our example, we look at three processes or departments: mixing,
baking, and packaging.
Remember, in process costing, costs are accumulated by process rather than by each individual piece of
cereal, so the cost of the materials, labor, and overhead are included within that department or process as a
whole. The accounts are the same as job order costing: Works in Process, Finished Goods, and Cost of
Goods Sold. Raw Materials inventory is not included as a separate inventory account since those
Cost moves from Finished Goods Inventory to Cost of Goods Sold
(Raja Rc, n.d.)
Process costing for cereal involves mixing, baking, and packaging.
(Rh2010, n.d.; Alipko, n.d.; Dusanpetkovic1, n.d.).
ACC 5301, Management Applications of Accounting 6
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materials are added at the start of the first process (mixing in our example). There is, however, a separate
Works in Process account for each department or process, unlike job order costing, to make sure the cereal
and all costs (direct material, direct labor, and overhead) are included in the Works in Process account for
that department.
In this illustration, the cost of the grain, the wages of the people that mix the ingredients, and the overhead
costs for that department are all accumulated into Works in Process-Mixing. When the mixing is complete, the
product and all of the associated costs are transferred to the next department in the process (baking in our
example). In theory, this resets the Works in Process-Mixing account to 0 since all of the costs are transferred
to the next department. In practice, the company is just making another batch of cereal so the cost of that
next batch would be in the Works in Process-Mixing account in a continuous cycle.
In Works in Process Inventory-Baking, additional costs are added to this account. These would be the wages
of the workers who bake the cereal and any additional factory overhead. If additional materials are added
during this process, that would be added in as well. In our example, we are going to say all materials (grains)
are only added in the beginning of the process. When the baking is complete, the product and all of the
associated costs are transferred to the next department in the process (packaging in our example). In theory,
this resets the Works in Process-Baking account to zero since all of the costs are transferred to the next
department. In practice, the company is just making another batch of cereal so the cost of that next batch
would be in the Works in Process-Baking account in a continuous cycle.
Works in Process Inventory-Mixing costs move to Works in Process Inventory-Baking costs.
(Rh2010, n.d.; Rsooll, n.d.; Seventyfour, n.d.; Gicamatescu, n.d.; Alipko, n.d.)
ACC 5301, Management Applications of Accounting 7
UNIT x STUDY GUIDE
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In Works in Process Inventory-Packaging, additional costs are added to this account. These would be the
wages of the workers who package the cereal and any additional factory overhead. If additional materials are
added during this process, those would be added in as well. In our example, we are not adding any additional
materials. When the packaging is complete, the product and all of the associated costs are transferred to the
Finished Goods Inventory account, just like in job order costing waiting to be sold. In theory, this resets the
Works in Process-Packaging account to 0 as with the other Works in Process accounts in this example. All
costs are now in the Finished Goods Inventory account waiting to be sold.
Works in Process Inventory-Packaging Costs to Move to Finished Goods
(dusanpetkovic1, n.d.; Rsooll, n.d.; Seventyfour, n.d.; Gicamatescu, n.d.; , Gades, n.d.)
ACC 5301, Management Applications of Accounting 8
UNIT x STUDY GUIDE
Title
The costs to make the cereal will remain in Finished Goods Inventory until the cereal is actually sold, then the
cost of making the cereal will transfer to Cost of Goods Sold.
At this point, again, you may be wondering why so many accounts? The answer is basically the same, so
managers can make informed decisions about their products and control costs at a process level. As you saw
in this example, the costs are accumulated as the product moves from one process or department to another.
This is where a manager can look at Works in Process for any department and determine if the cost for that
process is too high or on target by simply looking at one account.
Conclusion
Now that we have defined the common costing methods used and the cost terminology associated with job
order and process costing, let's review some specific examples of how this cost information can help
Works in Process Inventory-Packaging costs move to Finished Goods.
