Overhead Overload
A company has a predetermined overhead rate of 150% of direct labor cost. If a job has direct labor costs of $30,000, this amount of overhead is applied to the job.
$30,000 × 150% =
$45,000
In process costing, this term refers to the number of complete units that could have been produced from the work performed during the period.
Equivalent Units of Production
This formula is used to calculate the predetermined overhead rate.
Estimated Manufacturing Overhead ÷ Estimated Allocation Base
This journal entry records the purchase of direct materials on account.
Debit Raw Materials Inventory
Credit Accounts Payable
Applied manufacturing overhead is always equal to actual manufacturing overhead.
False
A company uses direct labor costs to apply overhead. If direct labor costs are $35,000 and overhead applied is $38,500, this is the company's predetermined overhead rate.
$38,500 ÷ $35,000 = 1.10
= 110%
This type of costing system is most appropriate when a company produces large quantities of identical or similar products continuously.
Process Costing
Applied manufacturing overhead greater than actual manufacturing overhead results in this.
Overapplied Overhead
This journal entry records the transfer of direct materials into production.
Debit Work in Process Inventory
Credit Raw Materials Inventory
Underapplied overhead occurs when actual overhead is greater than applied overhead.
True
A company's ending Finished Goods Inventory contains 500 units costing a total of $10,000. Overhead applied to those units is $4,000, and the predetermined overhead rate is 80% of direct labor cost. This amount of direct materials is included in the inventory.
A department completed and transferred out 30,000 units during the period. It also has 10,000 units in ending Work in Process that are 60% complete with respect to direct materials. Using the weighted-average method, this is the equivalent units of production for direct materials.
Completed and transferred out: 30,000 EUP
Ending WIP: 10,000 × 60% = 6,000 EUP
Total EUP = 36,000
Beginning Work in Process plus total manufacturing costs minus Ending Work in Process equals this.
Cost of Goods Manufactured
This journal entry records direct labor used in production.
Debit Work in Process Inventory
Credit Wages Payable
Ending Work in Process Inventory is subtracted when calculating Cost of Goods Manufactured.
True
Beginning Work in Process Inventory is $9,000. Direct materials are $94,200, direct labor is $59,200, overhead applied is $31,800, and ending Work in Process Inventory is $17,800. This is the company's cost of goods manufactured.
Beg. WIP
$9,000
+ DM
$94,200
+ DL
$59,200
+ OH Applied
$31,800
= Total cost in WIP:
$194,200
− Ending WIP
$17,800
= COGM: $176,400
When a company purchases raw materials for use in production, this inventory account is debited.
Raw Materials Inventory
Actual manufacturing overhead greater than applied manufacturing overhead results in this.
Underapplied Overhead
This journal entry transfers completed products from Work in Process Inventory to Finished Goods Inventory.
Debit Finished Goods Inventory
Credit Work in Process Inventory
Direct materials are transferred from Finished Goods Inventory into Work in Process Inventory.
False
At the end of the period, a company's manufacturing overhead is underapplied by $1,500. This account is generally debited when the amount is closed.
COGS
DB: Cost of Goods Sold $1,500
CR: Manufacturing Overhead $1,500
Beginning Work in Process contains $6,000 of conversion costs, and $84,000 of conversion costs are added during the period. If the department has 45,000 equivalent units of production for conversion, this is the conversion cost per equivalent unit.
$2.00 per equivalent unit
This formula calculates applied overhead when the predetermined overhead rate is based on direct labor cost.
Direct Labor Cost × Predetermined Overhead Rate
This journal entry records the cost of products sold to customers.
Debit Cost of Goods Sold
Credit Finished Goods Inventory
Cost of Goods Manufactured represents the cost of products completed during the period.
True