230 chapter 3 - overhead bulldog
TRANSCRIPT
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Chapter 3 - Overhead
You will get this
Never give up
Never surrender!
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ManufacturingOverhead
ManufacturingOverhead
Job No. 1
Job No. 1
Job No. 2
Job No. 2
Job No. 3
Job No. 3
Chargedirect
material anddirect labor
costs to
each job aswork isperformed.
Chargedirect
material anddirect labor
costs to
each job aswork isperformed.
Sequence of Events in a Job-Order Costing System
Direct Materials
Direct Materials
Direct Labor
Direct Labor
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Calculating and ApplyingOverhead
1. Calculate a PredeterminedOverhead Rate based on BudgetData
2. Charge Actual Overhead to theOverhead account
3. Calculate the applied amount of
Overhead $$$$, charge to WIP4. Post applied Overhead to theManufacturing Overheadaccount (above) and WIP
5. Balance in Overhead account isequal to Over/Under Appliedoverhead
6. Transfer ending balance inManufacturing Overhead out,leaving a ZERO balance inManufacturing Overhead
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Manufacturing costs that cannot be traceddirectly to specific units produced.
Manufacturing Overhead
Examples: Indirect labor and indirect materials andindirect manufacturing costs (rent, utilities, etc.)
Examples: Indirect labor and indirect materials andindirect manufacturing costs (rent, utilities, etc.)
Wages paid to employees
who are not directlyinvolved in production
work.Examples: maintenance
workers, janitors and
security guards.
Materials used to support
the production process.
Examples:lubricants andcleaning supplies used in theautomobile assembly plant.
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Tiger Co.List of costs:
Budgeted Costs
Direct mtls $ 1,500,000
Direct labor $ 380,000
Sales commissions $ 650,000
Salary of production supervisors $ 350,000
Salary of purchasing dept. $ 300,000
Indirect materials $ 50,500
Advertising expense $ 75,000
Training for production employees on new system $ 62,000
Training for accounting employees on new system $ 20,000
Rent (factory uses 75% of floorspace) $ 510,000
Utilities $ 100,000
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Budgeted Cost Driver
For this problem,assume a cost driverofDirect MachineHours:
Budgeted MachineHours = 305,000hours
What is yourPredeterminedOverhead Rate?
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Predetermined Overhead rate
$1,220,000/305,000hours = $4/per what?
_________________
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Do we use ACTUAL costs toapply Overhead to WIP?
NO NO NO NO NO NO NO NO NO NO!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Charge to Manufacturing Overhead instead debit
How much and which accounts?
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How do you apply overhead?
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Applyoverhead to
each jobusing a
predeter-mined rate.
Apply
overhead toeach jobusing a
predeter-mined rate.
Sequence of Events in a Job-Order Costing System
Direct MaterialsDirect Materials
Direct LaborDirect Labor
Job No. 1Job No. 1
Job No. 2Job No. 2
Job No. 3Job No. 3ManufacturingOverhead
ManufacturingOverhead
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Actual amount of the allocationbase such as units produced,direct labor hours, or machine
hours incurred during the
period.
Actualamount of the allocationbase such as units produced,direct labor hours, or machine
hours incurred during the
period.
Based on estimates, anddetermined before the
period begins.
Based onestimates, anddetermined before the
period begins.
Application of ManufacturingOverhead
Overhead applied = POHR Actual activity
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Tiger Co.List of costs:
ACTUAL Costs
Direct mtls $ 1,490,000
Direct labor $ 364,000
Sales commissions $ 650,000
Salary of production supervisors $ 350,000
Salary of purchasing dept. $ 300,000
Indirect materials $ 50,000
Advertising expense $ 75,000
Training for production employees on new system $ 60,000
Training for accounting employees on new system $ 20,000
Rent (factory uses 75% of floorspace) $ 500,000
Utilities $ 104,000
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Tiger Co.List of costs:
ACTUAL Costs
Direct mtls $ 1,490,000
Direct labor $ 364,000
Sales commissions $ 650,000
Salary of production supervisors $ 350,000
Salary of purchasing dept. $ 300,000
Indirect materials $ 50,000
Advertising expense $ 75,000
Training for production employees on new system $ 60,000
Training for accounting employees on new system $ 20,000
Rent (factory uses 75% of floorspace) $ 375,000
Utilities $ 78,000
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Mfg. OverheadWork in Process(Job Cost Sheet)Direct
Materials
OverheadApplied
Overhead
Applied toWork inProcess
DirectLaborIndirect
Labor
Indirect
Materials
Actual Applied
If actual and appliedmanufacturing overheadare not equal, a year-endadjustment is required.
If actual and appliedmanufacturing overheadare not equal, a year-endadjustment is required.
Job-Order System Cost Flows
Other
IndirectCosts
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How much to Apply?
Tiger, Inc. has a predetermined overheadrate of $4.00 per machine hour. Tiger,Inc. expected to work 305,000 hours
during the period but actually worked290,000 machine hours during theperiod. How much should Tiger apply?
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How much to Apply?
Tiger, Inc. has a predetermined overheadrate of $4.00 per machine hour. Tiger,Inc. expected to work 305,000 hours
during the period but actually worked290,000 machine hours during theperiod. How much should Tiger apply?
290,000 x $4 = $1,160,000
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MOH Cost flows
Mfg. Overhead
Actual Applied$ 350,000
$ 300,000$ 50,000
$ 60,000$ 375,000$ 78,000
$ 53,000
$ 1,160,000
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Is it Over or Under Applied?
Tiger, Inc. had actual manufacturingoverhead costs of:
$1,213,000Tiger, Inc. expected to work:
305,000 machine hours
but actually worked:
290,000 machine hours
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Mfg. OverheadWork in Process(Job Cost Sheet)
1,190,000
Actual Applied
If actual and appliedmanufacturing overheadare not equal, a year-endadjustment is required.
If actual and appliedmanufacturing overheadare not equal, a year-endadjustment is required.
Job-Order System Cost Flows
1,190,000$1,213,000
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MOH Cost flows
Mfg. Overhead
Actual Applied$ 350,000
$ 300,000
$ 50,000
$ 60,000$ 375,000$ 78,000
$ 1,213,000
$ 53,000
$ 1,160,000
Actual costs are Greater thanApplied Rate:
Is this OverorUnderApplied????
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MOH Cost flows
Mfg. Overhead
Actual Applied$ 350,000
$ 300,000$ 50,000
$ 60,000$ 375,000$ 78,000
$ 53,000
$ 1,160,000
Overhead is UNDER applied
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Over/Under Applied
Actual $$$ > Applied $$$ = Under Appliedor Debit Balance (unfavorable, increasesCOGS when you adjust)
Actual $$$ < Applied $$$ = Over Appliedor Credit Balance (favorable, decreasesCOGS when you adjust)
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What affect does this adjustingentry have:
On COGS (increase or decrease)
On Net income (increase or decrease)
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