(dusanpetkovic1, n.d.; Rsooll, n.d.; Seventyfour, n.d.; Gicamatescu, n.d.; , Gades, n.d.)
Cost moves from Finished Goods Inventory to Cost of Goods Sold
(Gades, n.d.; Chamaki, n.d.)
ACC 5301, Management Applications of Accounting 9
UNIT x STUDY GUIDE
Title
managers make business decisions. One key example of how cost information is used in business is to
determine the cost for a particular product or service so that a proper selling price for the product or service
can be set. In addition, by using the costing data sheets, a manager can also determine where most of the
costs incur. In other words, does the product have high material costs, labor costs, or overhead costs? This
may give the manager a good idea as to where costs can be cut or where operations can be improved to
ensure the company is making a profit.
References
Alipko. (n.d.). ID 234612672 [Photograph]. Adobe Stock. https://stock.adobe.com/images/factory-for-making-
cookies-and-sweets/234612672
Bialasiewicz, K. (n.d.). ID 43276410 [Photograph]. Dreamstime. https://www.dreamstime.com/stock-photo-
factory-workers-production-process-horizontal-view-image43276410
Chamaki, F. (n.d.). Labeled box lot [Photograph]. Unsplash. https://unsplash.com/photos/wkvKZR4e2OI
Dusanpetkovic1. (n.d.). ID 234912943 [Photograph]. Adobe Stock. https://stock.adobe.com/images/close-up-
of-worker-holding-boxes-and-putting-them-on-pile-food-factory-interior/234912943
Gades, S. (n.d.). 90s kid’s cereal [Photograph]. Unsplash. https://unsplash.com/photos/HlnTtGV0Yfg
Gicamatescu. (n.d.). ID 23250631 [Photograph]. Dreamstime. https://www.dreamstime.com/stock-image-
factory-image23250631
Klootwijk, M. (n.d.). ID 144472949 [Photograph]. Dreamstime. https://www.dreamstime.com/harddisk-close-
up-details-computer-parts-selective-focus-image144472949
Photomail. (n.d.). ID 48001812 [Photograph]. Dreamstime. https://www.dreamstime.com/stock-photo-large-
factory-building-large-modern-building-large-modern-exhibition-hall-under-blue-sky-appearance-
commercial-image48001812
Raja Rc. (n.d.). ID 8751056 [Photograph]. Dreamstime. https://www.dreamstime.com/royalty-free-stock-
image-computer-image8751056
Rawpixelimages. (n.d.). ID 99197266 [Photograph]. Dreamstime. https://www.dreamstime.com/stock-photo-
closeup-hands-computer-mainboard-microprocessor-electronics-parts-closeup-hands-computer-
mainboard-microprocessor-image99197266
Rh2010. (n.d.). ID 197239731 [Photograph]. Adobe Stock. https://stock.adobe.com/images/filling-flour-into-
the-professional-kneader-for-bread-baking-at-the-bakery-manufacturing/197239731
Rsooll. (n.d.). ID 86059344 [Photograph]. Dreamstime. https://www.dreamstime.com/stock-photo-ears-cereal-
hand-dry-yellow-stalks-wheat-man-photographed-close-up-small-depth-field-ripe-grain-
image86059344
Seventyfour. (n.d.). ID 210003342 [Photograph]. Adobe Stock. https://stock.adobe.com/images/two-
confectionery-factory-employees-in-white-coats-working-with-dough-mixing-machine/210003342
ACC 5301, Management Applications of Accounting 10
UNIT x STUDY GUIDE
Title
Suggested Unit Resources
View the following videos by accessing the Unit II Additional Unit Resources folder in the unit.
The video Making a Hollywood Movie: Job Order Costing will highlight some of the features of job order and
process costing systems. In addition, it will demonstrate the use of a predetermined overhead rate.
You can access a transcript for this video by hovering over the PDF button at the bottom of the video and
then clicking on the word “Transcript.” Alternatively, you can click on the “cc” button at the bottom of the video
to turn on closed captions.
