Chapter 3 - Cost Flows and External Reporting Flashcards
What is a measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects?
Allocation base
What is a rate used to charge manufacturing overhead cost to jobs that is established in advance for each period?
Predetermined overhead rate
What is the formula to find the predetermined overhead rate?
Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base
What is the process of assigning overhead costs to specific jobs?
Overhead application
What is the formula to find the overhead application?
Predetermined overhead rate × hours worked
What is a costing system in which overhead costs are applied to a job by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job?
Normal costing
What include any materials that go into the final product?
Raw materials
What consists of units of production that are only partially complete and will require further work before they are ready for sale to customers?
Work in process
What consist of completed units of product that have not been sold to customers?
Finished goods
What includes the manufacturing costs associated with the goods that were finished during the period?
Cost of goods manufactured
Which side of the t-account is the actual side?
The left side
Which side of the t-account is the applied side?
The right side
Which t-account would the following item go under: Materials Purchased
A. Raw material B. Work-in-process C. Manufacturing overhead D. Finished goods E. Cost of goods sold F. Sales
A. Raw material
Which t-account would the following item go under: Raw Materials
A. Raw material B. Work-in-process C. Manufacturing overhead D. Finished goods E. Cost of goods sold F. Sales
A. Raw material
Which t-account would the following item go under: Direct Materials
A. Raw material B. Work-in-process C. Manufacturing overhead D. Finished goods E. Cost of goods sold F. Sales
B. Work-in-process
Which t-account would the following item go under: Direct Labor
A. Raw material B. Work-in-process C. Manufacturing overhead D. Finished goods E. Cost of goods sold F. Sales
B. Work-in-process
Which t-account would the following item go under: Overhead Applied (debit)
A. Raw material B. Work-in-process C. Manufacturing overhead D. Finished goods E. Cost of goods sold F. Sales
B. Work-in-process
Which t-account would the following item go under: Overhead Applied (credit)
A. Raw material B. Work-in-process C. Manufacturing overhead D. Finished goods E. Cost of goods sold F. Sales
C. Manufacturing overhead
Which t-account would the following item go under: Indirect Material
A. Raw material B. Work-in-process C. Manufacturing overhead D. Finished goods E. Cost of goods sold F. Sales
C. Manufacturing overhead
Which t-account would the following item go under: Indirect Labor
A. Raw material B. Work-in-process C. Manufacturing overhead D. Finished goods E. Cost of goods sold F. Sales
C. Manufacturing overhead
Which t-account would the following item go under: Utilities Expense
A. Raw material B. Work-in-process C. Manufacturing overhead D. Finished goods E. Cost of goods sold F. Sales
C. Manufacturing overhead
Which t-account would the following item go under: Rent in factory equipment
A. Raw material B. Work-in-process C. Manufacturing overhead D. Finished goods E. Cost of goods sold F. Sales
C. Manufacturing overhead
Which t-account would the following item go under: Miscellaneous factory overhead costs
A. Raw material B. Work-in-process C. Manufacturing overhead D. Finished goods E. Cost of goods sold F. Sales
C. Manufacturing overhead
Which t-account would the following item go under: Taxes & Insurance
A. Raw material B. Work-in-process C. Manufacturing overhead D. Finished goods E. Cost of goods sold F. Sales
C. Manufacturing overhead
Which t-account would the following item go under: Depreciation
A. Raw material B. Work-in-process C. Manufacturing overhead D. Finished goods E. Cost of goods sold F. Sales
C. Manufacturing overhead
Which t-account would the following item go under: Cost of goods manufactured (debit)
A. Raw material B. Work-in-process C. Manufacturing overhead D. Finished goods E. Cost of goods sold F. Sales
D. Finished goods
Which t-account would the following item go under: Cost of goods manufactured (credit)
A. Raw material B. Work-in-process C. Manufacturing overhead D. Finished goods E. Cost of goods sold F. Sales
B. Work-in-process
Which t-account would the following item go under: Cost of goods sold (debit)
A. Raw material B. Work-in-process C. Manufacturing overhead D. Finished goods E. Cost of goods sold F. Sales
E. Cost of goods sold
Which t-account would the following item go under: Cost of goods sold (credit)
A. Raw material B. Work-in-process C. Manufacturing overhead D. Finished goods E. Cost of goods sold F. Sales
D. Finished goods
True or False:
If actual and applied manufacturing overhead are not equal, a year-end adjustment is required
True
Make a journal entry:
On April 1, Ruger Corporation had $7,000 in raw materials on hand. During the month, the company purchased on account an additional $60,000 in raw materials.
