D101 Cost and Managerial Accounting Module 2

temp account

Manufacturing Overhead is a ________ to hold cost until we figure out what to do with them.

Actual Manufacturing Overhead

Manufacturing costs other than direct materials and direct labor

Cost of Goods Sold

Cost of products sold in a company, including costs of materials used to create product and labor costs

To assign direct labor costs to the products being manufactured

In using a job order costing system, the cost accountant for Paradigm Toys made an entry debiting work-in-process inventory and crediting salaries and wages payable. What was the purpose of this entry?

Raw Materials Inventory

Inventory of raw materials that have not yet begun the production process

Finished Goods Inventory

Inventory that has completed the production process and is ready for sale to customers

Work-in-process Inventory

Inventory that is partly completed in the production process, but not yet ready for sale to customers

Job Order Costing

A method of product costing whereby each job, product, or batch of products is costed separately.

Predetermined Overhead Rate

A rate at which estimated manufacturing overhead costs are assigned to products throughout the year; equals total estimated manufacturing overhead costs divided by a suitable allocation base such as a number of units produced.

Overapplications of manufacturing overhead are corrected by debiting manufacturing overhead and crediting cost of goods sold.

An overapplication of manufacturing overhead would be corrected by which entry? -Debiting finished goods inventory and crediting manufacturing overhead -Debiting manufacturing overhead and crediting cost of goods sold -Debiting cost of goods sold and crediting manufacturing overhead -Debiting work-in-process inventory and crediting manufacturing overhead

Manufacturing overhead

Applied manufacturing overhead is directly recorded as a credit to which account?

-Manufacturing overhead is overapplied by $3,000.

At the end of an accounting period, the manufacturing overhead account has debits totaling $25,000 and credits totaling $28,000. In this case, which statement is true? -Manufacturing overhead is underapplied by $3,000. -Actual manufacturing costs were $28,000. -Applied manufacturing overhead costs were $25,000. -Manufacturing overhead is overapplied by $3,000.

underapplied, overapplied

At the end of the period, ____________ overhead is added directly to cost of goods sold; __________ overhead is subtracted directly from cost of goods sold.

Estimated Manufacturing Overhead

Budgeted manufacturing overhead costs that are used to establish the predetermined overhead rate

Quiet Flag Industries has decided that direct labor hours are a good basis on which to apply overhead costs to production. Budgeted manufacturing overhead costs for the coming year are $500,000. Budgeted direct materials purchases are $400,000. The budgeted direct labor cost is $720,000, and budgeted direct labor hours for the coming year are 20,000 hours. What is Quiet Flag Industries' predetermined overhead rate?

Budgeted overhead $500,000/Budgeted 20,000 direct labor hours = $25 per hour

Overapplied

On this manufacturing Overhead account is it overapplied or underapplied?

Underapplied

On this manufacturing Overhead account is it overapplied or underapplied?

- We applied TOO much overhead to each job during the year. -Our computed cost were too high, perhaps the prices that we quoted to our customers were too high. -We have driven away some customers with our high prices.

On this manufacturing Overhead account what is the business problem caused by the $1,250 overapplied overhead?

-We didn't apply enough overhead to each job during the year. -Computed costs were too low perhaps the prices we charged the customers were too low. -If the customers don't pay for the overhead then WE have to pay for the overhead.

On this manufacturing Overhead account what is the business problem caused by the $750 underapplied overhead?

(Debit) Cost of Goods Sold "COGS" 750 (Credit) Manufacturing Overhead 750

On this manufacturing Overhead account what is the closing Journal Entry?

(Debit) Manufacturing Overhead 1,250 (Credit) Costs of Goods Sold 1,250

On this manufacturing Overhead account what is the closing Journal Entry?

Total estimated manufacturing overhead cost for the year ÷ Total estimated machine hours for the year = _____ per machine hour

Predetermined Overhead Rate Formula

When cost of goods sold is debited and manufacturing overhead is credited, the purpose of the entry is to record the underapplication of overhead.

Smartistry Company uses a job order costing system and closes all underapplied and overapplied manufacturing overhead to cost of goods sold. The company accountant made the following entry at the end of the accounting period: debit to cost of goods sold and credit to manufacturing overhead. What is the purpose of this entry? -To record underapplied manufacturing overhead -To record overapplied manufacturing overhead -To transfer the manufacturing overhead costs to work-in-process -To record actual manufacturing overhead costs for the period

Predetermined Overhead Rate

The _______ is created by dividing estimated manufacturing overhead by the estimate of the expected level of activity (e.g., direct labor hours) to be used to allocate overhead during the year.

Manufacturing Overhead

The ________ account is a temporary account that must be closed out at the end of the year.

work in process inventory

The ___________ account symbolically represents the factory itself.

Applied Manufacturing Overhead

The amount of the manufacturing overhead that is assigned to the goods produced; this is usually done by using a predetermined annual overhead rate

underapplied manufacturing overhead

The excess of actual manufacturing overhead costs over the applied overhead costs for a period (based on a predetermined application rate)

A container of glue that is used but will continue to be used on other Jobs. Sandpaper is another example.

