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Never give up Never surrender!. Chapter 3 - Overhead. You will get this. Sequence of Events in a Job-Order Costing System. Charge direct material and direct labor costs to each job as work is performed. Direct Materials. Job No. 1. Direct Labor. Job No. 2. Manufacturing Overhead.

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chapter 3 overhead

Never give up

Never surrender!

Chapter 3 - Overhead

You will get this

sequence of events in a job order costing system
Sequence of Events in a Job-Order Costing System

Charge direct material and direct labor costs to each job as work is performed.

Direct Materials

Job No. 1

Direct Labor

Job No. 2

Manufacturing Overhead

Job No. 3

calculating and applying overhead
Calculating and Applying Overhead
  • Calculate a Predetermined Overhead Rate based on Budget Data
  • Charge Actual Overhead to the Overhead account
  • Calculate the applied amount of Overhead $$$$, charge to WIP
  • Post applied Overhead to the Manufacturing Overhead account (above) and WIP
  • Balance in Overhead account is equal to Over/Under Applied overhead
  • Transfer ending balance in Manufacturing Overhead out, leaving a ZERO balance in Manufacturing Overhead
manufacturing overhead

Wages paid to employees who are not directly involved in production work. Examples:maintenance workers, janitors and security guards.

Materials used to support the production process. Examples:lubricants and cleaning supplies used in the automobile assembly plant.

Manufacturing Overhead

Manufacturing costs that cannot be traced directly to specific units produced.

Examples:Indirect labor and indirect materials and indirect manufacturing costs (rent, utilities, etc.)

budgeted cost driver
Budgeted Cost Driver
  • For this problem, assume a cost driver of Direct Machine Hours:
  • Budgeted Machine Hours = 305,000 hours
  • What is your Predetermined Overhead Rate?
predetermined overhead rate
Predetermined Overhead rate

$1,220,000/305,000 hours = $4/per what?

_________________

do we use actual costs to apply overhead to wip
Do we use ACTUAL costs to apply Overhead to WIP?
  • NO NO NO NO NO NO NO NO NO NO!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Charge to Manufacturing Overhead instead – debit

How much and which accounts?

sequence of events in a job order costing system1
Sequence of Events in a Job-Order Costing System

Direct Materials

Apply overhead to each job using a predeter-mined rate.

Job No. 1

Direct Labor

Job No. 2

Manufacturing Overhead

Job No. 3

application of manufacturing overhead

Overhead applied = POHR × Actual activity

Application of Manufacturing Overhead

Based onestimates, and determined before the period begins.

Actualamount of the allocation base such as units produced, direct labor hours, or machine hours incurred during the period.

job order system cost flows
Job-Order System Cost Flows

Work in Process(Job Cost Sheet)

Mfg. Overhead

Actual

Applied

  • Direct Materials
  • Indirect Materials
  • OverheadApplied to Work inProcess
  • Direct Labor
  • IndirectLabor
  • Overhead Applied
  • Other Indirect Costs

If actual and applied manufacturing overheadare not equal, a year-end adjustment is required.

how much to apply
How much to Apply?

Tiger, Inc. has a predetermined overhead rate of $4.00 per machine hour. Tiger, Inc. expected to work 305,000 hours during the period but actually worked 290,000 machine hours during the period. How much should Tiger apply?

how much to apply1
How much to Apply?

Tiger, Inc. has a predetermined overhead rate of $4.00 per machine hour. Tiger, Inc. expected to work 305,000 hours during the period but actually worked 290,000 machine hours during the period. How much should Tiger apply?

290,000 x $4 = $1,160,000

moh cost flows
MOH – Cost flows

Mfg. Overhead

Actual

Applied

$ 1,160,000

is it over or under applied
Is it Over or Under Applied?

Tiger, Inc. had actual manufacturing overhead costs of:

$1,213,000

Tiger, Inc. expected to work:

305,000 machine hours

but actually worked:

290,000 machine hours

moh cost flows1
MOH – Cost flows

Mfg. Overhead

Actual

Applied

$ 1,160,000

job order system cost flows1
Job-Order System Cost Flows

Work in Process(Job Cost Sheet)

Mfg. Overhead

Actual

Applied

  • 1,190,000

$1,213,000

  • 1,190,000

If actual and applied manufacturing overheadare not equal, a year-end adjustment is required.

moh cost flows2
MOH – Cost flows

Mfg. Overhead

Actual

Applied

Actual costs are Greater than Applied Rate:

Is this Over or Under Applied????

$ 1,160,000

moh cost flows3
MOH – Cost flows

Mfg. Overhead

Actual

Applied

$ 1,160,000

Overhead is UNDER applied

overapplied and underapplied manufacturing overhead
Overapplied and Underapplied Manufacturing Overhead

Tiger Co’s Costof Goods Sold

Tiger Co’sMfg. Overhead

Unadjusted Balance

Actualoverheadcosts

$1,213,000

OverheadAppliedto jobs

$1,160,000

$53,000

$53,000 underapplied

$53,000

AdjustedBalance

over under applied
Over/Under Applied
  • Actual $$$ > Applied $$$ = Under Applied or Debit Balance (unfavorable, increases COGS when you adjust)
  • Actual $$$ < Applied $$$ = Over Applied or Credit Balance (favorable, decreases COGS when you adjust)
what affect does this adjusting entry have
What affect does this adjusting entry have:
  • On COGS (increase or decrease)
  • On Net income (increase or decrease)
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