D: Raw Materials 60,000
C: Accounts Payable 60,000
Make a journal entry:
During April, materials requisition forms were prepared to authorize withdrawing $52,000 in raw materials from the storeroom for use in production. These raw materials included $50,000 of direct and $2,000 of indirect materials.
D: Work in Process 50,000
D: Manufacturing Overhead 2,000
C: Raw Materials 52,000
Make a journal entry:
In April, the employee time tickets included $60,000 recorded for direct labor and $15,000 for indirect labor.
D: Work in Process 60,000
D: Manufacturing Overhead 15,000
C: Salaries and Wages Payable 75,000
Make a journal entry:
Assume the Ruger Corporation incurred the following general factory costs during April:
- Utilities (heat, water, and power) 21,000
- Rent in factory equipment 16,000
- Miscellaneous factory overhead costs 3,000
D: Manufacturing Overhead 40,000
C: Accounts Payable 40,000
Make a journal entry for overhead applied:
Assume that Ruger Corporation’s predetermined overhead rate is $6 per machine-hour. Also assume that during April, 10,000 machine-hours were worked on Job A and 5,000 machine-hours were worked on Job B (a total of 15,000 machine-hours).
D: Work in Process 90,000
C: Manufacturing Overhead 90,000
$6 per machine-hour × 15,000 machine-hours = $90,000
Make a journal entry:
Ruger Corporation incurred $30,000 in selling and administrative salary costs during April.
D: Sales Expense 30,000
C: Sales and Wages Payable 30,000
Make a journal entry:
Depreciation on office equipment in April was 7,000
D: Depreciation Expense 7,000
C: Accumulation Depreciation 7,000
Make a journal entry:
Advertising was $42,000 and other selling and administrative expenses in April totaled $8,000.
D: Advertising Expense 42,000
D: Other Selling and Administrative Expenses 8,000
C: Accounts Payable 50,000
Make a journal entry:
Job A, which cost $158,000, was completed during April and Job B was incomplete at the end of the month
D: Finished Goods 158,000
C: Work in Process 158,000
Make a journal entry for sales:
For Ruger Corporation, we will assume 750 of the 1,000 gold medallions in Job A were shipped to customers by the end of the month for total sales revenue of $225,000. Because 1,000 units were produced and the total cost of the job from the job cost sheet was $158,000, the unit product cost was $158.
D: Accounts Payable 225,000
C: Sales 225,000
Make a journal entry for cost of goods sold:
For Ruger Corporation, we will assume 750 of the 1,000 gold medallions in Job A were shipped to customers by the end of the month for total sales revenue of $225,000. Because 1,000 units were produced and the total cost of the job from the job cost sheet was $158,000, the unit product cost was $158.
D: Cost of Goods Sold 118,500
C: Finished Goods 118,500
FG X Unit Product Cost
118,500 = 750 x 158
When are nonmanufacturing costs expensed?
In the period in which they are incurred
If the jobs aren’t completed by the end of the month what t-account would they be located on?
The work in process t-account
Is it underapplied or overapplied when debit is greater than credit?
Underapplied
Is it underapplied or overapplied when debit is less than credit?
Overapplied
What is the formula to find overhead applied during the period?
