...000 | | | What is the predetermined overhead rate based on machine hours? Estimated MOH = $1,000,000 = $20/MH Est. activity base 50,000 Machine hours (MH) If the company used a predetermined OH rate based on direct labor hours(LH), how much was the overhead over or under applied? POR=Predetermined Overhead Rate $1,000,000 = $10/LH POR x actual activity usag = $10 x 92,000 LH’s = $920,000 OH applied 100,000 LH’s MOH JE actual | applied | $950,000 | $920,000 | $30,000 under-applied Hollins, Inc., a manufacturer of computer chips, employs activity-based costing. The budgeted data for each of the activity cost pools is provided below for the year 2014. Activity Cost Pools | Estimated Overhead | Expected Use of Cost Drivers per Activity | Ordering and receiving | $ 90,000 divided by | 12,000 | Orders =$7.50/order | Machining | 480,000 divided by | 60,000 | machine hours =$8/MH | Soldering | 1,760,000 divided by | 440,000 | labor hours =$4/LH | | | For 2014, the company had 11,000 orders and used 50,000 machine hours, and labor hours totaled 500,000. What is the total overhead applied? 11,000 orders x $7.50 = $82,500 50,000 MH’s x $8 /MH = $400,000 500,000 LH’s x $4/LH = $2,000,000 $2,482,500 total OH applied Wilkins Inc. has two types of handbags: standard and custom. The controller has decided to use a plantwide overhead rate based on direct labor costs...
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...Predetermined Overhead Rate Finlon Upholstery, Inc. applies manufacturing overhead to production on the basis of direct labor cost. The 2002 budget shows direct labor (DL) cost at $4,200,000 and manufacturing overhead (MOH) cost at $5,460,000. To calculate the predetermined overhead rate, divide the budgeted MOH by the budgeted DL ($5,460,000 ÷ $4,200,000) to arrive at 130%. Work-in-process Additions Work-in-process inventory includes direct material (DM), direct labor (DL) and manufacturing overhead (MOH). 2002 actual results indicate the amount of direct material used was $5,600,000 and direct labor was $4,350,000. Allocated overhead is determined by applying the predetermined overhead rate to the direct labor ($4,350,000 x 130%) which produces $5,655,000 in applied overhead. The addition of the three categories, which is what is added to the work-in-process inventory account, is $15,605,000, as shown in the schedule below. This amount will ultimately be moved to the finished goods inventory account as the jobs are completed. In addition, the work in process (WIP) of $156,800 at the end of 2001 would be added to determine the cost of goods manufactured of $15,761,800 ($15,605,000 + $156,800). Finished Goods Finished goods inventory is the result of goods produced but not sold. Finished goods inventory as of December 31, 2002 consists of only Job 2143 which is valued at $351,500 and is composed of the direct materials, direct labor and applied overhead as...
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...Period costs Product costs: Direct materials, Direct labor, MOH Manufacturing Costs: COGS Manufacturing Schedule * Beginning FG Inventory + Cost of Goods Manufactured – Ending FG Inventory = COGS * Cost of Good Manufactured = Beg WIP + Total Manufacturing Costs = Total Cost of WIP * COG Manufactured = Total Cost of WIP – Ending WIP * PG 13 for illustration Chapter 2 Job order costing: assigning of costs to each job or to each batch of goods. Process costing: manufacturing large volumes of similar products. (accumulates cost for a period of time) Objective of both cost accounting systems is to provide unit cost information for pricing, cost control, inventory evaluation and financial statement presentation. Companies accumulate then assign manufacturing costs. Revisit pages 46-47. Assign MOH to WIP and to specific jobs on as estimated basis through the use of a predetermined OH rate. The predetermined OH rate is based on the relationship between estimated annual OH costs and expected annual operating activity, expressed in terms of a common activity base. ( Estimated Annual OH Costs/ Expected Annual Operating Activity = Predetermined OH rate) Refer to pages 51-52 Refer to summary on page 55 Refer to page 58 (advantages and disadvantages of job order costing) Refer to page 60. Chapter 3 Similarities between job order costing and process costing: * Manufacturing cost elements: Dm, DL, MOH * Accumulation of this costs * Flow of costs: WIP...
