Definitions
What is a cost object?
Anything you want to know the cost of
What is the formula for the budgeted manufacturing overhead rate?
Budgeted manufacturing overhead costs / budgeted total quantity of cost-allocation base
Describe the flow of goods from materials purchase to COGS. What accounts will the direct materials move through?
Materials Control -> WIP -> Finished Goods ->COGS
If incurred MOH is greater than allocated MOH, overhead is _____ allocated.
Under
What are the dangers of using broad-averaging?
The potential for over or undercosting a product
What is a cost pool?
A grouping of individual indirect cost items
What are the 3 major source documents in Job Costing and what does each do?
Materials Req. Form - keeps track of DIRECT materials used for each job
Direct Labor Time Ticket - keeps track of DIRECT labor used for each job
Job Cost Sheet - Summarizes all manufacturing costs, DM + DL + MOH applied
What is the journal entry for MOH allocated in the amount of $125,000?
Work-In-Process Control $125,000
Manufacturing Overhead Allocated $125,000
What are the 3 methods of disposing of over- or underallocated MOH?
Adjusted Allocation Rate Approach
Write off to COGS
Proration Method
Activities
What is a Cost Allocation Base?
Systematic way to link an indirect cost or group of indirect costs to cost object (ideally the cost driver)
Laguna company has budgeted DM of $106,760, DL of $36,625 and DL hours of 910. Budgeted overhead costs were $8,400,000 and budgeted DL hours were 168,000. What is the budgeted indirect cost rate using an allocation base of DL hours?
$50 per hour
Inventoriable costs are recorded on the ________ until _________?
Balance Sheet; they are sold
MOH Allocated = $17,000
MOH Incurred = $22,000
Ending COGS = $145,000
What is the ending balance of COGS if the over- or underallocated amount is written off to COGS?
150,000
What are the general objectives behind Activity Based Costing Sytems?
Trace as many direct costs as possible
Create pools of costs related to activities
Choose cost allocation bases that have a cause/effect relationship with the cost pool
Explain the difference between job and process costing?
Job costing is used for a distinct product or service called a job, many times a single unit. Process costing is used in mass production.
Laguna company has budgeted DM of $106,760, DL of $36,625 and DL hours of 910. Budgeted overhead costs were $7.21M and budgeted DL hours were 103,000. What is the amount of overhead applied to the job using an allocation base of direct labor hours?
$63,700
Assuming both beginning and ending WIP was zero what was the cost of jobs completed and transferred to finished goods inventory:
DM- $130K; Indirect Mat - $18K; DL $211K
MOH Incurred - $270K; MOH Applied - $229K
570,000
ABC Companies overhead is overallocated by $10,000. The following are the ending balances for 2017:
WIP: 14,000; FG: 60,000; COGS: 126,000
What are the new ending balances if the overallocated amount is prorated based on ending balances?
WIP: 13,300
FG: 57,000
COGS: 119,700
What are 2 reasons management may want to refine their costing system or use an ABC system?
Increase in product diversity
Increased product competition
Products make diverse demands on resources
Managers disagree with reported costs
Products aren't showing profits that are expected
Explain the difference between actual and normal costing and why we generally use normal costing?
Actual costing traces all costs based on actual cost rates. Normal costing traces direct costs using actual rates and indirect costs using budgeted rates.
Normal costing reduces effects of seasonality, unexpected expenses, production cycles, and number of days.
BGT DL Cost: Assembly-$200K; Machining-$165K
BGT OH: Assembly-$300K; Machining-$180K
BGT Mach Hours: Assembly-51K; Machining: 30K
ACT DL Cost: Assembly-$11K; Machining-$14K
ACT Mach Hours: Assembly-5K; Machining: 3K
Compute the budgeted OH rates for Assembly (cost allocation of DL Cost) and Machining (cost allocation of machine hours) and what is the total overhead applied to each department?
Assembly: $300K/$200K = 150%
Machining: $180K/$165K = $6 per hour
Total OH = (150% * 11,000)+(6*3,000)=$34,500
Create the journal entries for the following activities:
Direct materials used of $26,000
Indirect Labor paid in cash of $17,000
Transfer of completed jobs of $112,000
WIP $26,000
Materials Control $26,000
MOH Control $17,000
Cash Control $17,000
Finished Goods $112,000
WIP $112,000
Explain when you would use each of the following methods:
Adjusted Allocation Rate Approach
Write off to COGS
Proration Method
Adjusted allocation-you want all job records and all ending balances to reflect actual numbers
Write Off to COGS - over/under allocation amount is immaterial
Proration Method-you want all balance sheet accounts to reflect actual numbers
Number of Setups: Standard-18; Deluxe-32
Number of Components: Standard-9; Deluxe-14
OH Costs: Setup-$75,000; Components-$87,400
# of setups and # of components are activity cost drivers. Assuming ABC what is the amount of overhead assigned to the standard model?
$61,200