Accy Chapters2&3

Iolaus Company provides the following data for the current year: Manufacturing overhead incurred - $11,400 Manufacturing overhead applied - ? Estimated direct labor cost - $12,000 Direct labor cost incurred - $11,800 Estimated manufacturing overhead - $8,000 a. calculate the overhead application rate b. determine the amount of overhead applied to production

A. $8,000/$12,000 = 66.7% of direct labor cost B. $11,800 x .667 = $7,871 overhead applied

absorption costing

a costing method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overhead - in unit product costs.

Products that have completed the manufacturing process and are ready to be sold by the manufacturer are called

finished goods inventory

cost of goods manufactured

the manufacturing costs associated with units of product that were finished during the period

Products that are in the process of being manufactured but not yet complete are called

work in process inventory

Whitman Products and Rockland Industries provide the following information: WHITMAN: AR: $41,000 Cash: $6,000 Finished goods inventory: $25,000 Goods in process inventory: $40,000 Merchandise inventory: blank Prepaid expenses: $1,000 Raw materials inventory: $21,000 ROCKLAND AR: $68,000 Cash: $7,000 finished goods inventory: blank Goods in process inventory: blank Merchandise inventory: $48,000 Prepaid expenses: $2,000 Raw materials inventory: $21,000 Which company is a manufacturer? Why?

A. Whitman Products; converts materials to finished goods

normal cost system

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

job-oder costing

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

multiple predetermined overhead rates

a costing system with multiple overhead cost pools and a different predetermined overhead rate for each cost pool, rather than a single predetermined overhead rate for the entire company. Each production department may be treated as a separate overhead cost pool.

over applied overhead

a credit balance in the manufacturing overhead account that occurs when the amount of overhead cost applied to work in process exceeds the amount of overhead cost actually incurred during a period

underapplied overhead

a debit balance in the manufacturing overhead account that occurs when the amount of overhead cost actually incurred exceeds the amount of overhead cost applied to work in process during a period

time ticket

a document that is used to record the amount of time an employee spends on various activities

The Work in Process Inventory account for the AB Corp. is as follows: Work in Process Beginning balance = $4,500 Direct materials = $47,100 Direct labor = $29,600 Applied overhead = $15,800 Ending Balance = $8,900 The cost of completed units (COGM) transferred to finished goods is a. $97,000 b. $105,900 c. $88,100 d. $95,200

c. $88,100 $4,500 + $47,100 + $29,600 + $

Loblolly manufactures a speciality line of natural fragrances. The company uses a job-order costing system. During March, the following costs were incurred on Job A2: direct materials $10,250 and direct labor $5,000. In additional, selling and shipping costs of $3,500 were incurred on the job. Manufacturing overhead was applied at the rate of $20 per machine-hour and Job A2 required 200 machine-hours. If Job A2 consisted of 3,500 bottles of "Eu de Natural," the Cost of Goods Sold per bottle of "Eu de Natural" was: a. $6.50 b. $6.00 c. $5.70 d. $5.50

d. $5.50 Total job cost = direct materials + direct labor + MOH Total job cost = 10,250 + 5,000 + 4,000 (200 x $20) Total job cost = $19,250 $19,250/3,500 units = $5.50 per unit

overhead application

the process of assigning overhead cost to specific jobs overhead applied to a particular job = predetermined overhead rate x amount of the allocation base incurred by the job

work in process

units of product that are only partially complete and will require further before they are ready for sale to the customer

Explain what a predetermined overhead application rate is, how it is calculated, and why it is used.

A predetermined overhead application rate is used to charge factory overhead costs to products produced during the period. It is calculated by relating estimated overhead costs for a period to another variable such as estimated direct labor hours. It is calculated by relating estimated overhead costs for a period to another variable such as estimated direct labor hours. It is used because overhead costs benefit all jobs and cannot be directly related to any one job.

Samer Corp. uses a job-order cost accounting system. Samer Corp.'s predetermined overhead application rate is 60% of direct labor cost. At the end of the year, the company's records show that actual overhead costs incurred was $189,000 and there were 22,000 direct labor hours for a total cost of $275,000. Determine the amount of over applied or underapplied overhead.

Actual overhead cost - $189,000 Applied overhead (60% x $275,000) = $165,000 $189,000 - $165,000 = $24,000 underapplied overhead

bill of materials

a document that shows the quantity of each type of direct material required to make a product

materials requisition form

a document that specifies the type and quantity of materials to be drawn from the storeroom and that identifies the job that will be charged for the cost of those materials

cost driver

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

job cost sheet

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

allocation base

a measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects

predetermined overhead rate

a rate used to charge manufacturing overhead cost to jobs that is established in advance for each period. It is computed by dividing the estimated total manufacturing overhead cost for the period by the estimated total amount of the allocation base for the period

schedule of cost of goods sold

a schedule that contains three elements of product costs - direct materials, direct labor, and manufacturing overhead - and that summarizes the portions of those costs that remain in ending finished goods inventory and that are transferred out of finished goods into cost of goods sold

schedule of cost of goods manufactured

a schedule that contains three elements of product costs - direct materials, direct labor, and manufacturing overhead - and that summarizes the portions of those costs that remain in ending work in process inventory and that are transferred out of work in process into finished goods

plantwide overhead rate

a single predetermined overhead rate that is used throughout a plant

Dagui Corporation uses direct labor hours in its predetermined overhead rate. At the beginning of the year, the total estimated overhead was $224,580. At the end of the year, actual direct labor hours for the year were 18,200 hours. Manufacturing overhead for the year was undersupplied by $12,100 and the actual manufacturing overhead was $219,580. The predetermined overhead rate for the year must have been close to: a. $11.40 per direct labor hour b. $12.34 per direct labor hour c. $12.06 per direct labor hour d. $10.53 per direct labor hour

a. $11.40 Actual overhead - underapplied overhead = MOH applied $219,580 - $12,100 = $207,480 MOH applied POHR x Actual Hours = MOH applied POHR x 18,200 = $207,480 POHR = $11.40

Work in process is a control account supported by detailed cost data contained in: a. job cost sheets b. the manufacturing overhead account c. the finished goods inventory account d. purchase requisitions

a. job cost sheets

If a company applies overhead to jobs on the basis of a predetermined overhead rate, a credit balance in Manufacturing Overhead account at the end of any period means that: a. more overhead cost has been charged to jobs than has been incurred during the period b. more overhead cost has been incurred during the period than has been charged to jobs c. the amount of overhead cost charged to jobs is greater than the estimated cost of the period d. the amount of overhead cost charged to jobs is less than the estimated overhead cost for the period

a. more overhead cost has been charged to jobs than has been incurred during the period

raw materials

any materials that go into the final product

What are the advantages to management using multiple overhead rates for their production costing?

better accuracy of costing data and an aid to better pricing decisions

finished goods

units of product that have been completed but not yet sold to customers