Chapter 3

Product Cost

Direct Materials+Direct Labor+ Manufacturing Overhead

Calculate Total Manufacturing Costs

Direct materials used in Production +Direct labor used in production(Wage rate*Hours) +Manufacturing Overhead applied to Works in Progress =Total Manufacturing cost

Predetermined Overhead Rate (POHR)

Estimated Total Manufacturing overhead cost divided by Estimated total amount of the allocation base.

Three Categories of inventory

Raw Material Inventory, work in progress inventory, Finished Goods inventory

Total Inventory

Raw material inventory + Work in progress inventory + Finished Goods Inventory

Calculate Direct Materials used in production

Raw materials used in production -Indirect Raw Materials used in manufacturing overhead =Direct materials used in production

Overapplied Manufacturing Overhead

Actual Manufacturing Overhead < Applied Manufacturing Overhead

Underapplied Manufacturing Overhead

Actual Manufacturing overhead >Applied Manufacturing Overhead

Calculate Cost of goods available for Sale

Beginning Finished Goods Inventory +Cost of Goods manufactured =Cost of goods available for sale

Calculate Raw materials in production

Beginning raw materials inventory +Purchases of Raw Material -Ending Raw Material Inventory =Raw material used in production

Where can Manufacturing overhead be allocated?

COGS, Work in Progress, finished goods

Calculate unadjusted Cost of goods sold

Cost of goods available for sale -Ending Finished Goods inventory = Unadjusted Cost of goods sold

Manufacturing Overhead (Particular Job)

MOH applied= POHR*Amount of the allocation base incurred by the job

Debit MOH, Credit CoGS

Overapplied Manufacturing Overhead

Calculate Cost of Goods Manufactured

Total Manufacturing Costs +Beginning Work in Progress Inventory -Ending Work in Progress inventory =Cost of goods manufactured

Calculate adjusted Cost of Goods Sold

Unadjusted Cost of Goods Sold +Underapplied Overhead cost, or -Overapplied Overhead cost =Adjusted Cost of Goods Sold

Debit CoGS, Credit MOH

Underapplied Manufacturing Overhead