The video Jones Soda: Process Costing will explain how process costing varies from job order costing and
how costs are accumulated under a process costing system.
You can access a transcript for this video by hovering over the PDF button at the bottom of the video and
then clicking on the word “Transcript.” Alternatively, you can click on the “cc” button at the bottom of the video
to turn on closed captions.
Learning Activities (Nongraded)
Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit
them. If you have questions, contact your instructor for further guidance and information.
After watching both videos in the Suggested Unit Resources, you may want to study the Flash Cards for
Chapters 2 and 3 found in the Additional Unit Resources folder to reinforce the material presented in this unit.
**## DBII.docx**
Management Applications of Accounting DB II
• Your initial post should be at least 300 words in length.
• Your initial post should include at least one APA-formatted scholarly, professional, or textbook reference with accompanying in-text citation to support any paraphrased, summarized, or quoted material.
Post 2: Response post to a classmate is due by the end of day on Tuesday.
Post 3: Response post to a second classmate or the instructor’s follow-up question is due by the end of day on Tuesday.
• If no initial posts exist to allow for a response to be made, you may submit an additional initial post addressing another aspect of the unit topic.
• Feel free to post more responses to classmates as you read, reflect, and contribute to our discussion.
Do you think both types of accounting, financial and managerial—are necessary to make strategic business decisions? Why, or why not?
Reply 1 David Brogden
Successful businesses understand how both financial and managerial accounting work together. When it comes to financial accounting it is a little more straight forward for business operations. Financial accounting comprehends the financial information needed to analysis how a business is performing (Jacková, 179). Managerial accounting takes a similar approach but allows business managers to understand what direction their business should go and how they operate. Managerial accounting provides high quality information in relation to how much profit a business receives from the services or products they offer (Jacková, 179). Both are important in business operations.
One could view this as a homeowner deciding on how to improve their home. Before one undergoes a massive or short renovation, they must look at their finances to see how much they can afford to spend to get what they desire. Once their finances have been looked at the next item would be to look at contractors and decide what would be the best for their return on investment. Business managers examine how much profit they’ll be able to generate by purchasing what’s needed. They’ll examine the finances of the business to see how much is available and forecast what the item will do for their business.
Another reason why both work is they both work hand in hand with each other. When a business views their financial accounting, they’ll view how they been in the past and use that for a basis of their desired end state (Jacková, 179). Managerial accounting is viewed the same. This accounting method provides detailed information on financial records to understand how the business is operating (Jacková, 179). It is important for a business to understand how both accounting methods work for them. Using both allows a business to forecast revenue and a better strategic competitive advantage for their industry.
Reference
Jacková, A. (2024). The Impact of Management Accounting on Business Competitiveness. Ad Alta: Journal of Interdisciplinary Research, 14(2), 178–181.
Reply 2 Cina McDowell
Yes, it is necessary to have both financial and managerial accounting in place to assist in making strategic business decisions.
Starting with financial accounting it focuses on preparation of income statements, cash flow statements and balance sheets for divisions outside of the company such as investors, banks, creditors and stakeholders. Having transparency allows the company to meet compliance requirements as well as providing historical data. Having full understanding of their debt levels enables the company to use the balance sheet to further their borrowing ability prior to making a large purchase, additions or additional financial investments; it can also be useful in efforts to expand the company or seeking to purchase inventory. This information which can be gathered monthly or quarterly can be audited by a certified public accountant (CPA) to ensure accuracy and make strategic financial decisions.
Managerial accounting assists with internal planning providing more detailed information on costs and efficiency which allows them to make knowledgeable decisions of their operation such as production, pricing, etc. The information also enables the manager to compare products or departments to see how successful a product line may be versus another product. Having a greater understanding of product lines or departments enables managers to adjust department needs, promote products further or seek other products that may be more successful. Having a full understanding of the numbers will allow one to adjust goals as needed and help with everyday operations.
