ACC 222 Ch. 4 Job Order Costing
Measure the cost of outputs
- Cost to produce a cost object? - Cost to produce one unit of product or service? - Cost to produce one product line at P&G? - Cost to produce a job?
Record the cost of inputs
- Products Costs: DM, DL, MOH - Period Costs R&D, SG&A, Distribution costs
Actual Costing
- Trace all direct costs - Allocate actual manufacturing overhead at end of period when it is known Pro perfectly accurate Con: not very timely
Normal costing
- Trace all direct costs - Estimate MOH at beginning of period based on expected costs - Allocate MOH during the year based on estimates - Reconcile allocated and actual MOH at end of period RECONCILE actual use actual DM and actual DL and estimated manufacturing overhead Con: Give up accuracy bc we use ESTIMATES Pro: More timely information and more relevant info to give manager during the period KNOW WHAT YOU ARE ESTIMATING
Overhead Variance (over or underapplied), Clsoing to COGS At the end of the yar, Ilberg Company provided the following actual information OH 423.6K DL Cost 532L Ilberg uses normal costing and applies overhead at the rate of 80% of direct labor cost. At the end of the year, Cost of Goods Sold (before adjusting for any overhead variance) was $872,000.
1. Calculate the OH variance for the year POHR = 423600/532000 = .8 Applied overhead = Overhead rate * actual dL cost .8*532K = 425.6K OH Var = |MOH - MOH Allocated| |423600-425600| |-2000| 2000 over allocated 2. Dispose of the overhead variance by adjusting COGS. 872K-2K = 870000
Overhead variance (Over- or underapplied), Closing to COGS At the end of the year, Estes Company provided the following actual information OH 412.6K DL cost 532K Estes uses normal costing and applies overhead at the rate of 75% of direct labor cost. At the end of the year, COGS was 1,670,000
1. Calculate the overhead variance for the year. POHR = .75 -> given in prompt OHV = |Actual OH - Applied OH| MOH Applied = POHR*Actual .75*532K = 399K OHV = |412600-399000| = 13.6K underapplied 2. Dispose of the overhead variance by adjusting Cost of Goods Sold. (Adjustment!) Always add if underapplied subtract if overapplied COGS = 1,670,000 1,670,000+13,600 = 1,683,600 adjusted COGS
Predetermined Overhead rate, Overhead Application At the beginning of the year, Estes Company estimated the following costs: Overhead 450K DL cost 600K Estes uses normal costing and applies overhead on the basis of direct labor cost. (Direct labor cost is equal to total direct labor hours worked multiplied by the wage rate.) For the month of September, direct labor cost was 46.3K
1. Calculate the predetermined overhead rate for the year. POHR = 450K/600K =.75 MOH Applied = .75(46300) = 34725$ in Sept
Predetermined Overhead Rate, Overhead Application At the beginning of the year, Ilberg Company estimated the following costs overhead 416K DL cost 520K Ilberg uses normal costing and applies overhead on the basis of DIRECT LABOR COST. (Direct labor cost is equal to total direct labor hours worked multiplied by the wage rate) For the month of December, direct labor cost was 39K
1. Calculate the predetermined overhead rate for the year. POHR = est overhead / est. DL cost POHR 416K/520K = .8 or 80% of direct labor cost 2. Calculate the overhead applied to production in December OH applied = POHR * December labor cost .8*39.9K = 31,920$
In a normal costing system, the cost of a job includes
Actual DM, Actual DL, and estimated MOH
In a normal costing system, the cost of a job includes
Actual direct materials, actual direct labor, and estimated(applied) overhead
The overhead variance is overapplied if
Actual overhead is less than applied overhead
How to cost products
Actual vs. normal costing
Actual Costing ex.
