Chapter 3 Study Guide

What are the 3 concepts of the Schedule of Cost of goods manufactured

!. Direct Materials 2. Direct Labor 3. Manufacturing overhead

Disposition of Under- or Overapplied Overhead (See previous PearCo example to complete) Since PearCo has overapplied describe how to set up the t-account and journal entry.

(T-Account) MOH would be debited $650,000 and credited $680,000, the 30k would also be debited from MOH and also placed into COGS as a credit. (Journal Entry) Manufacturing Overhead (Debit 30k) Cost of Goods Sold (Credit 30k)

Cost Flows: Labor 1. What are two credited items under salaries and wages payable? 2. Where does direct labor go after it is purchased? 3. Where does indirect labor go after it is purchased?

1. Direct Labor and Indirect Labor (Credit) 2. Work in process (Job cost sheet) *Debit 3. MOH (Actual *Debit)

What is the Inventory Equation

Beginning Inventory + Additions (Purchase, Labor MOH, etc.) - "Sold" = Ending Inventory

Transferring Completed Units How does costs of goods manufactured flow from the WIP or Job Cost sheet t-account to the finished goods t-account?

COGM is credited on the job cost sheet and debited onto the finished goods account.

Total Manufacturing Costs

DM + DL + MOH

A journal entry that debits manufacturing overhead and credits Accounts payable could be made to record ___________. (Select all that apply) A. Factory utilities expense B. Rent on the administrative office C. The purchase of indirect materials D. Rent expense on factory equipment E. Depreciation on factory equipment

Factory utilities expense Rent expense on factory equipment

In a normal costing system, Work in Process is debited for: (Select all that apply) A. Actual manufacturing overhead B. Manufacturing overhead applied C. Indirect Labor D. Direct Materials E. Cost of goods manufactured

Manufacturing overhead applied Direct materials

Journal Entry - Material Purchase Raw Materials are recorded in an inventory account **Complete set-up

Raw Materials (Debit) Accounts Payable (Credit)

Cost of Goods Manufactured (COGM)

Total Manufacturing Costs (RM+DL+MOH) + Beginning WIP Inventory- Ending WIP Inventory

Journal Entry - Labor Cost Flows The cost of direct labor incurred increases work in process and the cost of indirect labor increases manufacturing overhead *Complete Set-up

Work In Process (Debit) Manufacturing Overhead (Debit) Salaries and Wages Payable (Credit)

Journal Entry - Material Usage *Direct Materials issued to a job increase work in process (WIP) and decrease raw materials. Indirect materials used are charged to manufacturing overhead and also decrease raw materials. *Complete set-up

Work in Process (Debit) Manufacturing overhead (Debit) Raw Materials (Credit)

Cost Flows - Overhead applied (Journal Entry) **Work in process is increased when MOH is applied to jobs

Work in process (Debit) Manufacturing overhead (Credit)

Which account(s) are debited in the journal entry to record manufacturing labor costs? A. Work in process and Salaries and wages payable B. Manufacturing overhead and Salaries and wages payable C. Work in process and Manufacturing overhead D. Salaries and wages payable

Work in process and Manufacturing overhead

If actual and applied manufacturing overhead are not equal...

a year-end adjustment is required

Manufacturing overhead has to be ________________ to work in process (WIP)

applied *Usually done at the end of each accounting period (Monthly)

Overapplied overhead

exists when the amount of overhead applied to jobs during the period using the predetermined overhead rate is greater than the total amount of overhead actually incurred during the period

Underapplied Overhead

exists when the amount of overhead applied to jobs during the period using the predetermined overhead rate is less than the total amount of overhead actually incurred during the period

What does the Schedule of Cost of goods manufactured calculate?

the cost of raw material and direct labor used in production and the amount of manufacturing overhead applied to production. It also calculates manufacturing costs associated with goods that were finished during the period.

Costs of Goods Manufactured (COGM)

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

The purchase and issue of raw materials: T-account form 1. What happens to the raw materials account when materials have been purchased? 2. What does the Manufacturing overhead account need to be at the end of each month and what is another name for it? 3. What happens to direct materials when they are used? 4. What happens to indirect materials when they are used?

1. It will debit or increase the raw materials account 2. The MOH account needs to be zero at the end of every accounting period (rarely happens). "Clearing account" 3. They will be debited to work in process (WIP) 4. They are debited to the MOH account (actual)

What are the inventory accounts?

1. Raw materials 2. Work in process 3. Finished goods inventory

Fillia, Inc. worked on three jobs this period: Job 14C, which cost $15,000; Job 23A, which cost $28,000, and Job 45B, which cost $23,000. At the end of the period, only Job 14C was still in process (unfinished). The cost of goods manufactured this period is $______________.

51,000 *The cost of goods manufactured, is the cost of jobs completed during the period - Jobs 23A and 45B.

Work in Process consists of __________ (Select all that apply) A. Applied direct labor B. Actual direct labor cost C. Applied direct materials cost D. Actual manufacturing overhead E. Actual direct materials cost

Actual direct labor cost Applied manufacturing overhead Actual direct materials cost

Overhead Application Example PearCo's actual overhead for the year was $650,000 with a total of 170,000 direct labor hours worked on jobs. How much total overhead was applied to PearCo's jobs during the year? Use PearCo's predetermined overhead rate of $4.00 per direct labor hour.

Applied overhead = POHR x Actual Direct Labor Hours Applied overhead = $4.00 per DLH x 170,000 DLH = $680,000

Cost Flows - Cost of Goods Manufactured **As jobs are completed, the COGM is transferred to finished goods from WIP. *complete set-up

Finished Goods (Debit) Work In Process (Credit)

Selling and administrative costs first appear on the _____________ A. Statement of cash flows B. Statement of owners equity C. Balance sheet D. Income statement

Income Statement

Cost Flows - Actual Overhead ***In addition to indirect materials and indirect labor, other manufacturing overhead costs are charged to the manufacturing overhead account as they are incurred *Complete set-up

Manufacturing Overhead (Debit) Accounts Payable (Credit) Property Taxes Payable (Credit) Prepaid Insurance (Credit) Accumulated Depreciation (Credit)