Principles of Managerial Accounting Chapter 3

Balance of Manufacturing Overhead account

Credit = overapplied Debit = underapplied

Normal balance of Work In Progress Account

Debit

When a job is completed

Finished Goods is debited and Work in Process is credited.

Himber, Inc. just completed a job that cost $14,000 in direct materials, $12,000 in direct labor, and $8,000 in applied manufacturing overhead. The journal entry to record completion of the job would debit

Finished goods $34,000 and credit work in progress $34,000

Total Manufacturing Costs

The sum of direct materials, direct labor, and applied manufacturing overhead incurred in the current period.

When jobs are completed (or at the end of the accounting period) and all costs have been accumulated on a job cost sheet, the journal entry that should be made is

Work in Progress is debited and Manufacturing Overhead is credited.

The manufacturing overhead account is debited when

actual overhead costs are incurred.

raw materials

any materials that go into the final product and is an asset account.

Overhead costs are

applied to jobs using the predetermined overhead rate.

Applied overhead cost

are based on the predetermined overhead rate, appears on the job cost sheet and in the Work in Process account.

Actual overhead costs

are not charged to jobs; do not appear on the job cost sheet nor do they appear in the Work in Process account. Indirect Labor + Manufacturing Overhead.

The costs of the completed job

are transferred out of the Work in Process account and into the Finished Goods account.

When preparing financial statements in a job-order costing system, finished goods flow first to the _________ and then to the ____________.

balance sheet; income statement.

finished goods inventory

completed goods that have not yet been sold.

The _________ side of the manufacturing overhead account is always used to record manufacturing overhead applied to production and the ________ side is always used to record the actual manufacturing costs incurred.

credit, debit

The journal entry to record $20,000 in depreciation on factory equipment is a debit to

manufacturing overhead $20,000 and credit to Accumulated Depreciation $20,000.

Manufacturing Overhead

operates as a clearing account.

The difference between overhead applied to work in process and actual overhead is

overapplied or underapplied overhead.

Labor costs charged directly to MOH

represent indirect labor costs

Work in Process Account

summarizes all the costs appearing on the job cost sheets of the jobs that in process. It is the cost of all unfinished jobs.

Cost of goods manufactured for the period is

the sum of all jobs transferred from work in progress to finished goods.

How are manufacturing overhead costs assigned to Work in Process?

they are assigned by using the predetermined overhead rate.

Any amounts remaining in MOH account at the end of the period must be disposed by

1. closed to COGS or, 2. closed proportionally to WIP, Finished Goods & COGS.

Actual overhead costs may not be proportional to the actual amount of the allocation base used because

1. many actual overhead costs are fixed. 2. overhead spending may not be under control.

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. WIP (DR) - MOH (CR)

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.

When only a portion of units involved in a job are sold, what accounting entry occurs? a. Unsold units are transferred to another job b. The entire cost of the job is transferred from finished goods to cost of goods sold c. The cost is held in the finished goods account until all units involved in the job are sold d. The unit product cost is used to calculate the amount that will be transferred from finished goods to cost of goods sold

d. The unit product cost is used to calculate the amount that will be transferred from finished goods to cost of goods sold

When assessing accrued property taxes and prepaid expenses

debit MOH credit taxes payable and prepaid expenses

Depreciation on factory equipment

debit to MOH because it is a product cost.

Work in Process (WIP)

debited for cost of direct materials, direct labor and manufacturing overhead applied. credited for the COGM

All actual manufacturing overhead costs are

debited to the manufacturing overhead account as they are incurred.

When calculating the cost of direct materials on the schedule of the COGM, the cost of indirect materials is

deducted from the raw materials used in production.

A journal entry debiting COGS and crediting finished goods is made when

goods are sold.

transfer of costs

is made within the costing system that parallels the physical transfer of goods to the finished goods warehouse.