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...1. (TCO F) Buckhorn Corporation bases its predetermined overhead rate on the estimated machine hours for the upcoming year. Data for the upcoming year appear below. Estimated machine hours - 85,000 Estimated variable manufactruring overhead - $5.55 per machine hour Estimated total fixed manufacturing overhead - $951,888 Compute the company's predetermined overhead rate. Total variable manufacturing overhead = $5.55 * 85000 = $471750 So, total predetermined overhead = $951888 - 471450 = $480138 SO, Predetermined overhead rate = $480138 / 85000 = $5.648 per machine hour |Cash balance, beginning |27,000 | |Add receipts |136,000 | |Total cash available for needs |163,000 | | | | |Disbursements |128,000 | |Minimum cash balance desired |50,000 | |Total cash needed |178,000 | | | | |Cash excess (deficiency) |(15,000) | | | | |Financing: ...
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...product cost. There are two types of cost accounting system, the job order cost system and the process cost system. The former system (job order cost) is suitable for production that will varies in characteristics from job to job. Each production might have different raw materials or a different labor time as well as overhead rate, so it is important to record all these differences and correctly assign costs to specific products. The latter, the process cost system, is a system that is best used for production of a large volume of similar products. With job order cost system, the flow of costs such as raw materials, direct labor, and overhead cost will reflect the actual physical flow of materials into finished goods as detailed below: Accumulation of direct material, labor and overhead cost – a manufacturer will debit these account to record all the costs. Assignment of cost to jobs – as the materials and labor has been requested; the company will assign these costs to a specific job (into the work in process account) or into an overhead costs if it is not directly related to a specific job. Then, the company will record the predetermined overhead rate into work in process account (a company might use either direct labor hour, direct labor cost, or machine hour as an activity base depending on the nature of their manufacturing process). Finished Goods – when a specific job is finished, the company will credit the WIP account and transfer it into the Finished Good account...
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...Job Costing: A Few Observations Understanding activities and processes is fundamental to modern management accounting. When you complete your study of material in this chapter, you should be able to: • . Take a factual situation and calculate a product's indirect cost. • . Discuss the shortcomings of the traditional approach and how products may be miscosted using such an approach. • . Take a factual situation and trace the flow of costs for a product using T-accounts; also, take the same situation and make the necessary journal entries. • . Given a data set, calculate a manufacturing firm's predetermined overhead rate. • . Determine when a firm has an overhead variance and discuss the implications of underapplied and overapplied overhead (both material and immaterial. • . Discuss actual and normal costing. Why Product Cost Information Is Developed Firms need good cost data for: • External reporting -- This has been primary focus, even though it is of only minor importance for most internal decisions. Financial reports are full of estimates. Also, in many publicly traded companies, so much of the accountants' time is invested in compliance reporting (providing reports to the SEC, IRS, etc.,) that little time remains for 1 addressing internal accounting needs. • Pricing decisions Cost plus requires knowledge of cost. Bids for jobs require understanding of what a job will cost. Management control Are costs what they should be? If I plan to spend $3,000 and spend $4,000, I need...
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...1. Describe Wilkerson’s competitive environment. At a minimum, include any barriers to entry, industry maturity, the specific market and production complexity for each product, and marketing concerns. Wilkerson is a manufacturing company specializing in manufacturing components for water purification systems; the company makes valves, pumps, and flow controllers. Wilkerson is a supplier to companies that actually manufacture the water purification equipment. The relevant officers of the organization are: * Robert Parker, President * Peggy Knight, Controller * John Scott, Manufacturing Manager According to the United States International Trade Commission, “U.S. exports of water filtration and purification equipment reached $1.8 billion in 2011, increasing by 20 percent since 2007 and by 110 percent since 2002, with Asia the leading export destination. Due to insufficient availability of water, rising incidence of extreme weather events, and increasing global demand for water resulting from demographic shifts, urbanization, and industrialization, U.S. exports of water treatment equipment are expected to remain high.” So, it is safe to assume that this is a highly competitive industry with high barriers to entry and attractive growth prospects due to the fact that this is an industry that is arguably in the Growth Phase of the industrial life cycle. The high barriers to entry can be attributed to the complex nature of the equipment, the production process...
