University:
California State University, Northridge
Course:
ACCT 220 | Introduction to Financial Accounting
Academic year:

2024
Views:

278

Pages:

13
Author:

Virginia Burnett

Chapter 3 System Design: Activity Based Costing Part 3 3-43 Learning Objective 5 Record the flow of costs in an activity-based costing system. 3-44 Cost Flows in an ABC System Sarvik Company uses activity-based costing. The company has five cost pools shown below. Estimated Overhead Activity Cost Pool Activity Measure Cost Machine related Machine hours $ 175,000 Purchase orders Number of orders 63,000 Number of setups 92,000 Machine setups Product testing 160,000 Number of tests Direct labor hours 300,000 General factory $ 790,000 Expected Activity 5,000 MHs 700 orders 460 setups 200 tests 25,000 DLHs 3-45 Cost Flows in an ABC System Activity rates are determined as follows: Estimated Overhead Cost Activity Cost Pool Machine related $ 175,000 Purchase orders 63,000 Machine setups 92,000 Product testing 160,000 General factory 300,000 $ 790,000 ÷ ÷ ÷ ÷ ÷ Total Expected Activity 5,000 MHs 700 orders 460 setups 200 tests 25,000 DLH = = = = = Activity Rate $ 35 per MH $ 90 per order $ 200 per setup $ 800 per test $ 12 per DLH 3-46 Cost Flows in an ABC System Overhead is applied on the basis of actual activities during the year. Activity Activity Cost Pool Rate Machine related $35/MH Purchase orders $90/order Machine setups $200/setup Product testing $800/test General factory $12/DLH Total Overhead Applied × × × × × Actual Activity 4,600 MHs 800 orders 500 setups 190 tests 23,000 DLHs = = = = = Applied Overhead Cost $ 161,000 72,000 100,000 152,000 276,000 $ 761,000 3-47 Cost Flows in an ABC System Selected transactions recorded by the company: a. Raw materials purchased on account, $915,000. b. Raw materials used in production, $900,000 ($810,000 direct and $90,000 indirect). c. Factory labor costs, $370,000 ($95,000 direct and $275,000 indirect). d. Depreciation of factory assets, $180,000. e. Miscellaneous manufacturing overhead costs incurred on account, $230,000. f. Manufacturing overhead applied, $761,000. g. Goods costing $1,650,000 were manufactured. 3-48 Cost Flows in an ABC System The following journal entries would be used to record transactions (a) and (b). Description a. Raw Materials Accounts Payable Debit 915,000 b. Work in Process Manufacturing Overhead Raw Materials 810,000 90,000 Credit 915,000 900,000 3-49 Cost Flows in an ABC System The following journal entries would be used to record transactions (c) and (d). Description c. Work in Process Manufacturing Overhead Salaries and Wages Payable Debit 95,000 275,000 d. Manufacturing Overhead Accumulated Depreciation 180,000 Credit 370,000 180,000 3-50 Cost Flows in an ABC System The following journal entry would be used to record transaction (e). Description e. Manufacturing Overhead Cash/Accounts Payable Debit 230,000 Credit 230,000 3-51 Cost Flows in an ABC System The following journal entry would be used to record transaction (f). f. Description Work in Process Manufacturing Overhead Debit 761,000 Credit 761,000 3-52 Cost Flows in an ABC System The following journal entry would be used to record transaction (g). Description g. Finished Goods Work in Process Debit 1,650,000 Credit 1,650,000 3-53 Cost Flows in an ABC System Manufacturing Overhead (b) (c) (d) (e) Bal. 90,000 (g) 761,000 275,000 180,000 230,000 14,000 Underapplied Overhead Costs 3-54 Cost Flows in an ABC System The flow of costs through Raw Materials, Work in Process, and other accounts is the same under activity based costing. The only difference in activity based costing is that more than one predetermined overhead rate is used to apply costs to products.