Accounting 226 Exam 1

Manufacturing overhead

consists of indirect labor, indirect materials, and general overhead expenses like depreciation on factory equipment, rent of production facility, etc. (all product costs except direct materials and direct labor. )

Prime Costs

= Direct materials + Direct Labor

Conversion Costs

=Direct Labor + Manufacturing Overhead

Total Manufacturing (i.e Total cost of a job)

= direct materials + Direct labor + manufacturing overhead

Total Non- Manufacturing costs

= Selling + General & Administrive expenses

Product Costs

= Total Maufacturing Cost

Period Cost

= Total Non- manufacturing Costs

Total Costs (Mixed Costs)

= Fixed + (Variable Cost rater per unit x #units)

y = a + bx ( used to solve fixed costs)

Y = Total costs

a = Total fixed costs

b = variable cost rate

x = number of units

examples of variable costs

direct materials, direct labor, or any other expenses that will stay the same per unit but vary in total as the level of production varies.

fixed cost examples

rent on factory, advertising expense, salaries of executives, etc.

Gross Margin

= Sales Revenue - Cost of goods sold

Contribution Margin

= Sales - Variable Expenses

Traditional Income Statements

Sales revenue

-cost of goods sold

= gross margin

-selling & General and Administrative Expenses

=Net Income from operations

Contribution Format of Income Statement

sales revenue

-varible Expenses

= contribution margin

-fixed expenses

=net income from operations

predetermined overhead rate (POHR)

= Estimated Manufacturing Overhead Costs / Estimated Units of the Activity Base

What goes into the total cost of a job

= (DM + DL + MOH applied)

how to calculate the unit product cost

=(cost / unit)

Journal entry for apply overhead to a specific job

Dr. Work in Process Inventory

Cr. Manufacturing overhead

Journal entry for purchase of raw materials

Dr. Raw materica’s inventory

Cr. Accounts payable (if on account, cash if paid)

Journal Entry for Issuing Direct Materials to production areas

Dr. Work in process inventory

Cr. Raw materials Inventory

Journal entry issuing Indirect Materials to production areas

Dr. Manufacturing Overhead

Cr. Raw materials inventory

Journal entry for Direct and Indirect Labor

Dr. Work in progess inventory ( for direct labor)

Dr. Manufacturing Overhead ( For indirect Labor)

Cr. Salaries or wages payable ( if accrued, cash if paid)

Journal entry for transfer of completed goods from work in process to finished goods

Dr. Finished Goods Inventory

Cr. work in process Inventory

journal entry for Record expense protion of entry when units are sold

Dr. Cost of goods sold

Cr. Finished goods inventory

Journla entry for record the revenue portion of the entry when units are sold

Dr. Accounts receivable (if sold on account)

cr. Sales revenue

Journal entry for record under applied overhead

Dr. Cost of goods sold

Cr. Manufacturing overhead

Journal entry for recording over applied overhead

Dr. Manufacturing Overhead

Cr. Cost of goods sold

Actual overhead > overhead Applied

= Underapplied overhead

Actual overhead < overhead Applied

= Overapplied overhead

Schedule of cost of goods manufactured

Step 1 - Direct Materials

Beginning Raw materials

+Purchase of raw materials

=raw materials availiable for use

-ending raw materials inventory

=raw materials used in production

-indirect materials included in MOH

=direct materials used in production

Step 2 - Direct labor

Step 3 - manufacturing overhead (applied)

Step 4 - Cost of goods Manufactured

total manufacturing cost (DM, DL, MOH)

+beginning work in process inventory

_ending work in process inventory

= cost of goods manufactured

Schedule of cost of goods sold

beginning finished goods inventory

+cost of goods manufactured

=cost of goods availiable for sale

-ending finished good inventory

=unadjusted cost of goods sold

±Under applied / over applied MOH

=adjusted cost of goods sold

how to calculate equivalent units

=Units transferred out + equivalent units in ending work in process inventory

how to calculate units transferred out ( if not given)

=units in beginning work in process inventory + units started into production or transferred in - units in ending work in process inventory

calculate cost per equivalent unit

= costs in beginning work in process + costs added during the period / equivalent units

calculate cost to ending WIP and /or units completed and transferred out

= cost per equivalent unit x equivalent units ( for ending WIP or units completed and transferred out)

applied overhead formula

= predetermined overhead rate x actual Direct labor hours