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...Exam 2 Review Chapter 5- 7 * Job order costing – used for relatively small quantities of distinct products or unique services that conform to specifications designated by the purchaser * Process costing- used for large quantities of homogeneous goods * Three alternative valuation methods: Actual, Normal, Standard * Actual- Job order and process costing assign cost based on actual cost; actual DM, DL, and OH * Normal – Job order costing assign cost based on actual DM, DL, and OH is applied using predetermined rate at completion. Process Costing assign cost based on actual DM, DL, and OH is applied using predetermine rate using either FIFO or WA * Standard – Job order costing assigns cost based on the standard cost for DM,DL, and OH is applied using predetermined rate when goods are completed. Process costing is assigned using standard cost for DM, DL, and OH is standard using predetermined rate always FIFO * Job order cost sheet- is a source document that provides virtually all financial information about a particular job. This is for all incomplete jobs compose the WIP inventory subsidiary ledger. Includes job number, job description, customer identification, scheduling information delivery instructions, and contract price * Material requisition form – is prepared so material can be released from inventory, or purchased, and sent to production. Indicates types, quantities, usually prenumbered * Shrinkage- losses that are inherent in...
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...ALTERNATIVES AND EVALUATION …….……. 6 IV. RECOMMENDATION …………………………..…… 6 I. PROBLEM IDENTIFICATION The main problem in this case is that Wilkerson is having difficulty appropriately pricing its products to retain gross margin in a competitive market. Price cutting by competitors led to a drop of Wilkerson’s pre-tax margin to under 3%, gross margin on sales for pump sales has fallen below 20% which is under the company’s plan. The problem in the current pricing method used by Wilkerson is that the real manufacturing cost of each product is not realistic because of the high proportion of overhead costs which are 806,000 of 1,535,250 (52.5%). The current method assumes the overhead costs are correlated to the labor costs at 300% rate, while many of the overhead activities are performed per product line regardless of the amount of units produced. II. ANALYSIS 1. The executives should abandon overhead assignment to products entirely by adopting a contribution margin approach but not in which manufacturing overhead is...
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...MA1 Assignment 1 Required a. What is the manufacturing overhead application rate (predetermined overhead rate)? Show calculations. (½ mark) b. Using the data provided, post the transactions that took place for the last week of the year to the ledgers and to the appropriate job cost sheets. show the activity in the job cost sheets and the following accounts (before any adjusting entries for over- or underapplied overhead): Raw materials Work in progress Finished goods Cost of goods sold Manufacturing overhead Selling and administrative expenses Sales International Beans, Inc. ACCOUNT: Raw Materials Description Debit Credit Balance Beginning 63,000 DR Jan-Dec Raw materials purchased 7,245,000 7,308,000 DR Jan-Dec Indirect material issued to production 110,200 7,197,800 DR Jan-Dec Direct materials issued to production 7,092,700 105,100 DR Dec 23 Direct materials issued to production 37,000 68,100 DR Dec 28 Indirect material issued to production 1,800 66,300 DR Dec 28 Direct materials issued to production 4,000 62,300 DR ACCOUNT: Work in Process Description Debit Credit Balance Beginning 63,870 DR Jan-Dec Direct labour 525,300 589,170 DR Jan-Dec Overhead applied 2,592,000 3,181...
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...Revised Fall 2012 CHAPTER 2 SYSTEMS DESIGN: JOB ORDER COSTING Key Terms and Concepts to Know Job-Order Costing vs. Process Costing Job-order costing is used for companies that produce different products each period. Costs are accumulated for each job. Process costing is used for companies that produce many identical units of a single product for long periods of time. Costs are accumulated by manufacturing department. Key Job-Order Costing Documents Material requisitions request materials for production and support direct materials costs charged to each job. Time cards or time tickets record direct labor hours used in production and support direct labor costs charged to each job. Job cost sheets are the most important job costing document. They summarize all of the key information about the job and accumulate total direct materials costs, total direct labor costs and overhead costs applied to the job to determine the total costs for the job. Actual Manufacturing Overhead vs. Manufacturing Overhead Applied Actual manufacturing overhead costs are the indirect manufacturing costs incurred in the production process. Manufacturing overhead applied are the overhead costs added or applied to each job during the production process. These costs are added to work-in-process to become part of total manufacturing costs along with direct materials and direct labor. Page 1 of 24 Revised Fall 2012 Key Topics to Know Choosing a Cost System ...
