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