It is important to not rely on just one method, but to have as much information to have a solid company financial report. This transparent information which is both internal (managerial) and external (financial) will assist a company to be successful and long lasting. Information that is transparent can also improve future decisions, increased trust and reduced economic frictions. There can be a cost to transparency as well such as misuse of information and scrutiny (Bischof, et al., 2024).
Bischof, J., Gassen, J., Rohlfing-Bastian, A., Rostam-Afschar, D., & Sureth-Sloane, C. (2024).
Accounting for Transparency: a Framework and Three Applications in Tax, Managerial, and Financial Accounting.
_Schmalenbach Journal of Business Research (SBUR)_,
_76_(4), 573–611.
[https://doi-org.libraryresources.columbiasouthern.edu/10.1007/s41471-024-00200-7](https://doi-org.libraryresources.columbiasouthern.edu/10.1007/s41471-024-00200-7)
**## UnitIIStudyGuide.pdf**
ACC 5301, Management Applications of Accounting 1
Course Learning Outcomes for Unit II
Upon completion of this unit, students should be able to:
2. Apply accounting concepts to the creation of accounting information and reports.
2.1 Prepare reports using both job order and process costing methods.
3. Analyze accounting information used to make strategic business decisions.
3.5 Define job order and process costing.
3.6 Compare and contrast the use of job order and process costing.
Required Unit Resources
Chapter 2: Job-Order Costing for Manufacturing and Service Companies, pp. 2-1 – 2-31
Chapter 3: Process Costing, pp. 3-1 – 3-16
Unit Lesson
Introduction
Welcome to Unit II. In this unit, we will discuss two different costing methods, job order and process costing. It
is important to identify the costs needed to make a product or to provide a service so that the organization
ensures that it is pricing the product properly. In other words, if you manufacture computers and they cost you
$1,000 to make, then you need to price them for sale at more than $1,000 or the company will lose money.
The same is true for pricing services. If the cost to provide a haircut service is $25, you would need to price
the haircut for your customers at more than $25 to stay in business.
In this unit, we will also look at how various costs of products or services are accumulated and tracked using
costing sheets or reports and how the data is entered into the accounting system of the company.
Types of Costs
Regardless of the type of costing method that is selected, costs will fall into two broad categories; product and
period costs. Product costs will be our main focus in this unit.
Product costs are those that directly relate to the product or service. The components of product costs are
direct material, direct labor, and overhead. Some examples of direct materials include hardware components
needed to make computers, grains and sugar needed to make cereal, and medical supplies needed to treat
patients. Examples of direct labor costs include the wages of the factory workers that assemble the
computers, the wages of those who mix the ingredients to make the cereal, and the wages of the nurses who
treat the patients. Overhead costs consist of the cost of electricity to run the factory or hospital, the cost of
property taxes for the factory or hospital, or the salary of the onsite quality control managers. These costs all
directly relate to making the product or providing the service.
In contrast, period costs are related to the business in general. These costs include selling and administrative
costs. An example of selling costs is advertising or the cost of fundraising for a hospital. Administrative costs
are the salary of the CEO of the organization or the rent on the corporate headquarters office building.
These costs do not directly relate to making the product or providing the service but are necessary expenses
of the company.
UNIT II STUDY GUIDE
Job Order and Process Costing
ACC 5301, Management Applications of Accounting 2
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Types of Costing Methods
There are two main types of costing methods presented in this unit: job order costing and process costing.
Job order costing shows how product costs are accumulated for a particular job. This method is primarily
used when a product's or service's costs can be specifically identified. An example would be the cost of
manufacturing a special order computer or building a house. Each cost associated that the product or service
(direct material, direct labor and overhead) is logged into a job cost sheet similar to the example below:
This tracking of costs will help the manager determine the proper selling price for the product or service.
