ACCT 230 Exam 2
ex: Alpha applies MOH based on direct labor hours. Assume the variable MOH rate is $0.50 per direct labor hour. The total fixed MOH costs are expected to be $80,000 next year. Direct labor cost for 40,000 direct labor hours is expected to be $400,000 next year. calculate the predetermined OH Rate
$2.50 per DL hour variable. 0.50 fixed (80,000/40,000) 2.00 _____________________________________ $2.50 per DL hour
Medco applies manufacturing overhead costs to production at a rate of $6 per machine hour. During may, Job 400 was started and completed and Job 401 was started but not yet complete at the end of the month. What is the predetermined rate?
$6 per machine hour
KA catering uses a job order costing system to assign costs to its catering jobs. Overhead is allocated to each job based on direct labor hours. Listed below is data for the current year. Determine the amount of OVERHEAD APPLIED to work in process during the period budgeted overhead: $90,000 actual overhead cost incurred: $77,000 budgeted labor: $100,000 for 10,000 hours actual labor: $95,000 for 9,000 hours
$81,000 Step 1: budgeted cost/ budgeted activity 90,000 / 10,000= $9.00 per DL hour step 2: oh rate x actual activity $9 per DL hour x 9000 hours= $81,000
OH applied=
(predetermined OH rate) * (actual activity)
average cost per unit
(total product costs for the job) / (number of units in the job)
In an activity-based costing system, the ____________________ expresses how much of the activity is carried out and is used as the allocation base for assigning overhead costs.
ACTIVITY MEASURE
Mickley Company's plantwide predetermined overhead rate is $14.00 per direct labor-hour and its direct labor wage rate is $17.00 per hour. The following information pertains to Job A-500: Direct materials$ 231 Direct labor$ 153 Required: 1. What is the total manufacturing cost assigned to Job A-500? 2. If Job A-500 consists of 40 units, what is the unit product cost for this job?
Total Manufacturing Cost= $510 Unit Product Cost= $12.75
JE for when raw materials are used in productions
WIP ----raw materials Inv (direct materials are used)
JE for When direct labor is recorded
WIP Inv -----Cash/Wages payable
recording product costs, when incurred, manufacturing costs are assigned to
WIP inventory
inventory that has been started in production but not yet completed
Work in progress (WIP Inv)
Batch-level
activities and costs incurred for every batch, regardless of the number of units in the batch ex: purchase orders are issued for materials used in production
facility-level (organization sustaining) activities
activities required to support the organization regardless of what products are produced or how many units are made ex: insurance costs are incurred on the company's faciliites
unit-level
activities that are performed each time a unit is produced ex: products are assembled by hand
direct materials costs
assign direct material USED directly to each job
direct labor costs
assign labor costs directly to each job
manufacturing overhead costs (OH)
assign overhead APPLIED to each job ( bc these are indirect costs) assign an estimated amount of overhead cost to inventory by using a predetermined overhead rate
DM Used schedule
beg DM inve +purchases of new material ____________________ materials available to sell (ending DM) ______________________ DM Used
Which of the following activities would most likely use number of items shipped as the activity measure to assign costs to products or customers? a. receiving materials b. machine setup c. shipping cost d. production equipment maintenance
c) shipping costs
recording product costs, when units are sold, cost is transferred to
cost of goods sold
use the Job order cost system if
customize orders or produce many, highly differentiated products
Differences of Job Order and Process System
different in how they assign the costs to INDIVIDUAL UNITS of inventory. In Process Costing--DM, DL, and OH are added in multiple departments therefore must have a WIP account for each department. ex: Campbell's soup factory- washing, cooking, spicing, labeling department
Compute the Activity Rates for Cost Pools
estimated total overhead cost/ estimated total activity
Inventory that has been completed but not yet sold
finished goods (FG inventory)
Why is accurate product costing critical to a company's success?
