Overhead chapter 8
Budgeted overhead divided by budgeted activity level
What is: Overhead allocation rate for normal costing
When using variable costing, how are fixed manufacturing costs treated on the balance sheet and income statement?
They are expensed as incurred on the income statement and not included on the balance sheet.
What are the four financial statements?
Income statement
Balance sheet
Statement of cash flows
Statement of changes in Owner's Equity
Ending credit balance in manufacturing overhead account
Overapplied overhead
Which of the following costs are inventoried using absorption costing?
- Variable manufacturing
- Variable selling
- Fixed manufacturing
- Fixed selling
- Variable manufacturing and fixed manufacturing
What is the general difference between an income statement prepared using a GAAP required format and an income statement prepared using the contribution margin format?
GAAP statement focuses on product versus period costs, contribution margin focuses on variable and fixed costs.
Ahmed Karim recently began working at Luce Laminating Company as a cost accountant. In order to prepare financial statements, Ahmed was provided the following information:
Direct materials used $10,000
Direct labor $10,000
Overhead: Incurred $25,000, Applied $20,000
WIP: Beginning $25,000, Ending $35,000
FG: Beginning $60,000 Ending $45,000
Luce uses normal costing and writes off variances using the direct method. What was cost of goods manufactured for the period?
What is: $30,000
Beg WIP $25,000
+ DM 10,000
+ Dl 10,000
+ OH 20,000
- End bal $35,000
= COGM $30,000
Note that the overhead variance would be written off to COGS, not COGM.
During 2025, KM Construction sold 10,000 units, with beginning and ending units for the year of 1,000. Manufacturing costs were as follows: Variable Fixed
Mfg costs per unit $11.00 $7.00
Operating costs/unit $3.00 $2.50
What is the difference in operating income between absorption and variable costing for the year?
0 - The difference in income is based on the change in inventory. As the quantity of inventory did not change during the year, there is no difference in income.
What does the term cost of goods manufacturing describe?
Cost of items that were completed that period.
Boxes R Us uses normal costing and allocates overhead based on direct labor costs. Overhead was budgeted for the year at $600,000 but actual overhead was $680,000. Actual direct labor costs for the year were $325,000 and the budget was $300,000. Actual direct labor hours for the year were 16,250 and budgeted at 15,400.
Boxes prorates any under/over allocation of overhead to the applicable accounts. At year-end, amounts are:
DM $100,000, WIP $200,000, FG $300,000
Cost of sales $1,500,000, Selling costs $200,000
What is the journal entry for the proration of under/over applied overhead, if any?
WIP 3,000
FG 4,500
COS 22,500
MOH 30,000
Rate: 600,000 / 300,000 = $2 per DL$
* 325,000 DL$
= Applied $650,000
Actual 680,000
Underapplied 30,000
Proration: (000s) (% total) * 30,000
WIP 200 10% 3,000
FG 300 15% 4,500
COS 1,500 75% 22,500
TOTAL 2,000 100% 30,000
BioClinic sells its product for $80 per unit. During 2025, it produced 120,000 units and sold 105,000 units. Costs per unit are: direct materials $25, direct labor $10, variable overhead $5, and variable operating expenses $3. Fixed costs are $840,000 manufacturing overhead, and $75,000 operating expenses. What is the contribution margin using variable costing?
$3,885,000
Sales 105,000 * $80 = $8,400,000
Variable COS 105,000 * $40 = 4,200,000
Variable operating 105,000 * $3 = 315,000
CONTRIBUTION MARGIN $3,885,000
Name 3 excel functions that are important to know before you start your first job
Formatting
Copy/paste
IF function
VLookup
Linking
Creative Accountant CPS is a service firm and applies overhead based upon direct labor cost. For the year 2025, the actual overhead cost incurred totaled $50,000. Creative had underapplied overhead cost by $10,000. The Company utilized an overhead application rate of 50% of direct labor cost. What was the total direct labor cost incurred for the year?
What is: $80,000
Incurred $50,000
less: under applied (10,000)
Equals Applied $40,000
/ rate 50%
= Base 80,000
The following information applies to Beets Corporation:
Units produced 50,000
Inventory (unit): Beginning 1,000, Ending 5,000
Per unit costs: DM $20, DL $12 VOH $5
Fixed manufacturing overhead $200,000
Variable operating expenses per unit $7
Fixed operating expenses $80,000
What is cost of sales using absorption costing? What is the difference in operating income between absorption and variable costing?
1. COS Absorption - $1,886,000
2. Difference in income = 16,000, ABS higher
Units sold 1,000 + 50,000 - 5,000 = 46,000
* cost/unit
DM $20, DM $12, VOH $5, FOH $4 (a) = $41
= Cost of sales $1,886,000
(a) $200,000/50,000 produced = $4U
2. Ending inventory 5,000 units
- Beg inventory 1,000
Change in inventory Quantity 4,000 units
* FOH per unit $4
= Difference in income $16,000 (ABS higher)
What are three types of jobs available to accounting majors?
- External audit
- Tax
- Corporate accounting
- Internal audit
- Government auditor/accountant
- Forensic accountant
- Banking
- Wealth management