Managerial Accounting Exam 1

Calculation of Cost of Goods Sold

(first solve cogm) Begginning FINISHED GOODS inventory Plus: COST OF GOODS MANUFACTURED Less: Ending inventory = Cost of Goods Sold _____

Summary of Ethical Standards: Management accountants must comply with 4 ethical standards

1. Maintain professional competence 2. Preserve Confidentiality of Information 3. Uphold their integrity 4. Perform duties with Credability

Problem 5: Calculate the plantwide overhead rate assuming Elfie uses direct labor hours as the only overhead cost driver, compute: a. The single cost driver rate for Elfie Enterprises. b. The amount of overhead costs allocated to the Lacio job

1.) a. take total overhead costs $640,000 and divide by 400,000 direct labor hours. 640,000/400,000=1.60 per DLH b. OH allocated = $1.60 * 100 DLH hours (given)= $160 2.) column by column take total activty cost and divide by activity level for ex 320,000/400,000=.80 per DLH then take .80 and multiply by corresponding job usage, for ex this is direct labor hours cost driver(400,000) so Multiplying by 100 (direct labor hours) given. .80*100=$80 then do for all other columns then add them up to get Total MOH allocated to Job

If you were a manager, which cost estimate would provide you more useful information? How might you use this information?

ABC would be more useful because it determines the activities of the products and services and every activity represents its own allocation base to determine total cost of the product

Compute actual overhead

Add up all overheads (actual) for example indirect material, indirect labor, depreciation on plant equipment, plant utilities,

To solve cogm first calculate direct materials used

Beggining Raw Materials Inventory Add: Purchases of direct materials Materials available for use Less: Ending raw material inventory = Direct Materials

Calculation of Cost of Goods Manufactured

Beginning Work in Process Inventory Plus manufacturing costs incurred: Direct Materials used direct labor Manufacturing overhead (include indirect labor and not direct labor) Total manufacturing costs to account for Less: Ending work in process inventory = Cost of Goods Manufactured ___

Total conversion costs

Direct labor + manufacturing overhead

Total inventoriable product costs

Direct material + Direct labor + manufacturing overhead

Total prime costs

Direct material + direct labor

Overhead Rate

Estimated Overhead Cost/ Allocation base

Differences between Managerial and Financial Accounting

Financial: Data must be reliable, primary users are external, based mainly on the company as a whole, quarterly and yearly reports, verified by external auditors, focused on the past, governed by GAAP or IFRS Managerial: reports are prepared as needed, not governed by legal requirements, focused on the future, data must be relevant, part of the organization rather than the whole: managerial

Calculate the cost of a Job 356 for ex using the traditional plantwide manufacturing overhead rate based on machine hours

First compute the predetermined allocation rate, take total overhead cost/ total estimated machine hours (number of machine hours) = $146 predetermined allocation rate Then, Compute the manufacturing overhead cost allocated by taking the predetermined allocation rate and multiply it by the number of machine hours the job uses in a year. for ex 146$ X 90 hours= $13,140 Then, Compute the total direct material cost for ex take number of pounds of materials used and multiply it by the price per pound $70 X 300 pounds = 21,000 then, compute total direct labor cost Number of direct labor hours used= 25 and multiply by $25 = 500$ Now add total cost of direct materials+ cost of direct labor+ manufacturing overhead = cost for total manufacturing cost of job 356 using traditional overhead rate based on machine hours

Compute predetermined manufacturing overhead rate

First, compute the yearly estimated overhead costs: (Budget) Indirect Materials: Depreciation on Plant Equipment: Indirect labor: Plant utilities: = Estimated yearly overhead cost ____

Cost of milk purchased from local dairy farmers

Inventoriable Product Cost, DM

Lubricants used in running bottling machines

Inventoriable Product Cost, MOH

Allocated Overhead Rate

Overhead rateXActual number of machine hours

Company president's annual bonus

Period

Depreciation on Marketing department's computers

Period

Gasoline used to operate refrigerated trucks delivering finished dairy products to grocery stores

Period

Research and development on improving milk pasteurization process

Period

Television advertisement for Dairy Plains products

Period

Wages and salaries paid to machine operators at dairy plant

Product, DL

Plastic gallon containers in which milk is packaged

Product, DM

Depreciation on refrigerated trucks used to collect mild from local dairy farmers

Product, DM OR MOH

Property tax on dairy processing plants

Product, MOH

Inventoriable Period Cost

Production or purchases- initially recorded as inventoryinclude only the costs incurred during the "production of purchases" stage of the value chain. inventoriable product costs are treated as an asset (inventory) until the product is sold. when sold these costs are removed from inventory and expensed as cost of goods sold.