What are some examples of Indirect materials?

Indirect Labor Indirect Materials Repairs Rent Depreciation Insurance

What are the most common overhead costs?

(Debit) Manufacturing OH (Credit) Accounts Payable (Credit) Rent Payable (Credit) Prepaid Insurance (Credit) Accumulated Depreciation

What is the journal entry for Actual Manufacturing OH?

(Debit) Work In Process Inventory (Credit) Manufacturing OH

What is the journal entry for Applied Manufacturing OH?

(Debit) Raw Materials Inventory (Credit) Accounts Payable

What is the journal entry for the purchase of raw materials?

(Debit) Cost of Goods Sold (Credit) Finished Goods Inventory

What is the journal entry for the sale of goods to the customer?

(Debit) Manufacturing OH (Credit) Cash

Which journal entry is used to record payment of factory rent in cash?

Indirect labor

______ costs include the wages of employees who perform functions not related to a specific job, such as maintenance and custodial.

Debits and Credits

________ record the flow of costs into a particular inventory (raw materials, work in process, or finished goods); __________are used to record the flow of costs out of inventory.

Manufacturing overhead

_________ is effectively a temporary holding account that simultaneously records actual overhead costs as they occur irregularly throughout the year while regularly transferring allocated overhead costs into the asset account called work-in-process inventory.

Actual manufacturing

___________ overhead costs are recorded as debits to the manufacturing overhead account.

Actual Manufacturing Overhead

________________costs are recorded as debits to the manufacturing overhead account; applied overhead costs are removed from the overhead account with a credit with the amount based on the predetermined overhead rate.

Actual manufacturing overhead

________________expenditures are always recorded as debits to manufacturing overhead and credits to the different liability, asset, or contra-asset accounts.

Applied (or assigned) overhead

_________costs are removed from the overhead account with a credit (and added into the production costs accumulated in work-in-process inventory).

Overapplied

________manufacturing overhead indicates that jobs were overcharged for overhead and costs were overstated. If future pricing decisions were made based on these overstated costs, the company would soon find customers looking elsewhere for more reasonably priced products.

1. Manufacturing or for nonmanufacturing personnel. 2. Then, for manufacturing personnel, it must be determined whether the individuals worked directly on the product (work-in-process inventory) or indirectly on the product (manufacturing overhead).

In management accounting, it is important to first determine whether salaries are for ?

Purchases -->Raw Materials Inventory-->Work in Process Inventory (IN Direct Materials, Direct Labor, Manufacturing OH) (OUT Cost of Goods Manufactured) --> Finished Goods Inventory --> OUT Cost of Goods Sold

In reference to Job Order Costing what is the accounting cost flow?

Jaunty Coffee Co. assigned $2 of manufacturing overhead for each hour of direct labor, and 26,000 hours of direct labor were worked, so applied overhead would be $52,000, or $2.00 × 26,000 hours. Because actual overhead was $55,000, manufacturing overhead was $3,000 underapplied ($55,000 − $52,000).

Jaunty Coffee Co. has determined that it will assign manufacturing overhead to work-in-process inventory at the rate of $2 per direct labor hour worked. During the period, the company had $55,000 of actual manufacturing overhead costs and 26,000 hours of direct labor. What would manufacturing overhead be?

1. Before the year begins, budget the estimated manufacturing overhead, estimate the allocation activity, and establish the predetermined overhead rate. 2. During the year, as costs are incurred, record actual manufacturing overhead as debits to the manufacturing overhead account. 3. During the year, as activity takes place, record applied manufacturing overhead as credits to the manufacturing overhead account and debits to the work-in-process account. 4. At the end of the year, compare actual and applied overhead balances and close out the difference (i.e., the overapplied or underapplied overhead) in the manufacturing overhead account.

Because manufacturing overhead costs generally do not coincide with the flow of production, a few extra steps are required to handle the accounting. These steps are:

Predetermined Overhead Rate

Before the period begins, estimated (or budgeted) overhead costs are combined with a budgeted activity measure (such as direct labor hours or machine hours) to compute a ________________________.

Predetermined Overhead Rate

Before the period begins, estimated (or budgeted) overhead costs are combined with a budgeted activity measure (such as direct labor hours or machine hours) to compute a____________.

To record actual manufacturing overhead costs

Freedom Rock Bicycle's accountants made the following entry: a debit to manufacturing overhead of $5,700 and a credit to accounts payable of $600, rent payable of $3,225, prepaid insurance of $425, and accumulated depreciation of $1,450. Why did the accountants for Freedom Rock Bicycle make this entry?

debits, credits

Generally speaking, ______ are used to record the flow of costs into a particular inventory, and _______ are used to record the flow of costs out of inventory.

As debits into the manufacturing overhead account

How are actual manufacturing overhead costs incurred throughout the year journalized?

underapplied

If overhead is _________, then the total cost of jobs will be understated. If a company were to allow the price on its products to fall based on this understated cost, the company could lose money because it might not cover its actual manufacturing overhead costs.

Step 1. Identify the product or project that needs cost measurement and track this project through the production process. Step 2. Specifically trace the direct costs (costs of direct materials and direct labor) to each product or project. Step 3. Allocate an appropriate amount of overhead costs to each product or project.

