Chapter 2: Managerial Accounting

Osborn Manufacturing uses a predetermined overhead rate of $18.20 per direct labor-hour. This predetermined rate was based on a cost formula that estimates $218,400 of total manufacturing overhead for an estimated activity level of 12,000 direct labor-hours. The company incurred actual total manufacturing overhead costs of $215,000 and 11,500 total direct labor-hours during the period.

1. Determine the amount of underapplied or overapplied manufacturing overhead for the period. Manufacturing Overhead Incurred (a) (Given)= 215,000 Actual Direct labor hours= 11,500 x Predetermined Overhead Rate= 18.20 = Manufacturing overhead applied (b) =209,300 Manufacturing overhead underapplied a-b = 5,700

How much manufacturing overhead was applied to Job P and Job Q? How would you find this? If you already have found predetermined overhead rate.

Actual direct labor hours worked (Given) * Predetermined overhead rate (already would have found) Job P Job Q Actual direct labor hours worked (a) 3,100 550 Predetermined overhead rate per DLH (b) $ 5.90 $ 5.90 Manufacturing overhead applied (a) × (b) $ 18,290 $ 3,245

How do you find the amount of underapplied or overapplied overhead?

Actual manufacturing overhead (given) - manufacturing overhead applied (Actual direct labor hours*Predetermined overhead rate)

Prepare Journal Entries c. Direct labor cost incurred, $90,000; indirect labor cost incurred, $110,000. d. Depreciation recorded on factory equipment, $40,000.

C. Work in process 90,000 Manufact. Overhead 110,000 Salaries and Wages payable 200,000 D. Manufact. Overhead 40,000 Accum. Deprec. 40,000

Prepare the journal entry to transfer costs from Finished Goods to Cost of Goods Sold.

Cost of Goods sold Finished goods

Prepare the journal entry to close the amount of underapplied or overapplied overhead to Cost of Goods Sold.

Cost of goods sold Manufacturing overhead

Prepare a completed Work in Process T-account including the beginning and ending balances and all debits and credits posted to the account.

Direct Materials Direct labor Manufacturing overhead= Debit Finished Goods= credit

How do you find the direct labor hourly wage rate?

Direct labor cost/actual direct labor hours worked. (both given) Job P Job Q Direct labor cost (a) $ 58,900 $ 10,450 Actual direct labor hours worked (b) 3,100 550 Direct labor hourly wage rate (a) ÷ (b) $ 19 $ 19

How do you find raw materials inventory, beginning

Direct materials job P + Direct materials job Q + Ending raw materials inventory

What is the total amount of manufacturing cost assigned to Job Q as of the end of March (including applied overhead)?

Direct materials+ direct labor+ Manufacturing overhead applied. (All for Q)

How do you find ending work in process inventory

Direct materials+ direct labor+ manufacturing overhead

How do you find total manufacturing cost?

Direct materials+ direct labor+ manufacturing overhead applied. Direct materials $ 22,700 Direct labor 58,900 Manufacturing overhead applied ($5.90 per DLH × 3,100 DLHs) 18,290 Total manufacturing cost $ 99,890

Prepare Journal Entries e. Other manufacturing overhead costs incurred during October, $70,000 (credit Accounts Payable). f. The company applies manufacturing overhead cost to production on the basis of $8 per machine-hour. A total of 30,000 machine-hours were recorded for October.

E. Manufact. Overhead 70,000 Accts. Payable 70,000 F. Work in Process 240,000 Manufac. Over. 240,000

How do you find total manufacturing overhead cost

Estimated Fixed manufacturing overhead + ( Variable per direct labor hour*total direct labor hours to be worked) EX: The estimated total manufacturing overhead cost is computed as follows: Y = $16,000 + ($1.90 per DLH) (4,000 DLHs) Estimated fixed manufacturing overhead $ 16,000 Estimated variable manufacturing overhead: $1.90 per DLH × 4,000 DLHs 7,600 Estimated total manufacturing overhead cost $ 23,600

How do you find predetermined overhead rate?