Allocate MOH at end of year when actual MOH is known
Applied overhead is
An important part of normal costing Applied overhead is the amount of overhead determined using the predetermined overhead rate used in product/job cost calculations
The predetermined overhead rate equals
Estimated overhead divided by estimated activity level for a period
Job Order Costing
Goal: Measure manufacturing cost of a distinct job Ex.jeans HM plane boeing Manufacturing Cost = DM + DL + VMOH +FMOH - Trace DM materials - Trace DL time ticket - Allocate MOH
MOH Applied
How we charge cost objects for their share of resource consumption before actual MOH costs are know MOH is allocated or applied during the period as the actual activity level changes using this formula MOH = POHR * Actual Activity Level
Convert Departmental Data to plantwide data, plantwide overhead rate, Apply overhead to production Q13 in HW
In Yellow Book Notes
Predetermined departmental OH Rates, Applying OH to production Q12 in HW
In Yellow Book Notes
Convert Departmental Data to plantwide Data, Plantwide Overhead Rate, Apply overhead to production Q9 in HW
In yellow books Notes
Predetermined Departmental Overhead Rates, Applying overhead to production Q8 in HW
In yellow books Notes
MOH allocation MOH 416K DL cost 520K The firm allocates manufacturing overhead on the basis of direct labor cost. For the month of August, direct labor cost was 36.9K Calculate manufacturing overhead allocation to production for the month of august APPLIED AND ALLOCATED same THING
MOH Allocated = POHR * Actual Activity Level POHR = est. total MOH / Est. total activity level POHR = 416K/520K = .8$ per direct labor MOH applied = .8(36.9K) = 29520
Profit Planning
Managers want (in the long-run) profits - We can't accomplish this unless we have a good approximation of actual costs
Overhead Variance
OH Variance = |MOH Actual - MOH Applied| When MOH applied is greater than actual MOH, overhead is over-applied. When MOH applied is less than actual MOH, overhead is under-applied - Over-applied OH means product cost was over-stated - Under-applied OH means product cost was under-stated
EXAM QUESTION Departmental allocation rate for department K Fabric London uses normal costing and has two production departments, E and K. Estimated costs for each production department are Dept. E. Dept. K DM. 700K 100K DL. 200K. 400K Overhead 800K 400K Fabric uses departmental overhead rates and assigns overhead to its products on the basis of DIRECT LABOR COST in both departments What is the departmental allocation rate for department K?
POHR (K) = Total Est. OH (K)/Total Est. Activity Level (K) 400K/400K 1 per direct labor dollar The total est activity level for this Q is the direct labor for K
OH allocation to production in each department Q (In june) Dept X. Dept Y Overhead. 240K. 350K DL hours 32.2K 99.4K Mhrs 150K. ----- In Dept. X, OH is allocated on the basis of MACHINE HOURS. In DeptY, OH is allocated on the basis of DIRECT LABOR HOURS. Actual data for the month of June are as follows. Dept X Dept Y Overhead 20.61K 35.75K DL Hours 2.8K 8.6K Mhrs 13.64K ---- What is OH allocated to production in each department in June?
POHR (X) = Total Est. OH (X)/Total Activity Level (X) 240K/150K mhrs = $1.60 per mhr OH Allocated (X) = POHR(X) * actual activity level (X) = $1.60 per mhr * 13649 mrhs = $21,824 POHR Y = Total Est. OH Y/Total Activity Level (Y) 350K/99.4K DL hours $3.52 per direct labor hour OH Allocated (Y) = POHR (Y) * actual activity level (Y) = 3.52 per DLH * 8.6K DLH's = 30,272
POHR Ex. Thach Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine hours. The company absed its predetermined overhead rate for the current year on total fixed manufacturing overhead cost of 665,000, variable manufacturing overhead cost of $3 per machine-hour, and 70K machine hours What is the predetermined overhead rate at Thach Company?