POHR × Actual Direct Labor Hours
PearCo’s actual overhead for the year was $650,000 with a total of 170,000 direct labor hours worked on jobs. They also had a predetermined overhead rate of $4.00 per direct labor hour. What is the applied overhead amount?
AO = POHR × Actual Direct Labor Hours
AO = $4.00 per DLH × 170,000 DLH AO = $680,000
Is it underapplied or overapplied when the actual manufacturing overhead cost is less than the overhead applied?
Overapplied
Is it underapplied or overapplied when the actual manufacturing overhead cost is greater than the overhead applied?
Underapplied
What is the formula to find the underapplied/overapplied amount?
Manufacturing overhead cost - overhead applied
PearCo’s actual overhead for the year was $650,000 and they had an applied overhead of $680,000. Was the manufacturing overhead cost underapplied or overapplied and by how much?
Overapplied by 30,000
650,000 - 680,000 = -30,000
Tiger, Inc. had actual manufacturing overhead costs of $1,210,000 and a predetermined overhead rate of $4.00 per machine hour. Tiger, Inc. worked 290,000 machine hours during the period. Tiger’s manufacturing overhead is:
A. $50,000 overapplied
B. $50,000 underapplied
C. $60,000 overapplied
D. $60,000 underapplied
B. $50,000 underapplied
OA =$4.00 per hour × 290,000 hours = $1,160,000
Underapplied Overhead = $1,210,000 – $1,160,000 = $50,000
What are the 2 ways that you can dispose of an overapplied overhead?
- It can be closed to Cost of Goods Sold.
2. It can be closed proportionally to Work in Process, Finished Goods, and Cost of Goods Sold.
How do you close out PearCo’s $30,000 of overapplied overhead into Cost of Goods Sold on the t-accounts?
You add 30,000 to Mfg. overhead’s debit and COGS’ credit
What is the formula to find the total value of accounts?
WIP + FG + COGS
What is the formula to find the allocation percentage for Work in Process?
(Work in process / total value of accounts) x 100
What is the formula to find the allocation percentage for Finished Goods?
(Finished goods / total value of accounts) x 100
What is the formula to find the allocation percentage for Cost of Goods Sold?
(Cost of goods sold / total value of accounts) x 100
Let’s assume the overhead applied in Ending Work in Process Inventory, Ending Finished Goods Inventory, and Cost of Goods Sold is $68,000, $204,000, and $408,000. What is the allocation percentage for Work in Process?
Total value of accounts = 68,000 + 204,000 + 408,000
TVoA = $680,000
AP = (68,000 / 680,000) x 100 AP = 10%
Let’s assume the overhead applied in Ending Work in Process Inventory, Ending Finished Goods Inventory, and Cost of Goods Sold is $68,000, $204,000, and $408,000. What is the allocation percentage for Finished Goods?
Total value of accounts = 68,000 + 204,000 + 408,000
TVoA = $680,000
AP = (204,000 / 680,000) x 100 AP = 30%
Let’s assume the overhead applied in Ending Work in Process Inventory, Ending Finished Goods Inventory, and Cost of Goods Sold is $68,000, $204,000, and $408,000. What is the allocation percentage for Cost of Goods Sold?
Total value of accounts = 68,000 + 204,000 + 408,000
TVoA = $680,000
AP = (408,000 / 680,000) x 100 AP = 60%
What is the formula to find the allocation of total allocation?
Total allocation x %
Work in Process has 10% of the total allocation. What is Work in Process’ allocation of the 30,000 of overapplied overhead?
A = TA x % A = 30,000 x 10% A = 3,000
Finished Goods has 30% of the total allocation. What is Finished Goods’ allocation of the 30,000 of overapplied overhead?
A = TA x % A = 30,000 x 30% A = 9,000
Cost of Goods Sold has 60% of the total allocation. What is Cost of Goods Sold’s allocation of the 30,000 of overapplied overhead?