Estimated Total Manufacturing overhead/ estimated total direct labor hours

Prepare the journal entry to transfer costs from Work in Process to Finished Goods.

Finished Goods Work in process Take total manufacturing cost (Direct materials+ direct labor+ manufacturing overhead applied.) then subtract ending work in process inventory. (Direct labor+ direct labor cost+ actual direct labor hours worked)

What goes in a schedule of cost of goods sold

Finished goods inventory, beginning Add: cost of goods manufactured Cost of goods available for sale Less: Finished Goods inventory, ending Unadjusted costs of goods sold

How do you find Manufacturing overhead applied to work in process inventory

First Find the Predetermined Overhead Rate Total manufacturing overhead/ total direct labor hours Then Take job P and Q and use that rate and multiply each by direct labor hours for P and Q. EX: Using 6.20 as the predetermined overhead rate. Job P Manufacturing overhead applied ($6.20 per DLH × 1,300 DLHs) = $8,060. Job Q Manufacturing overhead applied ($6.20 per DLH × 600 DLHs) = $3,720. Add those together= Manufacturing overhead applied to work in process.

How do you find manufacturing overhead applied?

Predetermined overhead rate(found first)*actual direct labor hours worked for certain job (P or Q) (Given) Manufacturing overhead applied ($5.90 per DLH × 3,100 DLHs) 18,290

What is the Journal entry for Assume the ending raw materials inventory is $3,000 and the company does not use any indirect materials. Prepare the journal entries to record raw materials purchases and the issuance of direct materials for use in production.

Raw Materials Accounts Payable Work in process Raw Materials (Add direct materials from Job P and Q and then Add the 3000) Subtract the 3000 for the second number in the journal entry

. Assume that Job P includes 24 units that each sell for $2,800 and that the company's selling and administrative expenses in March were $20,000. Prepare an absorption costing income statement for March.

Sales: (24* 2800)= 67,200 Cost of goods sold: (Take Cost of goods manufactured(already found) and add under or over applied overhead. EX: Cost of goods sold: ($38,160 COGM + $920 UO) = $39,080. Gross Margin: Subtract Sales from COGS Selling and Admin Expenses: (Given) Net Operating income: gross margin-selling and admin expenses

If Job P includes 35 units, what is its unit product cost? How would you do this?

Total manufacturing cost/number of units in the job (35) Unit product cost for Job P: Total manufacturing cost (a) $ 99,890 Number of units in the job (b) 35 Unit product cost (a) ÷ (b) $ 2,854

Prepare the journal entry to apply manufacturing overhead costs to production

Work in Process Manufacturing Overhead First: find Estimated Total manufacturing overhead cost; Then use that to Find the predetermined overhead rate (5.90 for this example) Multiply that (in this case 5.90* direct labor hours for P) Do the same for Q and add them together. Job P Manufacturing overhead applied ($5.90 per DLH × 3,100 DLHs) = $18,290. Job Q Manufacturing overhead applied ($5.90 per DLH × 550 DLHs) = $3,245. Manufacturing overhead ($18,290 + $3,245) = $21,535.

What is the journal entry for Assume that the company does not use any indirect labor. Prepare the journal entry to record the direct labor costs added to production.

Work in process wages payable (add Direct labor cost for Job P and Q)

Prepare Journal Entries a. Raw materials purchased on account, $210,000. b. Raw materials issued to production, $190,000 ($178,000 direct materials and $12,000 indirect materials).

a) Raw Materials Inventory Accounts Payable 210,000 B) Work in process Manufacturing Overhead Raw Materials Inventory WIP-178000 MO-12000 RMI-190000

Prepare Journal Entries g. Production orders costing $520,000 according to their job cost sheets were completed during October and transferred to Finished Goods. h. Production orders that had cost $480,000 to complete according to their job cost sheets were shipped to customers during the month. These goods were sold on account at 25% above cost.

g. Finished Goods . 520000 Cost of gds sold 520000 h(1) Costs of goods sold 480000 Finished goods . 480000 h(2) Accounts Reciev. 600,000 Sales 600000