Predetermined Overhead Rate
A(n) _______ ______ is a measure such as direct labor-hours (DLH) or machine-hours (MH) that is used to assign overhead costs to products or services
Allocation Base
True or False:
Depreciation is always an indirect product cost.
False. Depreciation is an indirect product cost when it is related to PPE used in production. However, depreciation on PPE not used in production, such as an office copy machine at a car manufacturing company, would not be a product cost, but a period cost.
Where are salaries related to office workers on the income statement?
Listed as a period cost, included in selling and administrative costs, not included in gross margin
Manufacturing overhead is considered to be a ______ account, meaning all debits will be taken out to be applied to a job with a credit and the account will zero out.
Clearing [account]
Cost of goods sold is a [debit or credit] to the finished goods account
Credit, finished goods is being sold, so inventory (asset) is decreasing and the cost is recognized.
What is the Predetermined Overhead Rate formula?
PDOHR = [Estimated total manufacturing overhead costs (including fixed and variable at an estimated allocation base amount)] / Estimated total amount of the allocation base
Manufacturing overhead T account...
Debit is... applied or actual?
Credit is... applied or actual?
Debit is actual
Credit is applied
Nick Corporation incurred $100,000 of labor costs. $40,000 can be directly traced to job Alpha and the remaining relates to supervisor salaries.
What is the related journal entry to book the salaries costs?
DR WIP $40,000
DR MOH 60,000
CR Salaries payable or cash
Inventory is in which account when it is completed but is yet to be sold?
Finished Goods
Kurcz Corporation has provided the following data concerning last month’s operations.
Purchases of raw materials: $15,000
Indirect materials included in manufacturing overhead: $4,000
Beginning RM inventory: $20,000
Ending RM inventory $10,000
What is the raw materials used in production?
$21,000
Beg + purchases - indirect - end = RM used in production
Alejandra Corporation has two production departments, Sewing and Crocheting. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Sewing department’s predetermined overhead rate is based on machine-hours and the Crocheting Department’s predetermined overhead rate is based on direct labor-hours. At the beginning of the current year, the company had made the following estimates:
MH: Sewing (20,000), Crocheting (15,000)
DLH: Sewing (3,000), Crocheting (6,000)
Total Fixed MOH Cost: Sewing ($120,000), Crocheting ($40,000)
Variable MOH per hour: Sewing ($1.50), Crocheting ($4.50)
What is the overhead rate of the sewing department?
$7.50
[120,000 + (20,000)(1.50)] / 20,000
Alejandra Corporation has two production departments, Sewing and Crocheting. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Sewing department’s predetermined overhead rate is based on machine-hours and the Crocheting Department’s predetermined overhead rate is based on direct labor-hours. At the beginning of the current year, the company had made the following estimates:
MH: Sewing (20,000), Crocheting (15,000)
DLH: Sewing (3,000), Crocheting (5,000)
Total Fixed MOH Cost: Sewing ($120,000), Crocheting ($40,000)
Variable MOH per hour: Sewing ($1.50), Crocheting ($4.50)
During the current month the company started and finished Job Alpha. The following data were recorded for this job:
MH: Sewing (100), Crocheting (15)
DLH: Sewing (20), Crocheting (50)
What is the applied overhead for job Alpha?
$1,375
Sewing: [120,000 + (20,000)(1.50)] / 20,000 = 7.50
=7.50 x 100 MH = 750
Crocheting: [40,000 + (5,000)(4.50)] / 5,000 = 12.50
=12.50 x 50 DLH = 625
=725 + 625 = $1,375
Describe direct materials vs indirect materials
and
Direct labor vs indirect labor
Direct materials are easily and conveniently traced to a job. Indirect is used by multiple jobs and cannot be easily and conveniently traced.
Direct labor can be easily and conveniently traced to a job (time cards); whereas, indirect labor (such as factory supervisors) are not working on one jobt in particular, and therefore, cannot be easily or conveniently traced.
During June, Austin Corporation incurred $60,000 of direct labor costs and $10,000 of indirect labor costs. What is the journal entry to record the accrual of these costs?
DR WIP 60,000
DR MOH 10,000
CR Salaries payable 70,000
Katherine Corporation has provided the following data concerning last month’s operations.
Purchases of raw materials: $25,000
Indirect materials included in manufacturing overhead: $5,000
Direct labor cost: $60,000
MOH applied to WIP: 100,000
Beginning & End:
RM inventory (10,000 & 20,000)
WIP inventory (50,000 & 70,000)
What is the cost of goods manufactured?
$150,000
RM: 10k beg + 25k purchases - 5k indirect materials - 20k end = 10k raw materials used in production
COGM: 50k beg WIP + 10k DM + 60k DL + 100k applied MOH - 70k end WIP
Ruth Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine-hours. The company based its predetermined overhead rate for the current year on total fixed manufacturing overhead cost of $150,000, variable manufacturing overhead of $2.00 per machine-hour, and 50,000 machine-hours.
What is the predetermined overhead rate?
$5 per machine hour
[150,000 + (2)(50,000)] / 50,000
There are two ways you can close out under/overapplied MOH. What are they?
