managerial accounting ch 2 and 3

when is Job Order Costing used

1. Many different products are produced each period. 2. Products are manufactured to order. 3. The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job.

absorption costing

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.

Normal costing

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.

Job cost sheet

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

applied overhead formula

POHR x actual DL hours used

overhead application formula

Predetermined overhead rate x Amount of allocation base incurred by the job

underapplied overhead

When a company applies less overhead to production than it actually incurs

overapplied overhead

When it applies more overhead to production than it actually incurs

what happens to MO in job order costing?

allocated to jobs instead of traced directly to each.

overapplied overhead close out entry

debit MO for overapplied, credit WIP, FG inventory, and COGS for their percentage of the applied overhead multiplied by their amount

MO costs journal entry

debit MO, credit cash/ AP

cost of goods manufactured

includes the manufacturing costs associated with the goods that were finished during the period.

what happens to net income when overhead is overapplied

increase

what does the adjustment for underapplied overhead do? (and vice versa)

increases cost of goods sold (decreases for overapplied)

what is an allocation base?

such as direct labor hours, direct labor dollars, or machine hours, is used to assign manufacturing overhead to individual jobs.

what is done with leftover applied overhead

taken from manufacturing overhead and closed to COGS

overhead application

the process of assigning overhead costs to specific jobs

what is the predetermined overhead rate used for

used to apply overhead to jobs is determined before the period begins.

purchase of raw materials journal entry

debit RM credit cash

labor cost journal entry

debit WIP and MO for their allocations, credit salaries payable for the total

issue of direct and indirect materials journal entry

debit WIP and MO for whatever they are allocated, credit Raw materials for the total

applying MO to WIP journal entry

debit WIP, credit MO

POHR formula

est. total manufacturing cost/ estimated total units in the allocation base