Managerial Accounting ACCT 2020
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This 5 page Class Notes was uploaded by Kristoffer Hyatt on Monday October 5, 2015. The Class Notes belongs to ACCT 2020 at College of Eastern Utah taught by Staff in Fall. Since its upload, it has received 44 views. For similar materials see /class/219604/acct-2020-college-of-eastern-utah in Accounting at College of Eastern Utah.
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Date Created: 10/05/15
UNDER AND OVERAPPLIED OVERHEAD Since predetermined overhead rates are based on estimated data at the end of an accounting period overhead costs are usually either underapplied or overapplied In the example overhead is underapplied by 10000 which can be determined by examining the balance in the Manufacturing Overhead account Manufacturing Overhead b 24000 300000 h Actual c 85000 Applied Overhead d 40000 Overhead Costs e 16000 Costs g 145000 310000 300000 Bal 10000 Under applied The difference of 10000 between the actual overhead costs and the applied overhead costs in this case is called underapplied overhead because actual overhead costs exceeded the overhead costs that were applied to inventory Alternatively the amount of the under or overapplied overhead can be determined as follows Actual overhead costs incurred 310000 Applied overhead costs 150 x 200000 300000 Underapplied overhead g 10000 3 JOBORDER COSTING EXAMPLE cont39d Disposition of under or overapplied overhead a Close the balance in Manufacturing Overhead to Cost of Goods Sold Cost of Goods Gold Manufacturing Overhead or b Allocate the balance in Manufacturing Overhead among Work in Process Finished Goods and Cost of Goods Sold in proportion to the amount of overhead applied during the period in each account at the end of the period The figures below are given 10000 10000 Overhead applied during the current period in the ending balance of Work in Process 24000 8 Finished Goods 36000 12 Cost of Goods Sold 240000 Total 300000 100 The journal entry to record the allocation of the underapplied overhead of 10000 would be Work in Process 8 of 10000 800 Finished Goods 12 of 10000 1200 Cost of Goods Sold 80 of 10000 8000 Manufacturing Overhead 10000 JOBORDER COSTING EXAMPLE cont39d Reeder Company Schedule of C osf of Goods Manufactured Direct materials Beginning raw materials inventory 20000 Add Purchases of raw materials 150000 Total raw materials available 170000 Deduct Ending raw materials inventory 10000 Raw materials used in production 160000 Less Indirect materials 24000 136000 Direct labor 200000 Manufacturing overhead applied 300000 Total manufacturing costs 636000 Add Beginning work in process inventory 74000 710000 Deduct Ending work in process inventory 60000 Cost of goods manufactured 650000 Note that manufacturing overhead applied during the period is used to compute the total manufacturing costs on the schedule of cost of goods manufactured not the actual manufacturing costs JOBORDER COSTING EXAMPLE cont39d 4 Reeder Company s income statement for the year assuming that the underapplied overhead is closed directly to Cost of Goods Sold would be Reeder Company Income Statement Sales 900000 Cost of goods sold 600000 10000 610000 Gross margin 290000 Less selling and administrative expenses Wage and salary expense 90000 Insurance expense 4000 Advertising expense 100000 Depreciation expense 15000 209000 Net operating income g 81000 Reeder Company Schedule of Cost of Goods Sold Beginning finished goods inventory 40000 Add Cost of goods manufactured 650000 Goods available for sale 690000 Ending finished goods inventory 90000 Unadjusted cost of goods sold 600000 Add Underapplied overhead 10000 Adjusted cost of goods sold 610000 COST FLOWS IN A JOBORDER COSTING SYSTEM Exhibit 3 14 Debhed for cost of mat39eri purchased labor a manu Underappliad overhead cost