Chapter 3

Predetermined overhead rate equation

(estimated total manufacturing overhead cost)/(estimated total amount of the allocation base)

the manufacturing costs for Honda were 400,000, if beginning WIP for Honda totaled 70,000, and ending WIP totaled 30,000, what is Honda's COGM

470,000

(TRANSACTION) company purchased on account an additional $60,000 in raw materials

D-raw materials C- AP

As items are removed from raw materials inventory and placed into the production process, they are called ____________

direct materials

What three things do a schedule of COGM and COGS contain

direct materials, direct labor, manufacturing overhead

T/F GOGM is computed by adding beginning WIP plus manufacturing cost plus ending WIP inventory

false

T/F applied MOH will be debited to the MOH account in the cost flow process

false

T/F journal entry for COGM includes the cost of units that are partially completed

false

A costing system in which overhead costs are applied to a job by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job

normal costing

A rate used to charge manufacturing overhead cost to jobs that is established in advance for each period

predetermined overhead rate

Include any materials that go into the final product

raw materials

Flow of costs

raw materials, work in process, finished goods, cost of goods manufactured

(PRODUCT COST FLOWS) How do you find raw materials used in production

take beginning raw materials inventory, add raw materials purchased (that gives you raw materials available for use), subtract ending raw materials inventory and (that gives you raw materials used in production)

What do a schedule of COGM and COGS calculate

the cost of raw material and direct labor used in production and the amount of manufacturing overhead applied to production AND the manufacturing costs associated with goods that were finished during the period

T/F overapplied overhead will cause net income to increase

true

Consists of units of a product that are only partially complete and will require further work before they are ready for sale to customers

work in process

when a company uses direct materials, what account will be the debit

work in process

(TRANSACTION) we will assume 750 of the 1,000 gold medallions in Job A were shipped to customers by the end of the month for total sales revenue of $225,000. Because 1,000 units were produced and the total cost of the job from the job cost sheet was $158,000, the unit product cost was $158. The following journal entries would record the sale (all sales were on account)

2 transactions: D- AR 225,000 C-sales 225,000, D- COGS 118,500 C- finished goods 118,500

Cost of Goods Available for Sale

Beginning Finished Goods + Cost of Goods Manufactured

Unadjusted COGS

Beginning Finished Goods + Cost of Goods Manufactured - Ending Finished Goods

Total RM available

Beginning RM + RM purchased

Where does finished goods inventory in the balance sheet go after the goods are sold

COGS in the income statement

(TRANSACTIONS) Advertising was $42,000 and other selling and administrative expenses in April totaled $8,000

D- advertising expenses 42,000 D- other selling & administrative expenses 8,000, C- AP 50,000

(TRANSACTION) Depreciation on office equipment during April was $7,000. The entry is as follows

D- depreciation expense 7,000 C- accumulated depreciation 7,000

(TRANSACTION) Job A was completed during April and Job B was incomplete at the end of the month. Thus, the following entry transfers the cost of Job A from Work in Process to Finished Goods

D- finished goods 158,000, C- work in process 158,000

What is the transaction to close over/underapplied overhead proportionally to work in process, finished goods, and COGS

D- manufacturing overhead 30,000 C- work in process inventory 3,000 C- finished goods inventory 9,000 C- COGS 18,000

(TRANSACTION) Assume that Ruger Corporation incurred the following general factory costs during April: Utilities (heat, water, and power) $21,000, Rent on factory equipment $16,000, Miscellaneous factory overhead costs $3,000

D- manufacturing overhead 40,000, C- AP 40,000

(TRANSACTION) Ruger Corporation incurred $30,000 in selling and administrative salary costs during April

D- salaries expense 30,000 C- salaries and wages payable 30,000

(TRANSACTION) materials requisition forms were prepared to authorize withdrawing $52,000 in raw materials from the storeroom for use in production. These raw materials included $50,000 of direct and $2,000 of indirect materials

D- work in process 50,000, D- manufacturing overhead 2,000, C- raw materials 52,000

(TRANSACTION) employee time tickets included $60,000 recorded for direct labor and $15,000 for indirect labor