In contrast, process costing is primarily used by companies that manufacture large amounts of very similar
products like cereal manufacturers. Each piece of cereal cannot be specifically identified as in the job order
costing example related to special order computers. In processing costing, this involves the product or service
going through a series of steps or processes. For example, in cereal manufacturing, the ingredients would
need to be mixed, baked, and packaged—to name a few of the processes involved. Each of those processes
would come with a cost that needs to be accounted for to determine the total cost of the cereal. For example,
ingredients (direct materials) are added in the mixing process, workers (direct labor) run the mixing
machines, and electric costs are incurred to run the mixing machines in the cereal factory (overhead). These
costs are accumulated on a production cost report for a period of time, typically a month, as shown in the
example below:
Cost sheet that is meant to help the manager determine the proper selling price for a product.
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Accounting for Costs
As we look at job order and processing costing in this unit, we also need to discuss cost terminology
associated with these two costing methods from an accounting point of view. As products are being made or
services are being performed, the costs are being accumulated, as we have seen in a job cost sheet and/or a
production cost report. These costs then need to be entered in the company's accounting system so that all
costs over time are accounted for within the company. The accounting system will have a series of accounts
that accumulate the final cost of the product or service. We are going to start off with the accounts associated
with job order costing.
A basic review of product costs for a computer manufacturer is shown below:
The cost of the direct materials (computer components in this case) are entered into the Raw Materials
Inventory account when they are purchased. The cost of the components will remain in that account until they
are needed to make the computers. When it is time to start making the computers, a requisition or order form
Production cost reports help to see the actual total cost of the product.
Formula for Product Costs
(Klootwijk, n.d.; Bialasiewicz, n.d.; Photomall, n.d.)
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will be generated and sent to the storage area asking that these components to be moved to the factory floor
so that workers can assemble the computers. This moves the costs of the components from Raw Materials
Inventory to Works in Process Inventory.
Once the materials are on the factory floor, they need to be "converted" into a finished product (computer).
Therefore, the term conversion costs includes both direct labor and factory overhead, which are costs needed
to convert those raw materials into a computer. As these computers are being assembled, the direct
materials, direct labor, and faculty overhead costs continue to accumulate in the Works in Process Inventory.
All these costs will remain in the Works in Process Inventory until the product is completely finished. Once the
product is finished, all accumulated costs will move to the Finished Goods Inventory account.
The costs to make the computer will remain in Finished Goods Inventory until the computer is actually sold,
then the cost of making the computer will transfer to Cost of Goods Sold.
Cost moves from Raw Materials Inventory to Works in Process Inventory
(Klootwijk, 2019; Rawpixelimages, n.d.)
Cost moves from Works in Process Inventory to Finished Goods Inventory
(Rawpixelimages, n.d.; Raja Rc, n.d.)
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At this point, you may be wondering, why so many accounts? The answer is that each inventory account
needs to be tracked separately. This way, a manager can easily determine how much money the company
has, as a whole, in parts (Raw Materials) versus how much money the company has in partially finished
products (Works in Process), versus how much money the company has in completed products (Finished
Goods) sitting on the shelf waiting to be sold. Once the products are sold and the costs in Finished Goods are
transferred to Cost of Goods Sold, the manager will be able to determine if the company is making a gross
profit on the sale of the computers it just manufactured. This is a much easier method then to total up the
individual job order cost sheets for each computer every time the manager wants to know if the company, as
a whole, is making a profit on its computers.
Now we are ready to move to the accounts for process costing. As we already know, product costs still
involve direct materials, direct labor, and overhead. In this example, we will be looking at a cereal
manufacturer. In process costing, since the cost per individual flake of cereal would be impossible to
calculate because there are millions of flakes of cereal being made that all look identical, we look at the
process of making cereal as a whole. In our example, we look at three processes or departments: mixing,
baking, and packaging.
