Chapter 3 - If overhead allocation was overstated...

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Chapter 3: Job Costing Process costing o Mass production o Similar items o Total costs are averaged over all units Job costing o Unique, custom products or small batches o Total costs are accumulated by job Predetermined Overhead Rate o o Four steps Estimate total manufacturing overhead costs Select an allocation base (cost driver) Estimate the total amount of allocation base to be used Calculate predetermined manufacturing overhead rate Allocating overhead to jobs o Overhead allocation rate=Budgeted OH cost/Allocation base o Overhead allocation base alternatives Direct labor hours Direct labor cost Direct machine hours Et al Reasons why management needs product cost o Control costs o Assess profitability of products o Pricing decisions o Discounts on high-volume sales o Bids on contracts o Financial statement preparation
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Unformatted text preview: If overhead allocation was overstated (estimated is greater than actual) and is not material o Credit cost of goods sold If difference is material, apportion among inventory accounts How do manufacturers tread non-manufacturing costs? o GAAP Only inventoriable product costs added to the costs of assets (inventory) o Internal decision-making Management wants to know the total cost of the product across the value chain Job costing at a service firm o Similar to job costing at a manufacturer o Examples Hospitals Repair shop Consulting firm o Main difference is that company is allocated indirect period costs to each client rather than manufacturing costs o Since no inventory, no journal entries necessary...
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Chapter 3 - If overhead allocation was overstated...

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