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Chapter 3 Material

by: Dalia Szkolnik

Chapter 3 Material ACC 212

Marketplace > University of Miami > ACC 212 > Chapter 3 Material
Dalia Szkolnik
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These notes include the information that the teacher focused on, examples, and book material that the teacher emphasized on.
Managerial Accounting 212
Class Notes
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This 4 page Class Notes was uploaded by Dalia Szkolnik on Monday February 1, 2016. The Class Notes belongs to ACC 212 at University of Miami taught by Quintana in Spring 2016. Since its upload, it has received 8 views.

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Date Created: 02/01/16
Chapter 3 Notes Job-Order Costing What is job-order costing? • It is used when many different products, each with individual and unique features, are produced each period • Since there is variation in the product manufactured, the job order costing system creates a job cost order for each item, job or special order o For example, in large-scale construction projects each project is unique and different from every other o This type of costing is used primarily in service industries  hospitals, law firms, accounting firms, repair shops Categories to classify costs • Direct materials o Bill of materials: document that lists the type and quantity of each type of direct material needed for a unit of product o Once the quantity, price, and shipment of the product is established with the customer, a production order is used • Job Cost Sheet o Records materials, labor and manufacturing overhead costs charged to a job • Direct Labor o Only those that can be easily traced o NOT tasks such as maintenance, supervision, cleaning • Predetermined Overhead Rates o Allocation is used to assign overhead costs to products since it is difficult to trace manufacturing overhead costs since they are indirect costs  Allocation base: measure such as, direct labor hours or machine hours, that is used to assign overhead costs to products and services o Computed BEFORE the period begins Predetermined overhead rate = estimated total manufacturing overhead cost / estimated total amount of the allocation base Overhead applied to a particular job = predetermined overhead rate X amount of the allocation base incurred by the job o EXAMPLE: If the predetermined rate is $8 per direct labor hour, then $8 of overhead cost is applied to a job for EACH hour incurred on the job o EXAMPLE: A company estimates that 40,000 direct labor hours will be required for the job. It estimated a total of $220,000 fixed manufacturing overhead cost and $2.50 variable manufacturing overhead cost per labor- hour. Estimate the total manufacturing cost for the year:  Y = a + bX = $220,000 + ($2.50 x 40,000) = $320,000  Predetermined overhead rate = $320,000 / 40,000 = $8 per direct labor hour  If 27 hours were charged to the job then, the overhead applied to job = $8 per hour x 27 = $216 of overhead applied to the job • Cost driver: factor that causes overhead costs (machine-hours, computer time, flight hours) What is the flow of the costs? • Raw materials: those that go into the final product o Costs are transferred to work in process inventory as direct materials • Work in process: unites of product that are partially complete and require work to be ready to sale to the customer o Direct labor costs are added directly to work in process  NOT part of raw materials o When the product is complete, it is transferred from work in process to finished goods  known as cost of goods manufactured • Finished goods: completed units that have not been sold o When finished goods are sold, they are transferred to cost of goods sold Raw Materials Manufacturing Costs Work In Process Finished Goods Beginning raw materials Direct Materials Beginning work Beginning finished inventory goods inventory + Raw materials purchases + Direct labor + Total manufacturing + Cost of goods = Raw materials available + Manufacturing costs manufactured for use in production overhead applied = Total work in = Cost of goods - Ending raw materials = Total manufacturing process for period available for sale csots = Raw materials used in - Ending work - Ending finished production inventory goods inveotry = Cost of goods = Cost of Goods Sold manufactured ** THE RAW MATERIALS USED IN PRODUCTIOIN BECOME THE DIRECT MATEIRLS IN MANUFACTURING COSTS EXAMPLE Schedules of Cost of Goods Manufactured vs. Cost of Goods Sold • BOTH contain three elements of product costs  direct materials, direct labor, manufacturing overhead • Schedule of cost of goods manufactured: o Summarizes the portions of those costs that remain in ending work in process inventory and are transferred out of work in process to finished goods • Schedule of cost of goods sold: o Summarizes the portion of those costs that remain in ending finished goods inventory and are transferred out of finished goods into cost of goods sold COST OF GOODS MANUFACTURED Raw materials used in production = beginning raw materials inventory + Purchases of raw materials – ending raw materials inventory Total manufacturing costs = direct materials + direct labor + manufacturing overhead applied to work in process Cost of goods manufactured = total manufacturing costs + beginning work in process inventory – ending work in process inventory COST OF GOODS SOLD Unadjusted cost of goods sold = beginning finished goods inventory + cost of goods manufactured – ending finished good inventory EXAMPLE If beginning raw materials was $32,000 and $276,000 of raw materials were purchased. At the end of the month, $28,000 of raw material was still present. What is the cost of direct material used? • $32,000 + $276,000 = $308,000 - $28,000 = $280,000 of raw materials were used What is underapplied and overapplied overhead? • It is the difference between overhead cost applied to work in process and the actual overhead costs of a period o If the actual overhead is more  then the overhead cost applied to work in process was underapplied o If the actual overhead is less  then the overhead cost applied to work in process was overapplied IF Manufacturing Overhead is: Underapplied Cost of goods sold increases Gross margin decreases (net operating income decreases as well) Overapplied Cost of goods sold Gross margin increase (net decreases operating income increases as well) • Overapplied or underapplied overhead can be allocated to work in process, finished goods, or costs of goods sold OR it can be directly allocated to just cost of goods sold EXAMPLE If the actual overhead is $650,000 and the total of direct labor hours are 170,000. How much total overhead was applied during the year, using a predetermined overhead rate of $4.00 per direct labor hour? • Applied overhead = predetermined overhead rate X actual direct labor hours o Applied overhead = $4.00 X 170,000 = $680,000 • Comparing the actual overahead of $650,000 to the applied overhead, the difference is $30,000 of overapplied. The applied overhead was more than what it had to be; it was overapplied.


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