POHR = Total est MOH / Total est machine hours 665K+(3*70K mhrs) / 70K mhrs 875K/70K 12.50 per mhr
POHR
Predetermined overhead rate Rate is an amount of money measured against a quantity of an activity (ex. 1$ per machine hour) POHR = Total est. MOH / Total est. Allocation Base
Departmental Rates
The use of many rates, usually one per department, for allocating capacity (overhead) costs to products More accurate bc they capture info about how cost objects use resources in different departments Allow us to capture differential resource consumption by department
Why Cost Products
To guide long-run strategic decisions - What mix of products and services to sell? and what prices to charge How do we know what prices to charge if we don't know the cost to make. We need good cost estimates because we don't know how much money we are earning in terms of profit without knowing our costs
POHR Numeration
Total Estimated MOH y = a + bX Y = Total estimated manufacturing overhead a = total fixed manufacturing overhead b = variable manufacturing overhead per unit X = level of the allocation base (or cost driver)
Job Cost..Cost per unit Wilson company has a predetermined overhead rate of $5 per direct labor hour. The job-order cost sheet for job 145 shows 500 direct labor hours costing 10K$ and materials requisitions totaling 17.5K. Job 145 had 1K units completed and transferred to finished Goods. What is the cost per unit for Job 145
Total Job Cost = DM+DL+MOH POHR = total est MOH / Total est Allocation Base 5 = x/500 x= 500*5 = 2500 ^Applied overhead Total Job Cost = 17.5K+10K+2.5K = 30K 30K/1K units 30$ per job
Total MOH allocated to X and Y based on new info? Is total MOH over or under allocated and by how much Estimated MOH = 100K POHR = 100K/5Kmhr = 20$ per mhr Additional Info Actual MOH = 125K Actual Mhrs X 3800mhrs Actual mhrs Y 1100mhrs
Total MOH 20(3800) = 76K 20(1100) = 22K Overhead Varieance = |MOH Actual - MOH Applied(allocated| 125K-(76+22) 125K-98K = 27K under allocated When the 98K is less than the 125K it is under allocated but if it was greater it would over-allocated
POHR Formula
Total est. MOH / Total est. allocation base
POHR Denominator
Total estimated allocation base Case and effect relation Denominator should cause the numerator
Unit Product Cost
Total product cost / number of units
Fibrex Computing uses normal costing. Managers at Fibrex will
Trace direct manufacturing costs and allocate indirect manufacturing costs during the year
Hart Company has a pre-determined overhead rate of $5 per DL hour. The job-order cost sheet shows 500 DL hour costing $10,000 and materials requisitions totalling 17.5K$. Job 145 had 1,000 units completed and transferred to finished Goods. What is the unit product cost for job 145
Unit product Cost = total product cost/units produced 17.5K+10K+(5*500DLhrs) = 30K 30K/1K = 30 per unit$
Costing System Purpose
We have to transform data about the cost of inputs Record the costs of INPUTS and measure the cost of OUTPUTS
MOH 423.6K DL cost 532K Blevins Company uses normal costing and allocates manufacturing overhead at the rate of 80% of direct labor cost. At the end of the year, COGS (unadjusted for overhead variance) was 901k a. What is the overhead variance for the year at Blevins Company and is overhead under or over allocated b. What will Cogs be after adjusting for overhead variance
a. OH var = |MOH Actual - MOH Allocated| = |432.6-(.8*532K)| |432.6-425.6| 2000 over allocated b. Adj COGS = Unadjusted COGS - Over-allocated MOH = 901K - 2K = 899K
Estimated total MOH is 100K Estimated machine usage is Product X: 2K units @ 2hrs/unit = 4Khrs Product Y: 1K units @ 1hr/unit = 1K hrs
a. Whats POHR est Total MOH / Est Total Activity level 100K / (1K+4K) = 20 per mhr b. What is total MOH allocated to products X and Y? Total MOH Allocated = POHR x Activity Level = 20(4000) = 80K = 20(1K) = 20K c. Per unit MOH allocation for products X and Y? x=20$(2mhr per unit) = 40$ per unit y=20$(1mhr per unit) =20$ per unit
Department POHR
est Total Dept Overhead / Est Dept. Activity Level
Allocate
to assign