D- work in process 60,000, D- manufacturing overhead 15,000, C- salaries and wages payable 75,000

(TRANSACTION) a company's predetermined overhead rate is $6 per machine-hour. Also assume that during April, 10,000 machine-hours were worked on Job A and 5,000 machine-hours were worked on Job B (a total of 15,000 machine-hours). Thus, $90,000 in overhead cost ($6 per machine-hour × 15,000 machine-hours = $90,000) would be applied to Work in Process. Prepare a journal entry that records the application of Manufacturing Overhead to Work in Process

D- work in process 90,000, C- manufacturing overhead 90,000

PearCo's actual overhead for the year was $650,000 with a total of 170,000 direct labor hours worked on jobs, PearCo's predetermined overhead rate is $4.00 per direct labor hour (find POHR and determine if it is over or underapplied)

POHR is 680,000, it is overapplied by 30,000

A costing method that includes all manufacturing costs-direct materials, direct labor, and both variable and fixed manufacturing overhead-in the cost of a product

absorption costing

(PRODUCT COST FLOWS) How do you find manufacturing costs

add direct materials, direct labor, and manufacturing overhead (to get total manufacturing costs)

A measure of activity such as directs labor hours or machine hours that is used to assign costs to cost objects

allocation base

Where and under what is raw materials purchases (product) recorded

balance sheet under raw materials inventory

Where and under what is direct labor (product) recorded

balance sheet under work in progress inventory

Where and under what is manufacturing overhead (product) recorded

balance sheet under work in progress inventory

Raw materials available for use

beginning RM + purchase

Includes the manufacturing costs associated with the goods that were finished during the period

cost of goods manufactured

T/F when raw materials are used, companies credit raw materials, and debit finished goods

false

Consist of completed units of product that have not been sold to customers

finished goods

Calculating the allocation of underapplied or overapplied overhead between Work in Process, Finished Goods, and Cost of Goods Sold assuming the overhead applied in Ending Work in Process Inventory, Ending Finished Goods Inventory, and Cost of Goods Sold is $68,000, $204,000, and $408,000, respectively (total value of accounts $680,000)

first, find the allocation percentages (Ending WIP Inventory = $68,000 ÷ $680,000 = 10%, Ending Finished Goods Inventory = $204,000 ÷ $680,000 = 30%, Cost of Goods Sold = $408,000 ÷$680,000 = 60%), then multiply each amount by its percentage to find the allocation of the 30,000

Where and under what is selling and administrative (period) costs recorded

income statement under selling and administrative expenses

What are the two ways that you would dispose of under or overapplied overhead

it can be closed to COGS or it can be closed proportionally to work in process, finished goods, and COGS

A form that records the direct materials, direct labor, and manufacturing overhead cost charged to a job

job cost sheet

A costing system used in situations where many different products, jobs, or services are produced each period

job-order costing

The difference between the overhead cost applied to work in process and the actual overhead costs of a period

over/underapplied overhead

When the amount of overhead applied to jobs during the period using a predetermined overhead rate is greater than the total amount of overhead actually incurred during the period

overapplied overhead

The process of assigning overhead costs to specific jobs

overhead application

Overhead application formula

predetermined overhead rate x amount of allocation base incurred by the job

What are two examples where nonmanufacturing costs are not assigned to individual jobs, rather they are expensed in the period incurred

salary expense of employees that work in a marketing, selling, or administrative capacity & advertising expenses

(PRODUCT COST FLOWS) How do you find work in process

start with beginning WIP inventory and add total manufacturing costs (to get total work in process for the period) subtract ending work in process inventory to get (cost of goods manufactured)

(PRODUCT COST FLOWS) How do you find finished goods

start with beginning finished goods inventory, add cost of goods manufactured (to get cost of goods available for sale) subtract ending finished goods inventory (to get COGS)

T/F the work in process account will include direct materials, direct labor, and applied manufacturing overhead

true

T/F when indirect materials are used, manufacturing overhead will be debited

true

When the amount of overhead applied to jobs during the period using a predetermined overhead rate is less than the total amount of overhead actually incurred during the period

underapplied overhead