Man Acct chapter 3
What are two ways to deal with over or under applied overhead?
1. Allocate it to CGS (Pearco's method) 2. or Spread it between three accounts based on percentage of their total sum: Works in Process Inventory Finished Goods inventory CGS 2.-> more accurate
What is bad about the predetermined overhead rate being calculated on the amount of the allocation base on capacity rather than estimated activity for the period?
1. Because it is based on budgeted activity which could possibly have product costs fluctuating depending on the activity level 2. calculating upon budgeted activity charges products for costs they did not use (cost of idle capacity)
Overhead applied
= POHR × Actual activity <-Actual amount of allocation is based upon the actual level of activity (normal costing system).
what is the diff between CGS and CGSM?
CGSM - WIP to finished goods CGS - Finished goods to CGS
What's the diff between predetermined ov rates based on amount of allocation base on capacity and that of estimated activity for the period?
Capacity- means the maximum of how much it can make (what we currently use) Estimated activity- how much we think we can actually produce (what we don't use)
Do the journal entry of Actual Manufacturing Overhead
Credit: A/P, Property taxes payable, prepaid insurance, and accumulated depreciation
Do the journal entry of labor costs: indirect and direct
Direct labor are credited from Salaries and Wages Payable and debited to Works in Process Indirect materials are credited from Salaries and Wages Payable and debited to Manufacturing Overhead
Do the journal entry of material usage: indirect and direct
Direct materials are credited from Raw M. and debited to Works in Process Indirect materials are credited from Raw M. and debited to Manufacturing Overhead
What technology helps with job-order cost systems?
Electronic Data Interchange (EDI) or a web-based programming language called Extensible Markup Language (XML),
predetermined overhead rate
Estimated manufacturing overhead cost / Estimate amount of allocation base (such as labor hours or labor dollars)
Why Use an Allocation Base?
It is impossible or difficult to trace overhead costs to particular jobs. Manufacturing overhead consists of many different items ranging from the grease used in machines to production manager's salary. Many types of manufacturing overhead costs are fixed even though output fluctuates during the period.
What effect will the overapplied overhead have on PearCo's net operating income?
Net operating income will increase.
Nonmanufacturing costs
are not assigned to individual jobs, rather they are expensed in the period incurred. Salaries Expense Salaries Payable -they are period expenses
Job WR53 at NW Fab, Inc. required $200 of direct materials and 10 direct labor hours at $15 per hour. Estimated total overhead for the year was $760,000 and estimated direct labor hours were 20,000. What would be recorded as the cost of job WR53? a. $200. b. $350. c. $380. d. $730.
d
Where do the direct and indirect material costs go?
direct materials- job cost sheets indirect materials - manufacturing ov.
If manu. overhead is overapplied, increase or decrease CGS? if under?
if overapplied, decrease CGS for adjustments if underapplied, increase CGS for adjustments
A production order does what?
initiates work on a job
A sales order issues what?
is the basis of issuing a production order.
how are Manufacturing Overhead, including indirect materials and indirect labor treated in job costing?
they are allocated to all jobs rather than directly traced to each job
how are direct materials and direct labor treated in job costing?
they are charged to each job as work is performed
what is an allocation base?
they are direct labor hours, direct labor dollars, or machine hours, and are used to assign manufacturing overhead to individual jobs. Ideally, the allocation base is a cost driver that causes overhead