Chapter 3 Flashcards
IV. Possible ACTUAL and ESTIMATED overhead items Part 1
Indirect materials Supplies Indirect labor Engineer Utilities factory Property taxes factory
IV. Possible ACTUAL and ESTIMATED overhead items Part 2
Insurance factory Equipment rental Maintenance Janitorial/Custodian Factory supervisor salaries Depreciation expense, factory
PROH =
total estimated Overhead costs ÷ total estimated activity = predetermined
Overhead rate
APPLIED OH =
PROH x Actual Activity
Cost of Goods Manufactured Formula
Direct Material Used (*) Direct Labor Cost Applied Overhead Total manufacturing cost this period \+ Beg work-in process inventory - End WIP Inven =Cost of Goods Manufactured
Direct Materials/Raw Materials Formula
* Beginning raw materials inventory \+ Purchases of Raw Materials Raw materials available for use Less: End raw materials Raw materials used in production Less: Indir, materials included in overhead =Direct Materials Used
Unadjusted Costs of Goods Sold Formula
Beginning finished goods inventory Add: cost of goods manufactured Goods available for sale Deduct: Ending finished goods inv. =Unadjusted Cost of Goods Sold
New Traditional Income Statement Formula
Sales - Adjusted Cost of goods sold Gross Margin - Operating expenses (also called Selling & Operating expenses) = Net Operating Income (NOI)
Adjusted Costs of Goods Sold
Unadjusted Cost of Goods Sold
+ underapplied overhead or – overapplied overhead
Adjusted Cost of goods Sold
Gross Margin Formula
Sales
Minus Adjusted Cost of goods sold
Net Income Formula
Gross margin
Minus period costs also called selling & administrative expenses
I. Every job has 3 PRODUCT costs:
Direct materials (DM) Direct labor (DL) APPLIED Overhead
Additions and Deductions Formula
beginning inventory + additions this period= ending inventory + deductions this period
There are 2 main methods to close the MOH and adjust for actual expenses
- Most popular method - adjust entire balance in MOH account to COGS.
- Most accurate: adjust by allocating the entire balance on the MOH account proportionately to:
applied OH in WIP
applied OH in FG
applied OH in unadjusted COGS
Over/under applied OH does NOT
affect COGM (Cost of Goods Manufactured) or period costs (selling & admin.) but does affect COGS (an expense) and the gross margin and net income.
What goes on the balance sheet?
- raw materials inventory
- work in process inventory
- finished goods inventory
What goes on the income statement?
- costs of goods sold
- selling and administrative expenses
When to Apply Overhead?
Apply when job is completed (i.e., it has all its DM and DL) and while it is still in the WIP (work in process) account…then…the job is transferred to FG (finished goods) account.
AND:
2. Apply to any unfinished jobs still in WIP at the end of the period.
There are 2 main methods to close the MOH and adjust for actual expenses
- Most popular method - adjust entire balance in MOH account to COGS.
- Most accurate: adjust by allocating the entire balance on the MOH account proportionately to:
applied OH in WIP
applied OH in FG
applied OH in unadjusted COGS
What do you never do when tracing jobs?
never subtract
When a good is not finished how do you subtract it out of the COGM formula?
subtract the entire COGS
What are the costs considered? (1st page)
- raw materials purchased
- direct labor
- manufacturing overhead