Remember, in process costing, costs are accumulated by process rather than by each individual piece of
cereal, so the cost of the materials, labor, and overhead are included within that department or process as a
whole. The accounts are the same as job order costing: Works in Process, Finished Goods, and Cost of
Goods Sold. Raw Materials inventory is not included as a separate inventory account since those
Cost moves from Finished Goods Inventory to Cost of Goods Sold
(Raja Rc, n.d.)
Process costing for cereal involves mixing, baking, and packaging.
(Rh2010, n.d.; Alipko, n.d.; Dusanpetkovic1, n.d.).
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materials are added at the start of the first process (mixing in our example). There is, however, a separate
Works in Process account for each department or process, unlike job order costing, to make sure the cereal
and all costs (direct material, direct labor, and overhead) are included in the Works in Process account for
that department.
In this illustration, the cost of the grain, the wages of the people that mix the ingredients, and the overhead
costs for that department are all accumulated into Works in Process-Mixing. When the mixing is complete, the
product and all of the associated costs are transferred to the next department in the process (baking in our
example). In theory, this resets the Works in Process-Mixing account to 0 since all of the costs are transferred
to the next department. In practice, the company is just making another batch of cereal so the cost of that
next batch would be in the Works in Process-Mixing account in a continuous cycle.
In Works in Process Inventory-Baking, additional costs are added to this account. These would be the wages
of the workers who bake the cereal and any additional factory overhead. If additional materials are added
during this process, that would be added in as well. In our example, we are going to say all materials (grains)
are only added in the beginning of the process. When the baking is complete, the product and all of the
associated costs are transferred to the next department in the process (packaging in our example). In theory,
this resets the Works in Process-Baking account to zero since all of the costs are transferred to the next
department. In practice, the company is just making another batch of cereal so the cost of that next batch
would be in the Works in Process-Baking account in a continuous cycle.
Works in Process Inventory-Mixing costs move to Works in Process Inventory-Baking costs.
(Rh2010, n.d.; Rsooll, n.d.; Seventyfour, n.d.; Gicamatescu, n.d.; Alipko, n.d.)
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In Works in Process Inventory-Packaging, additional costs are added to this account. These would be the
wages of the workers who package the cereal and any additional factory overhead. If additional materials are
added during this process, those would be added in as well. In our example, we are not adding any additional
materials. When the packaging is complete, the product and all of the associated costs are transferred to the
Finished Goods Inventory account, just like in job order costing waiting to be sold. In theory, this resets the
Works in Process-Packaging account to 0 as with the other Works in Process accounts in this example. All
costs are now in the Finished Goods Inventory account waiting to be sold.
Works in Process Inventory-Packaging Costs to Move to Finished Goods
(dusanpetkovic1, n.d.; Rsooll, n.d.; Seventyfour, n.d.; Gicamatescu, n.d.; , Gades, n.d.)
ACC 5301, Management Applications of Accounting 8
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The costs to make the cereal will remain in Finished Goods Inventory until the cereal is actually sold, then the
cost of making the cereal will transfer to Cost of Goods Sold.
At this point, again, you may be wondering why so many accounts? The answer is basically the same, so
managers can make informed decisions about their products and control costs at a process level. As you saw
in this example, the costs are accumulated as the product moves from one process or department to another.
This is where a manager can look at Works in Process for any department and determine if the cost for that
process is too high or on target by simply looking at one account.
Conclusion
Now that we have defined the common costing methods used and the cost terminology associated with job
order and process costing, let's review some specific examples of how this cost information can help
Works in Process Inventory-Packaging costs move to Finished Goods.
(dusanpetkovic1, n.d.; Rsooll, n.d.; Seventyfour, n.d.; Gicamatescu, n.d.; , Gades, n.d.)
Cost moves from Finished Goods Inventory to Cost of Goods Sold
(Gades, n.d.; Chamaki, n.d.)
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managers make business decisions. One key example of how cost information is used in business is to
determine the cost for a particular product or service so that a proper selling price for the product or service
can be set. In addition, by using the costing data sheets, a manager can also determine where most of the
costs incur. In other words, does the product have high material costs, labor costs, or overhead costs? This
may give the manager a good idea as to where costs can be cut or where operations can be improved to
ensure the company is making a profit.
