ACCT 321- Exam 2 (chapters 2,3, & 7)

Limitations of using a plantwide overhead rate

1. It is often overly-simplistic and incorrect to assume that direct-labor hours is a company’s only manufacturing overhead cost driver.

2. If more than one overhead cost driver can be identified, job cost accuracy is improved by using multiple predetermined overhead rates.

Underapplied overhead

exists when the amount of overhead applied to jobs during the period using the predetermined overhead rate is less than the total amount of overhead actually incurred during the period.

Overapplied overhead

exists when the amount of overhead applied to jobs during the period using the predetermined overhead rate is greater than the total amount of overhead actually incurred during the period.

Purchased 80,000 of raw materials on account 

          Raw materials         80,000

                    Accounts Payable    80,000

71,000 in raw materials were used in production. Of this amount, 62,000 was direct materials and the remainder was indirect materials

          WIP                        62,000

         MOH                      9,000

                    Raw Materials         71,000

Paid employees 112,000 cash. Of this amount, 101,000 was direct labor and the remainder was indirect labor

          WIP                        101,000

          MOH                      11,000

                    Cash                      112,000

Depreciation of 175,000 was incurred on factory equipment

          MOH                      175,000

                    Accum. Dep.           175,000

Employee time tickets included $60,000 recorded for direct labor and $15,000 for indirect labor.

          WIP                        60,000

          MOH                      15,000

                    Sal & Wage/P         75,000

Assume that a company incurred $40,000 of general factory costs (utitlities, rent, misc)

          MOH                      40,000

                    Accounts/P             40,000

750 of 1,000 gold medallions were shipped by the end of the month. Total sales revenue was $225,000 and total cost of the job was $158,000, and unit product cost was $158.

          Accounts/R             225,000

                    Sales                      225,000

          COGS                    118,500

                    Finished Goods       118,500

Know how to calculate the predetermined overhead rate

Estimated total manufacturing overhead / Estimated total direct labor hours= Predetermined overhead rate

Know how to apply overhead costs to jobs using a predetermined overhead rate

Actual direct labor-hours x Predetermined overhead rate= Manufacturing overhead applied

Know how to calculate the total cost of a job using a predetermined overhead rate

Direct labor cost / Direct labor wage rate per hour=Total direct labor hours

Direct materials + Direct labor + Manufacturing overhead applied ($14 per DLH × 9 DLHs)= Total manufacturing cost

Know how to calculate the unit product cost of a job using a predetermined overhead rate

Total manufacturing cost / Number of units in the job= Unit product cost

Know how to calculate the total cost using multiple predetermined rates

Direct labor cost / Direct labor wage rate per hour= Total direct labor hours

Direct materials + Direct labor + Assembly Department + Testing & Packaging Department= Total manufacturing cost

Total manufacturing cost / Number of units in the job= Unit product cost

Know how to calculate unused capacity and the predetermined overhead rate based on hours at capacity

Amount of the allocation base at capacity - Actual amount of the allocation base= Unused capacity in hours

Unused capacity in hours x Predetermined overhead rate=

Cost of unused capacity

Know how to calculate underapplied or overapplied overhead- Ex. The POHR is $18.20/DLHs. The company actually incurred $215,000 of MOH and 11,500 DLHs were recorded. How much overhead was under/overapplied?

          Underapplied by $5,700

          (also means the gross margin decreased by $5,700)

Schedule of COGM

          Beginning WIP inventory

          +Manufacturing Costs

          -Ending WIP inventory

Manufacturing Costs

          DM Used

          DL

          MOH Applied

DM Used

          Beg raw materials inventory

          +purchases of raw materials

          -End raw materials

Schedule of COGS

          Beginning finished goods Inventory

          +COGM

          -Ending finished goods Inventory

Know the mechanics of how to use the Excel approach to record financial transactions

Unit-level activities

performed each time a unit is produced.

Ex. providing power to run processing equipment, rough milling work on products

Batch-level activities

performed each time a batch is handled or processed, regardless of how many units are in the batch.

Ex. placing purchase orders, setting up equipment, arranging shipments to customers, receiving raw materials from suppliers

Product-level activities

performed for specific products regardless of how many batches are run or units produced.

Ex. designing a product, advertising a product, maintaining a product manager and staff, managing parts inventories

Customer-level activities

performed for specific customers and do not relate to specific products.

Ex. sales calls, catalog mailings, customer meetings, general tech support

Organization-sustaining activities

performed regardless of which customers are served, which products are produced, how many batches are run, or how many units are made.

Ex. heating the factory, cleaning executive offices, providing a computer network, arranging for loans, preparing annual reports, interview and process new employees in the personnel department

Know how to calculate the activity rate for an activity cost pool

Total cost/Total Activity= Activity Rate

Know how to allocate costs in the first-stage allocation

Category percentage given x given overhead costs of category

Know how to calculate the cost of a product in activity-based costing

Activity Rate= total cost/total activity

ABC cost = activity rate x activity