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...CHAPTER 2 Job Order Costing YOUR LEARNING OBJECTIVES After completing this chapter, you should be able to: LO1 LO2 LO3 LO4 LO5 LO6 Describe the key differences between job order costing and process costing. Describe the source documents used to track direct materials and direct labor costs to the job cost sheet. Calculate a predetermined overhead rate and use it to apply manufacturing overhead cost to jobs. Describe how costs flow through the accounting system in job order costing. Calculate and dispose of overapplied or underapplied manufacturing overhead. Calculate the cost of goods manufactured and cost of goods sold. Lecture Presentation–LP2 www.mhhe.com/whitecotton1e 36 FOCUS COMPANY: Toll Brothers Inc. “America’s Luxury Home Builder” www.tollbrothers.com H ave you ever found yourself in the following situation? You go out to a trendy new restaurant with a group of friends. You are on a limited budget, so you order the cheapest dish on the menu and a glass of ice water. Meanwhile, your friends indulge in a full-course meal with drinks, appetizers, entrees, and dessert. When it is time to pay the bill, would you prefer to split the check or get a separate tab for each person at the table? This common scenario illustrates the basic difference between the two costing systems discussed in the next two chapters. Process costing is similar to splitting the check, or spreading the total cost over the number of units produced (or in the case of a restaurant...
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...CHAPTER 2 Job Order Costing YOUR LEARNING OBJECTIVES After completing this chapter, you should be able to: LO1 LO2 LO3 LO4 LO5 LO6 Describe the key differences between job order costing and process costing. Describe the source documents used to track direct materials and direct labor costs to the job cost sheet. Calculate a predetermined overhead rate and use it to apply manufacturing overhead cost to jobs. Describe how costs flow through the accounting system in job order costing. Calculate and dispose of overapplied or underapplied manufacturing overhead. Calculate the cost of goods manufactured and cost of goods sold. Lecture Presentation–LP2 www.mhhe.com/whitecotton1e 36 FOCUS COMPANY: Toll Brothers Inc. “America’s Luxury Home Builder” www.tollbrothers.com H ave you ever found yourself in the following situation? You go out to a trendy new restaurant with a group of friends. You are on a limited budget, so you order the cheapest dish on the menu and a glass of ice water. Meanwhile, your friends indulge in a full-course meal with drinks, appetizers, entrees, and dessert. When it is time to pay the bill, would you prefer to split the check or get a separate tab for each person at the table? This common scenario illustrates the basic difference between the two costing systems discussed in the next two chapters. Process costing is similar to splitting the check, or spreading the total cost over the number of units produced (or in the case of a restaurant...
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...Confirming Pages CHAPTER 2 Job Order Costing YOUR LEARNING OBJECTIVES After completing this chapter, you should be able to: LO1 LO2 LO3 LO4 LO5 LO6 Describe the key differences between job order costing and process costing. Describe the source documents used to track direct materials and direct labor costs to the job cost sheet. Calculate a predetermined overhead rate and use it to apply manufacturing overhead cost to jobs. Describe how costs flow through the accounting system in job order costing. Calculate and dispose of overapplied or underapplied manufacturing overhead. Calculate the cost of goods manufactured and cost of goods sold. Lecture Presentation–LP2 www.mhhe.com/whitecotton1e 36 whi10777_ch02_036-087.indd 36 9/17/09 2:29:08 PM Confirming Pages FOCUS COMPANY: Toll Brothers Inc. “America’s Luxury Home Builder” www.tollbrothers.com H ave you ever found yourself in the following situation? You go out to a trendy new restaurant with a group of friends. You are on a limited budget, so you order the cheapest dish on the menu and a glass of ice water. Meanwhile, your friends indulge in a full-course meal with drinks, appetizers, entrees, and dessert. When it is time to pay the bill, would you prefer to split the check or get a separate tab for each person at the table? This common scenario illustrates the basic difference between the two costing systems discussed in the next two chapters. Process costing is similar...
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...and feel confused, try to put something down so you might earn partial credit. If you understand the review sheet, you should do well on the exam. 25 Multiple choice 2 pts. each 1. Understand what Financial and Management accounting are? 2. What are the differences among Manufacturing, merchandising, and service companies? 3. How do you compute COGM, COGS, and operating income and what do these figures represent? 4. What are prime and conversion costs? 5. What is customer-profitability analysis? 6. Understand how changes in volume impact cost behavior. 7. What does the relevant range mean? 8. What are the attributes of an ABC method? 9. Determine gross margin. 10. Apply overhead to production using a predetermined overhead rate. 11. Compute the cost of job. 12. How is under or overapplied overhead adjusted at the end of an accounting period. 13. What type of companies use Job costing? Process Costing?...
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