References
Alipko. (n.d.). ID 234612672 [Photograph]. Adobe Stock. https://stock.adobe.com/images/factory-for-making-
cookies-and-sweets/234612672
Bialasiewicz, K. (n.d.). ID 43276410 [Photograph]. Dreamstime. https://www.dreamstime.com/stock-photo-
factory-workers-production-process-horizontal-view-image43276410
Chamaki, F. (n.d.). Labeled box lot [Photograph]. Unsplash. https://unsplash.com/photos/wkvKZR4e2OI
Dusanpetkovic1. (n.d.). ID 234912943 [Photograph]. Adobe Stock. https://stock.adobe.com/images/close-up-
of-worker-holding-boxes-and-putting-them-on-pile-food-factory-interior/234912943
Gades, S. (n.d.). 90s kid’s cereal [Photograph]. Unsplash. https://unsplash.com/photos/HlnTtGV0Yfg
Gicamatescu. (n.d.). ID 23250631 [Photograph]. Dreamstime. https://www.dreamstime.com/stock-image-
factory-image23250631
Klootwijk, M. (n.d.). ID 144472949 [Photograph]. Dreamstime. https://www.dreamstime.com/harddisk-close-
up-details-computer-parts-selective-focus-image144472949
Photomail. (n.d.). ID 48001812 [Photograph]. Dreamstime. https://www.dreamstime.com/stock-photo-large-
factory-building-large-modern-building-large-modern-exhibition-hall-under-blue-sky-appearance-
commercial-image48001812
Raja Rc. (n.d.). ID 8751056 [Photograph]. Dreamstime. https://www.dreamstime.com/royalty-free-stock-
image-computer-image8751056
Rawpixelimages. (n.d.). ID 99197266 [Photograph]. Dreamstime. https://www.dreamstime.com/stock-photo-
closeup-hands-computer-mainboard-microprocessor-electronics-parts-closeup-hands-computer-
mainboard-microprocessor-image99197266
Rh2010. (n.d.). ID 197239731 [Photograph]. Adobe Stock. https://stock.adobe.com/images/filling-flour-into-
the-professional-kneader-for-bread-baking-at-the-bakery-manufacturing/197239731
Rsooll. (n.d.). ID 86059344 [Photograph]. Dreamstime. https://www.dreamstime.com/stock-photo-ears-cereal-
hand-dry-yellow-stalks-wheat-man-photographed-close-up-small-depth-field-ripe-grain-
image86059344
Seventyfour. (n.d.). ID 210003342 [Photograph]. Adobe Stock. https://stock.adobe.com/images/two-
confectionery-factory-employees-in-white-coats-working-with-dough-mixing-machine/210003342
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Suggested Unit Resources
View the following videos by accessing the Unit II Additional Unit Resources folder in the unit.
The video Making a Hollywood Movie: Job Order Costing will highlight some of the features of job order and
process costing systems. In addition, it will demonstrate the use of a predetermined overhead rate.
You can access a transcript for this video by hovering over the PDF button at the bottom of the video and
then clicking on the word “Transcript.” Alternatively, you can click on the “cc” button at the bottom of the video
to turn on closed captions.
The video Jones Soda: Process Costing will explain how process costing varies from job order costing and
how costs are accumulated under a process costing system.
You can access a transcript for this video by hovering over the PDF button at the bottom of the video and
then clicking on the word “Transcript.” Alternatively, you can click on the “cc” button at the bottom of the video
to turn on closed captions.
Learning Activities (Nongraded)
Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit
them. If you have questions, contact your instructor for further guidance and information.
After watching both videos in the Suggested Unit Resources, you may want to study the Flash Cards for
Chapters 2 and 3 found in the Additional Unit Resources folder to reinforce the material presented in this unit.
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