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Unformatted text preview: MGMT201(Ganguly) MGMT201(Ganguly) Lecture 4 Accumulating Costs in a Job-Order Costing System
Tra ce Manufacturing overhead (OH) d di rect to e ly ach job Applied to each job using a predetermined rate THE JOB
Direct labor ctly dire ced jo b ra T h eac to
2 NORMAL Costing Overhead is applied to jobs using a predetermined overhead rate (POHR) based on estimates made at the beginning of the accounting period.
Budgeted manufacturing overhead cost Budgeted amount of cost driver (or activity base) Overhead applied = POHR × Actual activity
Based on estimates, and determined before the period begins Actual amount of the allocation base, such as direct labor hours, incurred during the period
3 Illustrate the Manufacturing Illustrate Overhead Account Overhead
Actual MO costs are accumulated as incurred MO is applied to production jobs At predetrmined overhead rates Various Accounts
Associated credits to various accounts Work-in-Process
MO is added to Work-inProcess Inventory
4 Accounting for Accounting Over- or Under- Applied Overhead OverTwo Alternatives
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 Products Production Jobs Pass Through
10 Stage Two Overhead Assigned to Production Jobs 1. How do I compute a predetermined 1. rate? (trick question) rate?
A. B. C. D. E. I divide the budgeted manufacturing overhead by the actual machine hours I divide the actual manufacturing overhead by the budgeted machine hours I divide the budgeted manufacturing overhead by the budgeted labor hours I divide the budgeted manufacturing overhead by either budgeted machine hours or budgeted direct labor hours I divide the actual manufacturing overhead by either the budgeted machine hours, or the budgeted labor hours, or the budgeted total labor dollars
11 Note: The solutions to these inclass exercises will not be posted to Katalyst at any time. The idea is for students to work on them in class. 12 The following data pertain to Company X Budgeted Manufacturing Overhead $650,000 Budgeted machine hours Budgeted Direct Labor Hours 25,000 Budgeted Direct Labor Rate $13 Actual Manufacturing Overhead $690,000 Actual machine hours 22,000 20,000 13 Actual direct labor hours 26,000 2. What is the predetermined rate if my 2. cost driver is direct labor dollars? direct
A. B. C. D. E. $32.50 $26.00 $ 2.00 The formula is not in the textbook so you either tell me how to do this or I’m lost None of the above
14 3.How much of total actual dollars do I expect to spend during the year on direct labor? 15 16 4. What is the predetermined rate if 4. my cost driver is direct labor dollars? direct
A. B. C. D. E. $32.50 per $ $26.00 per $ $ 2.00 per $ Dollar per Dollar? Huh? There’s a typo. None of the above 17 5. How much overhead is applied during 5. the year if we are using direct labor dollars direct as the driver? A. $715,000 A. B. $676,000 C. $728,000 D. $690,000 E. None of the above
Budgeted Manufacturing Overhead Budgeted machine hours Budgeted Direct Labor Hours Budgeted Direct Labor Rate Actual machine hours $650,000 20,000 25,000 $13 $690,000 22,000 26,000 $14 Actual Manufacturing Overhead Actual direct labor hours Actual Direct labor rate 18 6. What is the actual total of direct labor dollars? 19 7. How much overhead is applied during 7. the year if we are using direct labor dollars direct as the driver? A. $715,000 A. B. $676,000 C. $728,000 D. $690,000 E. None of the above
Budgeted Manufacturing Overhead Budgeted machine hours Budgeted Direct Labor Hours Budgeted Direct Labor Rate Actual machine hours $650,000 20,000 25,000 $13 $690,000 22,000 26,000 $14 Actual Manufacturing Overhead Actual direct labor hours Actual Direct labor rate 20 8. Lastly, what is the over- or 8. under-applied overhead? under-applied
A. $38,000 overapplied B. $38,000 underapplied C. $78,000 overapplied D. $78,000 underapplied E. How the heck would I know? 21 Now work out the harder Now problems for the recitation class and then for the next HM homework! homework! 22 End of Lecture 4
For Lecture 5: Do all Reading, HM homework listed for Lecture 5 Try (really really try) the selfstudy homework listed up to and including Lecture 5
From the next class, we may not remind you about your homework like this each time. You should already be “in the groove.” 23 ...
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- Spring '08