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Closetocostofgoodssold 2 proratebalancebetween 1

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Unformatted text preview: atives 1. Close to Cost of Goods Sold 2. Prorate balance between 1. Work­in­Process Inventory 2. Finished Goods Inventory 3. Cost of Goods Sold (Pro­rating would be based on balances in those accounts on a percent to total basis.) 5 Closing to Cost of Goods Sold In case of Over­application In case of Under­application Debit Manufacturing Overhead Credit Cost of Goods Sold Debit Cost of Goods Sold Credit Manufacturing Overhead 6 Closing by pro-rating In case of Overapplication In case of Underapplication Debit Manufacturing Overhead Credit WIP (inventory) Finished Goods (inventory) Cost of Goods Sold Debit WIP (inventory) Finished Goods (inventory) Cost of Goods Sold Credit Manufacturing Overhead 7 What are the guidelines for What choosing a cost driver? choosing Using a single cost driver common practice Should vary Similar to Costs Correlation of Cost & Cost Driver the best when there is a relationship of causation 8 Discuss Limitations of Using Direct Discuss Labor as Cost Driver Labor Current Trend is Away from Using Direct Labor as a Cost Driver Increased Automation Results in: Manufacturing Overhead Being Much Greater in Size Direct Labor Being Much Smaller in Size 9 Departmental Overhead Rates: Departmental Two Stage Allocation Two Stage One Overhead assigned to all departments Service Departments Service Department Costs are Allocated to Production Production Departments Cutting, Assembly, Finishing All Costs in Production Department are Applied to Prod...
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