Most accounting systems that track product costs are based on a few key procedures:

(with a credit to cost of goods sold)

Overapplied overhead means that extra overhead costs were applied to production. This extra overhead amount is subtracted directly from cost of goods sold. Is this a debit or a credit?

To record indirect labor costs to manufacturing overhead

The cost accountant for Bullzai, Inc., made a journal entry debiting manufacturing overhead and crediting salaries and wages payable. What was the purpose of the entry?

Overapplied Manufacturing Overhead

The excess of applied manufacturing overhead (based on a predetermined application rate) over the actual manufacturing overhead costs for a period

Cost of Goods Sold (COGS)

The manufacturing costs will eventually become expenses when the products are sold_____________.

Allocate overapplied or underapplied manufacturing overhead to work-in-process inventory, finished goods inventory, and cost of goods sold on the basis of ending balances in these accounts

The most common way to eliminate overapplied and underapplied manufacturing overhead is to record the amount to cost of goods sold. What is an alternative way to eliminate these overapplications or underapplications of manufacturing overhead?

(Debit) Raw Materials Inventory (Credit) Accounts Payable

The purchase of raw materials on open account is recorded by which journal entry?

Manufacturing Overhead Rate

The rate at which manufacturing overhead costs are assigned to products; equals estimated manufacturing overhead costs for the period divided by the number of units of the activity base being used

Raw materials inventory Work-in-process inventory Finished goods inventory Cost of goods sold.

The same debits and credits used to generate the external financial statements are also used to carefully track the flow of costs from:

Manufacturing Overhead

The same is true for other costs, such as depreciation and rent. If these costs relate to manufacturing, they are debited to _________________. Costs not related to manufacturing are debited to depreciation expense, rent expense, and so forth.

1. Close overapplied or underapplied manufacturing overhead directly to cost of goods sold. 2. Allocate overapplied or underapplied manufacturing overhead to work-in-process inventory, finished goods inventory, and costs of goods sold on the basis of the ending balances in these three accounts.

There are two methods of treating overapplied and underapplied manufacturing overhead in the accounting system:

(with a debit to cost of goods sold).

Underapplied overhead means that not all overhead costs were applied to production. This excess overhead is added directly to cost of goods sold. Is this a debit or a credit?

Manufacturing OH

Unlike Direct Materials the Indirect materials do not go to WIP instead they go into _____________.

(Debit) Finished Goods Inventory (Credit) Work In Process Inventory

What is the journal entry for the transfer of goods completed?

(Debit) Work in Process Inventory (Credit) Raw Materials Inventory

What is the journal entry for the use of Direct Materials?

(Debit) Manufacturing OH (Credit) Raw Materials Inventory

What is the journal entry for the use of Indirect Materials?

(Debit) Work In Process Inventory (Credit) Salaries and Wages Payable

What is the journal entry for the use of direct labor?

(Debit) Manufacturing OH (Credit) Salaries and Wages Payable

What is the journal entry for the use of indirect labor?

An estimate of what the total overhead will be for the product being made based on some allocation method such as machine hours or direct labor hours

What is the manufacturing overhead rate that is applied to work-in-process during the manufacturing of products?

Budget the estimated manufacturing overhead, record actual manufacturing overhead, apply manufacturing overhead to work-in-process, and eliminate overapplied or underapplied overhead

What is the order of the steps followed in accounting for manufacturing overhead costs?

None of the above. It is a temporary holding account for overhead costs

What kind of account is the Manufacturing Overhead account? asset, liability, revenue or expense?

Materials that are a key component would always be assigned to products as direct materials.

What would least likely be assigned to manufacturing overhead? -Repairs on factory equipment -Insurance on the factory where goods are made -Rent on the factory warehouse -Materials that are a key component to making manufactured goods

Cost of Goods Sold (COGS)

When actual overhead is more than applied overhead (underapplied) the remaining debit balance is traditionally added to _____________.

Cost of Goods Sold (COGS)

When applied overhead is more than actual overhead (overapplied) the remaining credit balance is subtracted from________________.

Debit cost of goods sold; credit manufacturing overhead.

When manufacturing overhead is underapplied, which entry is included in closing the manufacturing overhead account?

Manufacturing Overhead

When the wages are related to manufacturing, the debit is to work-in-process inventory for direct labor and to ___________ for indirect labor.

finished goods inventory.

While a job is in process, the costs of direct materials, direct labor, and manufacturing overhead are accounted for separately. When the job is completed, however, these costs (in total) are transferred together from work-in-process inventory to____________.

Manufacturing overhead was overapplied by $700 during the period.

Whole Pine Inc. has a manufacturing overhead account that has debits totaling $101,300 and credits totaling $102,000. Whole Pine Inc.'s accountant is trying to understand why the debit and credit balances in the account are not equal at the end of the period. What is the explanation for the difference?

So that at the beginning of the year when a customer request a price you have something to tell them. Otherwise you would have to wait a year to have actual numbers

Why does the overhead rate need to be estimated at the start of the year?