1. Close entirely to COGS
2. Close proportionately to WIP, FGs, and COGS
Katherine Corporation has provided the following data concerning last month’s operations.
Purchases of raw materials: $25,000
Indirect materials included in manufacturing overhead: $5,000
Beginning RM inventory: $10,000
What is the raw materials available for production?
$35,000
Beg 10k + purchases of 25k
Andrew Corporation is a manufacturer that uses job-order costing. The company has supplied the following data for the just completed year:
Beginning inventories: RM ($50,000), WIP ($20,000)
Est. MOH at the beg. of the year: $600,000
Est. DLH at the beginning of the year:40,000
Results of operations:
Raw materials purchased on account ($400,000)
Raw materials (all direct) used in production ($380,000)
DL Cost ($650,000)
Actual DLH (35,000)
MOH - indirect labor ($140,000) and other MOH incurred ($525,000)
COGM ($1,450,000)
What is the ending balance in the Work in Process inventory account?
$265,000
Beg WIP 20k + DL 650k + DM 380k + applied MOH 665k - COGM 1.45m = $265,000 ending
Daniela Corporation has provided the following data concerning last month’s operations.
Purchases of RM: $35,000
Indirect materials included in MOH: $5,000
DL cost: $55,000
MOH applied to WIP: $85,000
Beginning & end amounts:
RM inventory ($15,000 & $20,000)
WIP inventory ($55,000 & $58,000)
FG inventory ($40,000 & $37,000)
How much is the unadjusted cost of goods sold on the Schedule of Cost of Goods Sold?
$165,000
Finding RM used in production:
Beg RM 15k + purch 35k - indirect mat used 5k - end RM 20k = RM used in production of 25k
Finding COGM:
Beg WIP 55k + DM used 25k + DL 55k + MOH 85k - end WIP 58k = COGM of 162k
Finding COGS:
Beg FGs 40k + COGM aka products that have been finished and are no longer in process 162k - end FGs 37k = Unadjusted COGS of 165k
The following data have been recorded for recently completed Job 4 on its job cost sheet. Direct materials cost was $5,000. A total of 50 direct labor-hours and 100 machine-hours were worked on the job. The direct labor wage rate is $20 per labor-hour. The Corporation applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $15 per machine-hour. The total cost for the job on its job cost sheet would be:
DM + DL + Applied MOH = Total job cost
5,000 + (20)(50) + (15)(100) = 7,500
Harley Corporation applies manufacturing overhead to jobs on the basis of machine-hours. Harley estimated 20,000 machine-hours and $10,000 of manufacturing overhead cost for the year. During the year, Harley incurred 25,000 machine-hours and $12,000 of manufacturing overhead. What was Harley's underapplied or overapplied overhead for the year?
PDOHR: $10,000/20,000 MH = .50 per MH
Applied: .50 x 25,000 = 12,500
Actual = $12,000
Overapplied = $500
Nick Corporation has provided the following data concerning last month’s operations.
Purchases of raw materials: $25,000
Indirect materials included in manufacturing overhead: $5,000
Beginning RM inventory: $10,000
Ending RM inventory: $20,000
What is the raw materials used in production?
$10,000
Beg 10k + purch 25k - indirect 5k - end 20k = $10k
Maddie Corporation worked on only two jobs in May: Job Alpha and Job Beta.
Job Alpha consisted of 1,000 packs of gum, 750 of which were sold to customers and 250 remained in Finished Goods at the end of the month
Job Beta consisted of 10,000 packs of gum and it was incomplete at the end of May
The total applied MOH was $90,000 with:
$60,000 applied to Job A and
$30,000 applied to Job B…
The actual MOH was $80,000, leading to a $10,000 overapplied amount
What is the journal entry (with amounts) to Close overapplied MOH proportionately to Work in Process, Finished Goods, and Cost of Goods Sold?
Applied MOH in FGs: (250/1000) x $60k = 15k
Applied in COGS: (750/1000) x $60k = 45k
Applied in WIP: (10,000/10,000) x $30,000 = 30k
FGs: 15k/total applied 90k = 16.67%
COGS: 45k/total applied 90k = 50%
WIP: 30k/total applied 90k = 33.33%
FGs: 16.67 x 10k Total overapplied = 1,667
COGS: 50% x 10k Total overapplied = 5,000
WIP: 33.33% x 10k total overapplied = 3,333
DR MOH 10k
CR FGs 1,667
CR COGS 5,000
CR WIP 3,333
Ambrosia Incorporated has provided the following data for the month of November. The balance in the Finished Goods inventory account at the beginning of the month was $60,000 and at the end of the month was $30,000. The cost of goods manufactured for the month was $200,000. The actual manufacturing overhead cost incurred was $55,000 and the manufacturing overhead cost applied to Work in Process was $50,000. The company closes out any underapplied or overapplied manufacturing overhead to cost of goods sold. The adjusted cost of goods sold that would appear on the income statement for November is:
Beg FGs 60k + COGM 200k - end FGs 30k = 230 unadj COGS
Under/overapplied:
Actual 55,000 - applied 50,000 = $5,000 underapplied because they UNDERestimated costs and need to account for more
Adjusted COGS:
Unadjusted COGS 230,000 + Underapplied 5,000 = Adjusted COGS 235,000