Accounting 2 Chapter 2
Four step process to calculate overhead rate
Y = a +bx Y = the total manufacturing overhead cost a = total estimated fixed manufacturing overhead cost b = the estimated variable manufacturing overhead cost per unit of allocation base x = estimated total of the allocation base
Bill of materials
a document that lists the type and quantity of each type of direct material to complete a unit of product
unadjusted cost of goods sold
beginning finished goods inventory + cost of goods manufactured - ending finished goods inventory
Raw materials used in production =
beginning raw materials inventory + purchases of raw materials - ending raw materials inventory
predetermined overhead rate
computed by dividing the total estimated manufacturing overhead cost divided by the estimated total amount of the allocation base
finished goods
consist of completed units of product that have not yet been sold to customers. the amount transferred from work in process to finished goods is called cost of goods manufactured
Job order costing
costs are traced and allocated to jobs and then the cost of the job are are divided by the number of units produced to arrive at an average cost per unit
Manufacturing overhead includes
the factory supervisors salary (not the ceos) and factory insurance
materials requisition form
a document that specifies the type and quantity of materials to be drawn from the store room and identifies the job that will be charged for the cost of the materials. used to record the flow of materials into production and for accounting records.
Allocation base
a measure such as direct labor hours (DLH) or machine-hours (MH) that assign overhead costs to products and services bases include: direct labor hours direct labor costs machine hours units of product
to calculate the unit product cost
divide the total job cost by the number of units produced
a journal entry that debits manufactures overhead and debits prepaid insurance records the
expiration of prepaid insurance
the journal entry to record shipping goods to customers includes a credit to
finished goods
when a job is completed which account is debited
finished goods
Time ticket
hour by hour summary of employees activities throughout the day labor costs recorded including direct
manufacturing costs have what effect on product costs
no effect
Overhead application
process for assigning overhead to a job the equation is: overhead to a particular job = predetermined overhead rate X amount of the allocation base incurred by the job in labor hours the equation becomes: overhead to a particular job = predetermined overhead rate X actual direct labor hours charged to the job
The journal entry to record issuing materials credits
raw materials
a journal entry that debits manufacturing overhead credits accounts payable records the
recognition of accused property taxes
Job cost sheet
records the materials, labor, and manufacturing overhead costs charged to that job
a journal entry the debits manufacturing overhead and credits accounts payable could be
rent, utilities factory insurance etc
The journal entry to record labor costs credits
salaries and wages payable
Absorption costing
all manufacturing costs both fixed and variable, are assigned to units of product, units are said to fully absorb manufacturing costs.
The schedule of cost of goods sold
also includes three elements of product cost, direct labor, direct materials, and manufacturing overhead. summarizes the transfer from finished goods to cost of goods sold
A normal cost system
also overhead application
raw materials
any materials that go into the final product, when raw materials are used in production their costs are transferred to a work in process inventory account as direct materials
A company purchased $70,000 of materials on account. $40,000 were direct and $30 were indirect, the journal entry to record this is
debit raw materials and credit accounts payable
the journal entry to record depreciation on office equipment debits
depreciation expense and credits accumulated depreciation
total cost for a job include
direct labor, direct materials, and applied manufacturing costs
total manufacturing cost
direct materials + direct labor + manufacturing overhead applied to work in process
the cost of goods manufactured
includes the manufacturing costs associated with completing the product and finally expensed
a cost driver
is a factor that causes overhead costs such as machine hours, beds occupied, computer time, or flight-hours.
goods available for sale
manufactured goods and finished goods in inventory
frank inc. recognized $20,000 in depreciation of factory equipment the journal entry would debit
manufacturing expense $20,000 and credit accumulated depreciation $20,000
production order
when quantity price and shipment date has been agreed upon by the customer
which account is debited to record direct labor costs
work in process
the journal entry to record $10,000 in manufacturing overhead for job #40 debits
work in process $10,000 and credits manufacturing overhead $10,000
work in process
consists of units of product that are only partially complete and require further work before they are ready for sale. direct labor costs are added directly to work in process and do not flow through raw materials inventory. Manufacturing overhead costs are applied to work in process by the predetermined overhead rate and the actual allocation base consumed by each unit of job.
The schedule of cost of goods manufactured
contains three elements of production cost: direct materials direct labor manufacturing overhead summarizes transfer from work in process to finished good
under applied or over applied overhead
under applied overhead happens when the actual cost is more than was applied and vice versa