A = TA x % A = 30,000 x 60% A = 18,000
Make a journal entry for the overapplied allocate between Work in Process, Finished Goods, and Cost of Goods Sold:
WIP = 3,000 FG = 9,000 COGS = 18,000 TA = 30,000
D: Manufacturing Overhead 30,000
C: Work in Process 3,000
C: Finished Goods 9,000
C: Cost of Goods Sold 18,000
Make a journal entry for the underapplied allocate between Work in Process, Finished Goods, and Cost of Goods Sold:
WIP = 3,000 FG = 9,000 COGS = 18,000 TA = 30,000
D: Work in Process 3,000
D: Finished Goods 9,000
D: Cost of Goods Sold 18,000
C: Manufacturing Overhead 30,000
True or False:
The allocate between Work in Process, Finished Goods, and Cost of Goods Sold method is considered to be the more accurate than closing out to Cost of Goods Sold
True
What effect will the overapplied overhead have on net operating income?
A. Net operating income will increase
B. Net operating income will be unaffected
C. Net operating income will decrease
A. Net operating income will increase
What is actual expenses also known as?
Incurred
What does “applied to production” indicate?
The predetermined overhead rate
What is the debit and credit of the following:
Manufacturing overhead cost was applied to production
D: Work in Process
C: Manufacturing Overhead
Is the manufacturing overhead that goes into work in process estimated or actual?
Estimated
What account needs to be 0 at the end of the period?
Manufacturing Overhead
What is the formula to find the gross profit from t-accounts?
Sales - Cost of Goods Sold
What is the formula to find the net operating income using t-accounts?
Gross Profit - Selling & Administration Expense
What is the formula to find the cost of raw materials used in production during the year using t-accounts?
(RM beginning inventory + RM purchases) - RM ending inventory
What is the formula to find how much of the raw material used in production during the year consisted of indirect material using t-accounts?
The cost of raw materials used in production during the year - WIP direct material
What is the formula to find out how much of the factory labor cost for the year consisted of indirect labor using t-accounts?
Factory Wages Payable Credit - WIP direct labor
What is the cost of goods manufactured for the year equal to on a t-account?
WIP credit
What is the formula to find the unadjusted cost of goods sold for the year using t-accounts?
FG Beginning balance + COGM (aka WIP credit) - FG ending inventory
Which t-account do you look at to figure out if overhead is underapplied or overapplied?
Manufacturing overhead
What is the formula to find the PDOR using t-accounts?
Applied MOH / WIP direct labor
What is the applied manufacturing overhead equal to on a t-account?
WIP overhead
Fill in the Blank: Increase/Decrease
Because manufacturing overhead is underapplied, the journal entry would ________ cost of goods sold by $8,160
Increase
Fill in the Blank: Increase/Decrease
Because manufacturing overhead is underapplied, the gross margin would ________ by $8,160
Decrease
What do you debit and credit for the cost of goods manufactured?
You debit finished goods and credit work in process
What is the formula to find out how much of WIP’s ending balance is direct material cost when you are given a new direct labor cost?
WIP: EB - new DLC - (new DLC x PDOR)
What is the formula to find adjusted cost of goods sold?
Unadjusted COGS - MOH under/overapplied overhead adjustment amount
What does you debit and credit when you allocate underapplied overhead proportionally to Work in Process, Finished Goods, and Cost of Goods Sold?
D: WIP
D: FG
D: COGS
C: MOH
What does you debit and credit when you allocate overapplied overhead proportionally to Work in Process, Finished Goods, and Cost of Goods Sold
D: MOH
C: WIP
C: FG
C: COGS
What is the formula to find cost of goods sold if the underapplied overhead is closed to cost of goods sold?
Original COGS + MOH
What is the formula to find cost of goods sold if the underapplied overhead is closed to Work in Process, Finished Goods, and Cost of Goods Sold?
Original COGS + new COGS
What is the change in net operating income equal to?
The difference in COGS
What is the formula to find the difference in COGS?
COGS closed to COGS - COGS closed to COGS, WIP, FG
