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