University:
California State University, Northridge
Course:
ACCT 350 | Intermediate Financial Accounting I
Academic year:

2024
Views:

304

Pages:

25
Author:

collectorrym

Chapter 2 Systems Design: Job-Order Costing Part 2 2-19 Learning Objective 3 Compute predetermined overhead rates and explain why estimated overhead costs (rather than actual overhead costs) are used in the costing process. 2-20 Application of Manufacturing Overhead The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the period begins. POHR = Estimated total manufacturing overhead cost for the coming period Estimated total units in the allocation base for the coming period Ideally, the allocation base is a cost driver that causes overhead. 2-21 Application of Manufacturing Overhead Using a predetermined overhead rate (POHR) makes it possible to estimate total job costs sooner. $ Actual overhead for the period is not known until sometime after the period has ended. Actual overhead costs can fluctuate seasonally, thus misleading decision makers. It simplifies record keeping. 2-22 Determining Predetermined Overhead Rates Predetermined overhead rates are calculated using a three-step process.  Estimate the level of production for the period.  Estimate total amount of the allocation base for the period. POHR =  ÷   Estimate total manufacturing overhead costs. 2-23 Application of Manufacturing Overhead Based on estimates, and determined before the period begins. Overhead applied = POHR × Actual activity Actual amount of the allocation based upon the actual level of activity (this is called a normal costing system). 2-24 Application of Manufacturing Overhead POHR = POHR = Estimated total manufacturing overhead cost for the coming period Estimated total units in the allocation base for the coming period $640,000 160,000 direct labor hours (DLH) POHR = $4.00 per DLH For each direct labor hour worked on a particular job, $4.00 of factory overhead will be applied to that job. 2-25 Application of Manufacturing Overhead 2-26 Completing the Job Cost Sheet 2-27 Interpreting the Average Unit Cost The average unit cost should not be interpreted as the costs that would actually be incurred if an additional unit were produced. Fixed overhead would not change if another unit were produced, so the incremental cost of another unit is something less than $118. 2-29 Quick Check  Job WR53 at NW Fab, Inc. required $200 of direct materials and 10 direct labor hours at $15 per hour. Estimated total overhead for the year was $760,000 and estimated direct labor hours were 20,000. What would be recorded as the cost of job WR53? a. $200. POHR = $760,000/20,000hours = $38 $200 b. $350. Direct materials Direct labor $15 x 10 hours $150 c. $380. Manufacturing overhead $38 x 10 hours $380 $730 d. $730. Total cost 2-30 Job-Order Costing Document Flow Summary Let’s summarize the document flow in a job-order costing system. 2-31 Job-Order Costing Document Flow Summary A sales order is the basis of issuing a production order. A production order initiates work on a job. 2-32 Job-Order Costing Document Flow Summary Materials used may be either direct or indirect. Direct materials Job Cost Sheets Materials Requisition Indirect materials Manufacturing Overhead Account 2-33 Job-Order Costing Document Flow Summary An employee’s time may be either direct or indirect. Direct Labor Job Cost Sheets Employee Time Ticket Indirect Labor Manufacturing Overhead Account 2-34 Job-Order Costing Document Flow Summary Employee Time Ticket Other Actual OH Charges Materials Requisition Indirect Labor Manufacturing Applied Overhead Overhead Account Indirect Material Job Cost Sheets 2-36 Learning Objective 7 Use T-accounts to show the flow of costs in a job-order costing system. 2-37 Job-Order Costing—The Flow of Costs Let’s examine the transactions in T-account and journal entry forms in a joborder costing system. 2-38 Summary of Cost Flows Raw Materials Material Direct Purchases Materials Indirect Materials  Mfg. Overhead Actual Applied Indirect Materials Work in Process (Job Cost Sheet) Direct Materials  2-39 Journal Entry – Material Purchases Raw material purchases are recorded in an inventory account. 2-40 Journal Entry – Material Usage Direct materials issued to a job increase Work in Process and decrease Raw Materials. Indirect materials used are charged to Manufacturing Overhead and decrease Raw Materials. 2-41 Summary of Cost Flows Salaries and Wages Payable Direct Labor Indirect Labor  Mfg. Overhead Actual Applied Indirect Materials Indirect Labor Work in Process (Job Cost Sheet) Direct Materials Direct Labor  2-42 Journal Entry – Labor Costs The cost of direct labor incurred increases Work in Process and the cost of indirect labor increases Manufacturing Overhead. 2-43 Summary of Cost Flows Mfg. Overhead Actual Applied Indirect Materials Indirect Labor Other Overhead In addition to indirect materials and indirect labor, other actual manufacturing overhead costs are debited to the Manufacturing Overhead account. 2-44 Journal Entry – Actual Overhead In addition to indirect materials and indirect labor, other manufacturing overhead costs are charged to the Manufacturing Overhead account as they are incurred.