it is needed to determine product profitability and to prepare accurate financial stmts
Non-manufacturing vs manufacturing costs
non-manufacturing--> selling and admin expenses/operating expenses expense in the period incurred manufacturing--> DM,DL,MOH record as a CA then expense as COGS
Did the company over apply or under apply overhead?
overapplied by $4000 actual= 77000 applied 81000
cost accounting involves the measuring, recording, and reporting of __________
product costs DM DL MOH
JE for when raw materials are purchaseed
raw materials inv ----cash/ap
allocate equally among the various products vs allocate based on consumption
traditional vs abc
Debit COGS
when inventory is sold
Debit WIP when
DM is used DL is recorded OH is applied
use the process cost system when
we need to mass produce a very similar product--have a continuous production process of homogenous products
When is overhead underapplied?
when actual OH costs are greater than Applied OH DEBIT BALANCE
when is overhead overapplied?
when actual OH costs are less than Applied OH CREDIT BALANCE
Debit FG Inv
when inventory is completed
Which costing system is more costly to use? Job order or Process Cost?
Job Order
when MOH is overapplied, the entry to close COGS account
MOH ----COGS
JE when indirect materials are used
MOH ----Raw Materials Inv
JE when indirect labor is recorded
MOH ---Cash/Wages payable
Clonex Labs, Incorporated, uses the weighted-average method in its process costing system. The following data are available for one department for October: beginning WIP- 30,000 M- 65%. C-30% end WIP- 15,000 M- 80%. C-40% The department started 175,000 units into production during the month and transferred 190,000 completed units to the next department. Required:Compute the equivalent units of production for October.
Materials: 202,000 Conversion 196,000
what costing do we use in this class? Actual or Normal costing?
Normal costing assign actual DM Used and DL cost to each unit allocate share of MOH cost to each unit
Cont. During January direct labor costs incurred totaled $45,000 for 3,000 DL hours worked. Actual overhead costs incurred totaled $8,000 for the month. Determine the amount of overhead allocated to production during January
OH Applied= $7500 $2.50 per DL hour x 3000 DL hours= $7500
direct and indirect materials that have been purchased but not yet used in production
Raw materials (RM Inventory)
Similarities of Job order and Process System...
Similar in the way production costs are recorded: DM used, DL, OH applied debit to WIP INV when inventory is complete debit to FG INV when inventory is sold debit to COGS
4 steps to implement ABC
Step 1: define activities and cost pools Step 2: identify the activity measure for each cost pool Step 3: Calculate activity rates Step 4: Assign overhead cost to cost objects
T/F ABC is designed to provide managers with cost information for management decisions; it is usually a supplement to, rather than a replacement for the firm's traditional costing system
TRUE
journal entry: manufacturing overhead is allocated based on direct labor costs. Estimated overhead costs for the year is $90,000 and estimated labor cost is $30,000 for 3000 direct labor hours. additional info: paid factory wages for direct labor as follow: $1000 and $1200.
[WIP Inv 6600 -----MOH 6600] OH applied: $3 x 2200= 6600
relationship between COGS and Gross profit
inverse
how to find unit product cost
step 1) find DM, DL, OH applied --TO FIND OH APPLIED: step 2) calculate activity rates by expected activity rates step 3) find total of activity rates /total units produced = OH APPLIED step: add DM+DL+OH
under the process cost system, assign DM used, DL and OH applied
to each department or process in WIP inv
summary of key differences of job order costing and process costing: type of product: Costs accumulated: determine total manu costs: unit-cost computation: WIP inventory accounts: Documents Used:
unique vs homogenous by job vs by department upon completion of a job vs each period total cost of job/# units produced vs total manu costs/EU one WIP account vs WIP account for each dept job cost sheet vs production cost report
ABC Hierarchy of Costs
unit level batch level product level facility level
Which of the following statements about manufacturing overhead costs is not correct? A) All manufacturing costs other than direct materials and direct labor are classified as manufacturing overhead costs. B)All manufacturing costs other than direct materials and direct labor are entered directly into the Manufacturing Overhead account. C)Depreciation on factory equipment is recorded with a debit to Depreciation Expense. D)Manufacturing overhead costs are recorded with a debit to Manufacturing Overhead account as they are incurred.