Total Period Costs

Property Tax + Warranty repairs + Depreciation + cost of designing new plant layout

Period Costs

R and D, Design, Marketing, Distribution, Customer service all recorded as operating expenses. Period costs are always expensed in the period in which they are incurred and never become part of an inventory account

Activity cost allocation rate

The rate that is estimated to allocate cost to the products or services based on the activities or resources by selecting the activity base for each activity (cost driver) is referred to as activity cost allocation rate

Predetermined overhead allocation rate

Total estimated manufacturing overhead costs/ total estimated amount of the allocation base

Predetermined Manufacturing Overhead Rate

Total estimated manufacturing overhead costs/ total estimated amount of allocation base

calculate allocated overhead rate for example

Use actual machine hours, and mulltiply by predetermined overhead rate

Problem 4: How much manufacturing overhead was incurred during the year? Is manufacturing overhead underallocated or overallocated? and by how much? Were the jobs undercosted or overcosted? and by how much?

add depreciation on manufacturing plant and equipment, add property taxes on plant, and add plant janitors wages for exampe 480,000+20,000+10,000=510,000 then compare ACTUAL OVERHEAD 510,000 to ALLOCATED OVERHEAD 440,000 510,000-440,000=70,000 UNDER ALLOCATED Jobs are undercosted by 70,000

facility level costs

costs incurred no matter how many units, batches, or products are produced

Internal failure costs

costs incurred when defects in poor quality goods or services are corrected before making delivery to customers

Period Costs

costs that are being expensed in the year. Called operating expenses, or selling, general, and administrative expenses., includes taxes, includes cost of designing new plant layout

Activity based costing

focuses on activities as fundamental building blocks in compiling the indirect cost of products, services, and customers.

under or over applied overhead: the difference between actual and applied overhead

if the actual overhead is more than the overhead applied during a particular period, then it is under allocated if the actual overhead inccured is less than the overhead applied, it is over applied

MOH

includes all manufacturing costs other than direct materials and direct labor, includes indirect materials, indirect labor, + other indirect manufacturing costs

Unit level costs

incurred for every single unit of product produced

compute total cost of job 356 using activity based costing

take machine maintenance cost (first description of cost pool for estimated cost) and divide it by estimated number of machine hours (first cost driver) then compute allocation rate for 2nd cost pool take next description of cost pool and divide it by 2nd cost driver and same for third then take activity allocation rates for each and multiply by corresponding job usagefor example, $40 = allocation rate for machine maintenance and do 40X 90 machine hours used and multiply each rate by each usage for each job then add them all up to get total manufacturing overhead allocated now take cost of direct materials (previously calculated) (21,000) and add it to total cost of direct labor (previously calculated) and add total manufacturing overhead allocated = total manufacturing cost of job 356

control on manufacturing overhead

the actual manufacturing overhead is compared with the estimated overhead of a particular period to contorl the overhead if the difference in the actual and budgeted overhead is too high, then the managers investigate the reason of such difference

Product level costs

the costs incurred for a particular product regardless of the number of units or batches of the product produced

disposing of under allocated overhead

the under allocated overhead is transsferred to the cost of goods sold amount the cost of goods sold account is debited and the manufacturing overhead account is credited at the time of under allocated overhead

Indirect manufacturing costs

these costs include all plant related costs, includes depreciation, taxes, insurance, repairs, and maintenance

Single plant wide allocation rate

traditional method of allocating overhead costs. This rate is used to determine the overhead costs

compute predetermined overhead rate for example

use estimated yearly overhead cost/ Machine hours (budget) = predetermined overhead rate

external failure costs

when a company does not detect poor goods until after a delivery has been made to a customer

compute underallocated or overallocated

whichever is bigger take first, if actual is bigger than it is under allocated and it is over if actual is smaller than overhead applied