Accounting 2 Chapter 2

Four step process to calculate overhead rate

Y = a +bx Y = the total manufacturing overhead cost a = total estimated fixed manufacturing overhead cost b = the estimated variable manufacturing overhead cost per unit of allocation base x = estimated total of the allocation base

Bill of materials

a document that lists the type and quantity of each type of direct material to complete a unit of product

unadjusted cost of goods sold

beginning finished goods inventory + cost of goods manufactured - ending finished goods inventory

Raw materials used in production =

beginning raw materials inventory + purchases of raw materials - ending raw materials inventory

predetermined overhead rate

computed by dividing the total estimated manufacturing overhead cost divided by the estimated total amount of the allocation base

finished goods

consist of completed units of product that have not yet been sold to customers. the amount transferred from work in process to finished goods is called cost of goods manufactured

Job order costing

costs are traced and allocated to jobs and then the cost of the job are are divided by the number of units produced to arrive at an average cost per unit

Manufacturing overhead includes

the factory supervisors salary (not the ceos) and factory insurance

materials requisition form

a document that specifies the type and quantity of materials to be drawn from the store room and identifies the job that will be charged for the cost of the materials. used to record the flow of materials into production and for accounting records.

Allocation base

a measure such as direct labor hours (DLH) or machine-hours (MH) that assign overhead costs to products and services bases include: direct labor hours direct labor costs machine hours units of product

to calculate the unit product cost

divide the total job cost by the number of units produced

a journal entry that debits manufactures overhead and debits prepaid insurance records the

expiration of prepaid insurance

the journal entry to record shipping goods to customers includes a credit to

finished goods

when a job is completed which account is debited

finished goods

Time ticket

hour by hour summary of employees activities throughout the day labor costs recorded including direct

manufacturing costs have what effect on product costs

no effect

Overhead application

process for assigning overhead to a job the equation is: overhead to a particular job = predetermined overhead rate X amount of the allocation base incurred by the job in labor hours the equation becomes: overhead to a particular job = predetermined overhead rate X actual direct labor hours charged to the job

The journal entry to record issuing materials credits

raw materials

a journal entry that debits manufacturing overhead credits accounts payable records the

recognition of accused property taxes

Job cost sheet

records the materials, labor, and manufacturing overhead costs charged to that job

a journal entry the debits manufacturing overhead and credits accounts payable could be

rent, utilities factory insurance etc

The journal entry to record labor costs credits

salaries and wages payable

Absorption costing

all manufacturing costs both fixed and variable, are assigned to units of product, units are said to fully absorb manufacturing costs.

The schedule of cost of goods sold

also includes three elements of product cost, direct labor, direct materials, and manufacturing overhead. summarizes the transfer from finished goods to cost of goods sold

A normal cost system

also overhead application

raw materials

any materials that go into the final product, when raw materials are used in production their costs are transferred to a work in process inventory account as direct materials

A company purchased $70,000 of materials on account. $40,000 were direct and $30 were indirect, the journal entry to record this is

debit raw materials and credit accounts payable

the journal entry to record depreciation on office equipment debits

depreciation expense and credits accumulated depreciation

total cost for a job include

direct labor, direct materials, and applied manufacturing costs

total manufacturing cost

direct materials + direct labor + manufacturing overhead applied to work in process

the cost of goods manufactured

includes the manufacturing costs associated with completing the product and finally expensed

a cost driver

is a factor that causes overhead costs such as machine hours, beds occupied, computer time, or flight-hours.

goods available for sale

manufactured goods and finished goods in inventory

frank inc. recognized $20,000 in depreciation of factory equipment the journal entry would debit

manufacturing expense $20,000 and credit accumulated depreciation $20,000

production order

when quantity price and shipment date has been agreed upon by the customer

which account is debited to record direct labor costs

work in process

the journal entry to record $10,000 in manufacturing overhead for job #40 debits

work in process $10,000 and credits manufacturing overhead $10,000

work in process

consists of units of product that are only partially complete and require further work before they are ready for sale. direct labor costs are added directly to work in process and do not flow through raw materials inventory. Manufacturing overhead costs are applied to work in process by the predetermined overhead rate and the actual allocation base consumed by each unit of job.

The schedule of cost of goods manufactured

contains three elements of production cost: direct materials direct labor manufacturing overhead summarizes transfer from work in process to finished good

under applied or over applied overhead

under applied overhead happens when the actual cost is more than was applied and vice versa