MGMT 201: Chapter 3 Notes
MGMT 201: Chapter 3 Notes MGMT 201
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This 3 page Class Notes was uploaded by Zach Weinkauf on Tuesday January 26, 2016. The Class Notes belongs to MGMT 201 at Purdue University taught by David Scott in Spring 2016. Since its upload, it has received 96 views. For similar materials see Managerial accounting in Business, management at Purdue University.
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Date Created: 01/26/16
Lecture 4: January 21, 2016 Chapter 3: Product Costing and Cost Accumulation in a Batch Production Environment Product Costing Managerial accounting o Product costs are used for planning, controlling, directing and management decision making Product Costing Systems – accumulate the costs in a production process and assigns them to the final products o Cash Flows and Transactions Product cost transferred when product is finished Debit: Finished Goods Inventory Credit: Work-in-Process Inventory (DM, DL, Overhead) Product cost transfer when product is sold Debit: Cost of Goods Sold Credit: Finished Goods Inventory Expense closed into Income Summary at end of period Debit: Income Summary Credit: Cost of Goods Sold o Types of Systems: Process Costing – used for production of small, identical, low cost items Job Order Costing Used for production of large, unique, high-cost items Built to order rather than mass-produced Many costs can be directly traced to each job o Types Job Shop Operations – low volumes Batch Production Operations – small quantity batches o Jobs that use Special – order printing Building construction Hospitals Job Cost Record – used for tracking costs o Materials Requisition – authorize use of materials o Time ticket – direct labor, hours employee works o Predetermined Overhead Rate – estimates on machine hours Timing POHR = Budgeted manufacturing overhead cost / budgeted amount of cost driver Overhead Applied = POHR (based on estimates) * Actual Activity (actual amount of allocation) 1. Production Order for Job – authorizes start of production 2. Material Requisition – indicates cost of direct material to charge to jobs and cost of indirect material to charge to overhead 3. Labor Time Record – indicates cost of direct labor to charge to jobs and cost of indirect labor to charge to overhead 4. Application of Manufacturing Overhead – POHR * Actual Activity If Actual and Applied Manufacturing Overhead are not equal, a year- end adjusting entry is required. Under applied o Debit: Cost of Goods Sold Credit: Manufacturing Overhead Over applied o Debit: Manufacturing Overhead Credit: Cost of Goods Sold Cost of Goods Manufactured Direct Materials + Direct Labor + Manufacturing Overhead = Total Manufacturing Cost + Beginning WIP – Ending WIP = Cost of Goods Manufactured Actual Costing Actual direct material and direct labor combined with actual overhead Normal Costing More commonly used Actual direct material and direct labor combined with predetermined overhead Two Ste p Cost Allocation 1A. Allocate all overhead costs to all departments 1B. Allocate service departments to production departments - Allocate based on machine hours 2. Allocate overhead costs to production jobs (products) - Allocate based on direct labor hours Homework Type Questions Key: RM = Raw Materials, DM = Direct Material, DL=Direct Labor COGM = Cost of Goods Manufactured, COGS = Cost of Goods Sold WIP = Work-in-Process, FG = Finished Goods, MO = Manufacturing Overhead Exercise 3-24 1. Prime Costs = DM + DL $651,300 = $261,300 + $390,000 DM = Beginning RM + RM Purchased – Ending RM 2. Total Manufacturing Cost = DM + DL + MO $924,300 = $651,300 + $390,000(0.70) 3. COGM = Total Manufacturing Cost + Beginning WIP – Ending WIP $903,500 = $924,300 + $305,500 – $326,300 4. COGS = Beginning Finished Goods + COGM – Ending Finished Goods $913,900 = $162,500 + $903,500 – $152,100 Examples of Journal Entries Overapplied MO: MO 22,000 COGS 22,000 Underapplied MO: COGS 22,000 MO 22,000 POHR = Total budgeted overhead/total budgeted cost driver
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