accounting 202 hansen

costs of units in ending WIP inventory

for materials - number of equivalent units in ending WIP inventory for materials x cost per equivalent unit for materials - and same for conversion cost = add both these numbers to get ending inventory

conversion cost of units transferred out

number of equivalent units transferred out with respect to conversion x cost per equivalent unit for conversion

materials cost of units transferred out

number of equivalent units transferred out with respect to materials x cost per equivalent unit for materials

break even point

once the break-even point has been reached, NOI will increase by the amount of the unit CM for each additional unit sold - total revenue = total costs

if overhead is underapplied (first method)

the MOH accounts has a debit balance because the amount of overhead applied (which was credited to the account) is less than the actual amount of overhead costs (which were debited to the MOH account) - we then credit MOH (which offsets the existing debit balance and reduces the account balance to zero) and debit costs of goods sold

costs of the goods manufactured represents

the cost of the goods completed during the period and transferred from WIP to finished goods

cost per equivalent unit

(Cost of beginning WIP inventory + Cost added during period) / equivalent units of production

manufacturing overhead costs

- All manufacturing costs other than direct materials and direct labor are classified as manufacturing overhead costs. - All manufacturing costs other than direct materials and direct labor are entered directly into the Manufacturing Overhead account - Manufacturing overhead costs are recorded with a debit to Manufacturing Overhead account as they are incurred

when indirect materials are used on a job:

- MOH is debited (balance of the MOH accounts increases) - raw materials are credited (balance of RM account decreases)

Lubricating oil, waste cotton, and solder are used in the factory

- debit MOH - credit RM When indirect materials, such as lubricating oil, waste cotton, and solder, are used in the factory, the costs should be treated as manufacturing overhead. The Manufacturing Overhead account is increased with a debit and the Raw Materials account is decreased with a credit.

Salary of the Production Supervisor is payable

- debit MOH - credit salaries and wages payable Production Supervisor Salary is an example of indirect labor. As a result, the balance of the Manufacturing Overhead account should be increased with a debit and the balance of the Salaries and Wages Payable account should be increased with a credit

when indirect labor costs are incurred in the factory:

- debit MOH (balance of MOH account increases) - credit salaries and wages payable (balance of salaries and wages payable increases)

when MOH is applied to WIP

- debit WIP - credit MOH

Manufacturing overhead is applied to jobs using a predetermined overhead rate

- debit WIP - credit MOH When manufacturing overhead is applied to jobs, the Work in Process account is increased with a debit and the Manufacturing Overhead account is decreased with a credit

direct materials are issues into production for a specific job

- debit WIP - credit RM When direct raw materials are used, the balance of Work in Process increases with a debit whereas Raw Materials decreases with a credit.

The wages of direct laborers who worked on a particular job are payable

- debit WIP - credit salaries and wages payable Direct manufacturing costs, such as direct labor, are added to the Work in Process account with a debit and the Salaries and Wages Payable account is increased with a credit

getting materials from storeroom for production

- debit WIP (balance of WIP accounts increases) - credit RM (reduces balance in RM account)

specific job that includes direct labor cost

- debit to WIP (balance to WIP accounts increases) - credit to salary and wages payable (balance to salaries and wages payable account, a liability, increases)

absorption costing

- product cost: variable and fixed MOH, direct labor, direct materials - period: selling and administrative expenses

variable costing

- product costs: direct labor, direct materials, variable MOH - period costs: fixed MOH, selling and admin expenses

nonmanufacturing costs

- should not go into the manufacturing overhead account

first stage allocation

- usually based on the results of interviews with employees who have first-hand knowledge on activities - asked to estimate what percentage of their time is spent dealing with certain activities (customer service, product design, machine processing, etc)

cost assigned to units transferred out

materials cost of units transferred out + conversion cost of units transferred out

second method

1) take the total overhead cost applied to production during the period and break it into three pieces (the portion included the WIP end period, FG at end of period, and applied to COGS during the period) 2) state each of the amounts as a percentage of the total overhead cost applied to production during the period (amount applied in each account / total overhead applied) 3) derive the amounts needed for the journal entry by multiplying the percentages in step 2 by the amount of underapplied or overapplied overhead (debit it)

process costing

A costing method used when essentially homogeneous products are produced on a continuous basis - under this, it makes no sense to identify materials, labor, and overhead costs with a particular customer order because each order are just one of many that are filled from a continuous flow of virtually identical units - accumulates cost by department - Process costing assigns departmental costs uniformly to all identical units that pass through the department during a period - Process costing systems compute unit costs by department - a separate WIP account is kept for each processing department

bill of materials

A document that shows the quantity of each type of direct material required to make a product.

materials requisition form

A document that specifies the type and quantity of materials to be drawn from the storeroom and that identifies the job that will be charged for the cost of those materials.

direct materials cost

Beginning raw materials inventory + Raw materials purchases − Ending raw materials − Indirect materials

equivalent units

Number of partially completed units x Percentage completion - Equivalent units equals the product of the number of partially completed units and the percentage completion of those units with respect to the processing in the department. Roughly speaking, the equivalent units is the number of complete units that could have been obtained from the materials and effort that went into the partially complete units

contribution margin

The amount available to cover fixed expenses and then provide profits for the period

operating leverage

The measure of how sensitive net operating income is to a given percentage change in volume sales

job order costing

a costing system used in situations where many different products, jobs, or services are produced each period. direct material, direct labor, and manufacturing overhead costs to jobs.

time ticket

a document that is used to record the amount of time an employee spends on various activities

weighted average method

a process costing method that blends together units and costs from both the current and prior periods step 1: compute the equivalent units of production step 2: compute cost per equivalent unit step 3: assign costs to units step 4: prepare a reconciliation report

period costs include

all selling costs and administrative costs

Predetermined overhead rate

allocates manufacturing overhead costs to jobs

raw materials used in production

beginning raw materials inventory + purchases of raw materials - ending raw materials inventory

work in process

consists of units of production that are only partially complete and will require further work before they are ready for sale to customers - includes direct materials (not indirect)

product costs include

direct (raw) materials, direct labor, manufacturing overhead

conversion cost

direct labor cost + manufacturing overhead cost - Each processing department needs to calculate a separate unit cost for each type of manufacturing cost that it incurs. To simplify things, companies often consolidate these three cost categories into two groups by combining direct labor costs and overhead costs into a category called conversion cost

schedule of costs of goods sold include

direct labor, direct materials, and MOH - summarizes the portions of those costs that remain in ending WIP inventory and are transferred out of WIP into FG

Total Manufacturing Costs

direct materials + direct labor + manufacturing overhead applied in WIP

if overhead is overapplied (first method)

debit MOH and credit COGS - the credit will decrease the balance in COGS account

which of the following occurs when finished jobs are shipped to customers?

debit to cost of goods sold

operation costing

includes the characteristics of both job order costing and process costing - used in situations where products have some common and some individual characteristics - products are typically processed in batches, with each batch charged for its own specific materials - labor and overhead costs are are accumulated by operation or department, and these costs are assigned to units as in-process costing

units completed and transferred out

units in beginning work in process inventory + units started into production or transferred in - units in ending work in process inventory

finished goods

units of product that have been completed but not yet sold to customers

equivalent units of production (weighted average method)

units transferred to the next department or finished goods + equivalent units in ending WIP inventory

second stage allocation

use the activity rates calculated to assign costs to the cost objects