Chapter 3 Job Order Costing: Cost Flows and External Reporting
How do we disposed of the remaining manufacturing overhead? (2ways)
1. it can be closed to Cost of goods sold 2. It can be closed proportionally to WIP, Finished Goods and Cost of Goods sold
What is the 3 step process to allocate Overhead?
1. take total overhead cost applied to production during the period and break into 3 pieces (portion included in WIP at the end of the period, the portion included in finished goods at the end of the period, and the portion applied to Cost of Goods Sold during the period.) 2. State each of these 3 amounts as a percent of the total overhead cost applied to production during the period 3. Derive the amounts needed for the journal entry by multiplying the percentages from step 2 by the amount of underapplied or overapplied OH
absorption costing
A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in unit product costs.
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.
allocation base
A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects.
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.
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.
After debiting WIP with the OH what do you do next?
Credit Manufacturing OH to clear out the account and you will either have under or over applied OH
As jobs are sold theor costs are transferred from ______________________to _____________________
Finished Goods to Cost of Goods sold
indirect labor is recorded under...
Manufacturing OH
Raw materials where are the recorded?
Raw materials inventory and raw materials include any materials that go into the final product
overhead application
The process of assigning overhead cost to specific jobs.
How is Manufacturing OH costs charfed to WIP
They are assigned using PDOHR times the allocation base
How should Selling and admin expenses be recorded?
They should be recorded directly into expense accounts bc they have no effect on product costs they are period costs
Schedule of Cost of Goods Sold equation
Unadjusted cost of goods sold = beginning finished goods inventory + cost of goods manufactured - ending finished goods inventory
What are some examples of Manufacturing OH
Utilities (heat, water and power) Rent on factory equipment Miscellaneous factory OH costs Property Taxes Prepaid Insurance Accumulated depreciation
direct labor is recorded under...
WIP
job order costing
a costing system used in situations where many different products, jobs, or services are produced each period
job cost sheet
a form that records the direct materials, direct labor and manufacturing overhead cost charged to a job
cost of goods manufactured =
beginning WIP + Total manufacturing costs added to production - ending WIP
How to find direct materials used in production for Schedule of Cost of Goods Manufactured
beginning raw materials + purchases of raw materials = total materials available - ending raw materials inventory = raw materials used in productions - indirect materials used in production = direct materials used in production
finsihed goods
consists of completed units of product that have not yet been sold to customers
schedule of cost of goods manufactured
contains three elements of product costs - direct materials , direct labir and maufacturing OH - and it summarzies the portions of those costs that remin in ending WIP inventory and that are transferred out of WIP into Finished Goods
The sum of all the amounts transferred between WIP to Finsished Goods is called.....
cost of goods manufactured
Period costs
costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued
In order to transform direct materials into completed jobs what has to happen?
direct labor cost is added to WIP and Manufacturing OH cost is applied to WIP by multiplying the PDOHR by the actual quantity of of the allocation base consumed by each job
all manufacturing costs other than ___________________ and ______________________ are manufacturing OH costs
direct materials and direct labor
total manufacturing costs added to production =
direct materials used in production + direct labor + manufacturing overhead applied to WIP
The various costs attached to each job are finally recorded as an _______________ on the ___________________________________.
expense on the income statement
As jobs are shipped to customers their accumulated costs are transferred from ____________________ to _____________________________
finished goods to cost of goods sold
cost of goods manufactured
includes the manufacturing cost associated with units of product that were finished during the period
If there is a credit balance in the manufacturing OH account of X dollars then the overhead is _______________________
overapplied
What is the amount transferred from WIP to finsihed goods called?
the cost of goods manufactured
if there is a debit balance in manufacturing OH account of X dollars then the overhear is __________________
underapplied
Work in process
units of product that are only partially complete and will require further work before they are ready for sale to the customer
Raw materials are transferred to WIP when?
when raw materials are used in production as direct materials
When jobs are completed their cost are transferred to from ___________________ to ______________
work in process to finished goods inventory
