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Accounting Chapter 3 Notes

by: Melanie Guerrero

Accounting Chapter 3 Notes ACC 204

Marketplace > Pace University > Accounting > ACC 204 > Accounting Chapter 3 Notes
Melanie Guerrero
GPA 3.43

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Detailed notes about chapter 3, including visual charts used in the textbook.
Managerial Accounting (20014)
James Hannon
Class Notes
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This 4 page Class Notes was uploaded by Melanie Guerrero on Sunday April 24, 2016. The Class Notes belongs to ACC 204 at Pace University taught by James Hannon in Spring 2016. Since its upload, it has received 9 views. For similar materials see Managerial Accounting (20014) in Accounting at Pace University.

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Date Created: 04/24/16
Accounting Chapter 3 Notes Absorption costing • all manufacturing costs, both fixed and variable, are assigned to units of product Job Order costing • used in situations where many products, each w/ individual and unique features are produced each period • after direct materials are issued, the cost of these materials are automatically recorded on the job cost sheet Recall: companies classify manufacturing costs into: 1) direct materials 2) direct labor 3) manufacturing overhead Measuring direct materials cost • bill of materials – document that shows the quantity of each type of direct materials required • materials requisition form – document specifying the type and quantity of materials need to be taken from the storage room and identifies the job that will be charged for the cost of those materials Measuring Direct Labor Costs • labor charges CANNOT be easily traced directly to any job that are treated as part of manufacturing overhead • time ticket – document used to record the amount of time an employee spends on various activities Computing Pre-determined Overhead Rates • Manufacturing overhead is an indirect cost. This means that its either impossible or difficult to trace these costs to a particular product or job • Manufacturing overhead consists of many different types of costs ranging from the grease used in machines to annual salary of the production manager • Because of the fixed costs in manufacturing overhead, total overhead costs tend to remain relatively constant from one period to the next even though the number of units produced can fluctuate widely • Allocation base – a measure of activity such as direct-labor hours or machine hours that is used to assign overhead costs to products and services Most Used allocation babes in manufacturing • Direct labor hours • Direct labor cost • Machine hours • Units of product Manufacturing overhead is commonly assigned to products using a pre-determined overhead rate Predetermined Overhead Rate = Estimated total manufacturing overhead cost Estimated total amount of the allocation base y = a+bx y= estimated total manufacturing overhead cost a= estimated total fixed manufacturing overhead cost b= estimated variable manufacturing overhead cost per unit of the allocation base x= estimated total amount of the allocation base Applying Manufacturing Overhead • The process of changing manufacturing overhead cost to job cost and to the work in process account Overhead Applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job Allocation Base for Overhead Cost • Cost dinner – a factor, such as machine-hours, beds occupied, computer-time or flight- hours, that causes overhead costs Job Order Costing – Flow of the Costs • Product costs flow through inventories on the balance sheet and then onto Cost of Goods Sold in the income statement • Raw materials purchases are recorded in the Raw Material Inventory account • Raw materials – any materials that go into the final product • Then the costs are transferred to the Work in Progress account • Work in Progress – units of product that are partially complete and will require further work before they are ready for sale to the customer • Direct labor are added to Work in Progress not Raw Materials inventory • When goods are finished their costs are transferred to finished goods • Finished Goods – units of product that have been completed but not yet sold to customers • The amount transferred from Work in Progress to Finished Goods is referred as… • Cost of Goods Manufactured – the manufacturing costs associated with the goods that were finished during the period Schedules of Cost of Goods Manufactured/Cost of Goods Sold • Schedules of cost of goods manufactured – direct materials, direct labor and manufacturing overhead – summarizes the portion costs that remind in the ending Work in Progress inventory and into finished goods • Schedules of cost of goods sold – the three elements portion costs that remain in ending Finished Goods inventory in Goods Sold Raw Materials Used in Production = Beg. raw materials inventory + Purchases of raw materials – ending raw materials inventory Cost of Goods Manufactured Direct Materials: Beginning raw materials inventory Add: Purchases raw materials inventory Total raw materials available Deduct: Ending raw materials inventory Raw materials used in production Deduct: Indirect materials included in manufacturing overhead Direct labor: Manufacturing overhead applied to work in process Total manufacturing costs Add: Beginning work in process inventory Deduct: Ending work in process inventory Cost of Goods Manufactured Cost of Goods Sold Beginning finished goods inventory Add: Cost of goods manufactured Cost of goods available for sale Deduct: Ending finished goods inventory Unadjusted cost of goods sold Add: Underapplied overhead Adjusted Cost of Goods Sold Total manufacturing costs = Direct materials + direct labor + manufacturing overhead applied to work in process Cost of Goods manufactured = Total manufacturing costs + beg. work in process inventory – ending work in process inventory Unadjusted Cost of Goods Sold = Beg. finished goods inventory + Cost of goods manufactured – ending finished goods inventory Computing Underapplied and Overapplied Overhead • Underapplied – when the amount of overhead cost applied to Work in Process is lower than the amount of overhead cost actually incurred during a period • Overapplied – when the amount of overhead cost applied to Work in Process exceeds the amount of overhead cost actually incurred during a period Multiple Pre-determined Overhead Rates • Plantwide overhead rate – a single predetermined overhead rate that is used throughout a plant • Multiple predetermined overhead rates – a costing system with multiple overhead cost pools and a different predetermined overhead rate for each cost pool, rather than a single predetermined overhead rate for the entire company


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