C) depreciation on factory equipment is recorded with a debit to depreciation expense this would be correct if it was depreciation on admin building, but depreciation on factory equipment is MOH
Which of the following would be classified as a unit-level activity in an activity-based costing system? a. machine setup b. product design c. labor used to assemble products d. building maintenance
C) labor used to assemble products
Companies can improve job cost accuracy by using ________. multiple choice a) plantwide overhead rate b)direct-labor hours to apply overhead c)multiple predetermined overhead rates d) number of units in the job to apply overhead
C) multiple predetermined overhead rates
when MOH is under applied, the entry to close COGS account
COGS ----MOH
assume two jobs were sold during the period: Job #10A costing $200,000 and Job #12B costing $100,000. What is the cost of goods sold before adjustment?What is the COGS after adjustment?
COGS b4 adj: $300,000 COGS after adj: $296,000
what kinds of companies would use the process cost system
Campbell's soup, Dole Fruit Cocktails, oil refineries, office supplies, electronics
finding EU
Completed units + end WIP (percent complete for each one)
What are the three schedules used?
DM USED COGM COGS
Under the Job Order Cost system, assign DM used, DL and OH applied to
Each job under WIP INV
measure of the work done during the period, expressed in fully completed units; this allows accountants to calculate cost per unit when some units are partially complete
Equivalent Units
recording product costs, when a job is completed, cost is transferred to
FG inventory
T/F Overhead is closed at the end of the period bc it is temporary account
TRUE this is why we must adjust COGS
predetermined overhead rate=
(budgeted total MOH costs) / (budgeted total activity)
technique that attempts to assign overhead costs to products based on the activity that CAUSES costs to be incurred
Activity Based Costing (ABC)
2 glasses of water both half full= ___ EU
1 EU
Preparing a production Cost Report (using weighted-average method) 6 steps to prepare:
1) account for the physical flow of units (beg WIP + Units started = end WIP + units completed) 2) accumulate costs 3) calculate equivalent units 4) calculate cost per equivalent unit 5) value inventories 6) cost reconciliation (beg costs + current costs = cost of end WIP + cost of unit completed)
What are two limitations of ABC?
1) expensive to implement and maintain 2) some arbitrary allocations remain (still not perfect)
What are two benefits of ABC?
1) product cost accuracy ****** 2) a better understanding of OH costs --for better control
product-level activities
Activities performed in support of an entire product line but not always performed every time a new unit or batch of products is produced. ex: modifications are made to product line
When should process costing techniques be used in assigning costs to products? a. Any time production is only partially completed during the accounting period. b. If the product is composed of mass-produced homogenous products and production is not always completed as to all elements of production during the accounting period. c. If the product is manufactured according to customer specifications. d. All of the above.
B
For the month of October, Janus Corporation used $30,000 worth of direct materials in production and incurred direct labor costs of $60,000. Actual manufacturing overhead costs were $40,000, whereas $45,000 was the manufacturing overhead applied to work in process. What is the amount of total manufacturing costs added to production that would appear in the Schedule of Cost of Goods Manufactured for October? A) $90,000 B) $130,000 C) $135,000 D) $175,000
C) $135,000
Cost of Goods Sold
beg FG inv +COGM ________________ available to sell (end FG Inv) ______________________ COGS b4 adj +/- under or over ___________________ COGS
Cost of Goods Manufactured
beg WIP inv +current production (DM used, DL, OH applied) (end WIP inv) _______________________ COGM
job cost sheet:
beginning costs +DM used +DL +OH applied ____________________ Total cost
