Job Costing MUST KNOW

What is the formula for Direct Materials Used?

Beginning Raw Materials + Purchases − Ending Raw Materials = Direct Materials Used. MEMORY: START + BUY − LEFT = USED.

What does Beginning Raw Materials + Purchases − Ending Raw Materials give you?

Direct Materials Used.

If you see Raw Materials, what formula should you think of?

Beginning Raw Materials + Purchases − Ending Raw Materials = Direct Materials Used.

What are the 3 components of Total Manufacturing Costs?

Direct Materials + Direct Labor + Applied Overhead.

What is the formula for Total Manufacturing Costs?

Direct Materials + Direct Labor + Applied Overhead = Total Manufacturing Costs.

What is the formula for Cost of Goods Manufactured (COGM)?

Beginning WIP + Direct Materials + Direct Labor + Applied Overhead − Ending WIP = COGM.

What does WIP stand for?

Work-in-Process.

What does WIP represent?

Products that have started production but are not finished yet.

If Direct Labor is missing, how can you find it?

Use: Beginning WIP + DM + DL + Applied OH − Ending WIP = COGM, then solve for DL.

What is the formula for Direct Labor when it is missing?

DL = COGM − Beginning WIP − DM − Applied OH + Ending WIP.

What is the formula for Cost of Goods Sold (COGS)?

Beginning Finished Goods + COGM − Ending Finished Goods = COGS.

If you see Finished Goods, what formula should you think of?

Beginning FG + COGM − Ending FG = COGS. MEMORY: START + FINISHED − LEFT = SOLD.

What is the inventory flow in job costing?

Raw Materials → Work-in-Process → Finished Goods → Cost of Goods Sold.

What is Applied Overhead?

Overhead assigned/applied to jobs using the predetermined overhead rate.

What is Actual Overhead?

The overhead the company actually incurred or spent.

How do you determine if overhead is overapplied or underapplied?

Applied OH > Actual OH = OVERAPPLIED. Actual OH > Applied OH = UNDERAPPLIED.

What does overapplied overhead mean?

More overhead was applied to jobs than was actually incurred. Applied OH > Actual OH.

What does underapplied overhead mean?

Less overhead was applied to jobs than was actually incurred. Actual OH > Applied OH.

What do you do with an insignificant overapplied overhead variance?

Close it directly to COGS. Debit Overhead

Credit Cost of Goods Sold.

What do you do with an insignificant underapplied overhead variance?

Close it directly to COGS. Debit Cost of Goods Sold

Credit Overhead.

What should I immediately think when I see "insignificant overhead variance"?

COGS! The variance is closed directly to Cost of Goods Sold.

What should I immediately think when I see "significant overhead variance"?

SPREAD IT! Allocate the variance among WIP, Finished Goods, and COGS.

What happens to a significant overapplied overhead variance?

Debit Overhead

Credit WIP, Finished Goods, and COGS.

What happens to a significant underapplied overhead variance?

Debit WIP, Finished Goods, and COGS

Credit Overhead.

What is the memory trick for an overapplied variance?

OVER = Debit Overhead → Credit COGS when insignificant.

What is the memory trick for an underapplied variance?

UNDER = Debit COGS → Credit Overhead when insignificant.

What is the memory trick for a significant variance?

SIGNIFICANT = SPREAD IT across WIP + Finished Goods + COGS.

If Applied Overhead is $58,000 and Actual Overhead is $40,000, is overhead overapplied or underapplied?

OVERAPPLIED, because Applied ($58,000) > Actual ($40,000).

If Applied Overhead is $40,000 and Actual Overhead is $58,000, is overhead overapplied or underapplied?

UNDERAPPLIED, because Actual ($58,000) > Applied ($40,000).

If the question asks for Direct Materials but the amount isn't given, what should you look for?

Look for Beginning Raw Materials, Purchases, and Ending Raw Materials.

If the question asks for COGM but a number is missing, what should you do?

Use Beginning WIP + DM + DL + Applied OH − Ending WIP = COGM and solve for the missing number.

If the question asks for COGS but COGS isn't given, what should you look for?

Beginning Finished Goods, COGM, and Ending Finished Goods.

What are the three most important formulas to memorize?

DM Used = Beginning RM + Purchases − Ending RM. COGM = Beginning WIP + DM + DL + OH − Ending WIP. COGS = Beginning FG + COGM − Ending FG.

What are the three most important overhead rules?

Applied > Actual = Overapplied. Actual > Applied = Underapplied. Insignificant = COGS

Significant = Spread to WIP + FG + COGS