Professional Documents
Culture Documents
Chapter 3
PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA
Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
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Job No. 1
Direct Labor Job No. 2 Job No. 3
Charge direct material and direct labor costs to each job as work is performed.
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Job No. 1
Direct Labor Job No. 2 Job No. 3
Manufacturing Overhead
Manufacturing Overhead, including indirect materials and indirect labor, are allocated to all jobs rather than directly traced to each job.
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Direct Labor Manufacturing Overhead Ticket Hours Amount Hours Rate Amount
Cost Summary Direct Materials Direct Labor Manufacturing Overhead Total Cost Unit Product Cost
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Will E. Delite
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Learning Objective 1
Compute a predetermined overhead rate.
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Actual overhead for the period is not known until the end of the period.
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Learning Objective 2
Apply overhead cost to jobs using a predetermined overhead rate.
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POHR =
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Learning Objective 3
Compute the total cost and average cost per unit of a job.
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Quick Check
Job WR53 at NW Fab, Inc. required $200 of direct materials and 10 direct labor hours at $15 per hour. Estimated total overhead for the year was $760,000 and estimated direct labor hours were 20,000. What would be recorded as the cost of job WR53?
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Quick Check
Job WR53 at NW Fab, Inc. required $200 of direct materials and 10 direct labor hours at $15 per hour. Estimated total overhead for the year was $760,000 and estimated direct labor hours were 20,000. What would be recorded as the cost of job WR53?
$38
Direct materials $200 Direct labor $15 x 10 hours $150 Manufacturing overhead $38 x 10 hours $380 Total cost $730
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Key Definitions
1. Raw materials include any materials that go into the final product. 2. Work in process consists of units of production that are only partially complete and will require further work before they are ready for sale to customers. 3. Finished goods consist of completed units of product that have not been sold to customers. 4. Cost of goods manufactured include the manufacturing costs associated with the goods that were finished during the period,
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Finished Goods
Period Costs
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Mfg. Overhead
Actual Applied Indirect Materials
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Labor Costs
Salaries and Wages Payable
Direct Labor Indirect Labor
Mfg. Overhead
Actual Indirect Materials Indirect Labor Applied
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Labor Costs
During the month the employee time tickets included $35,000 of direct labor and $12,000 for indirect labor.
(3) Work in Process Manufacturing Overhead Raw Materials 35,000 12,000 47,000
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Mfg. Overhead
Actual Applied Indirect Materials Indirect Labor Other Overhead
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Mfg. Overhead
Actual Applied Indirect Materials Overhead Indirect Applied to Labor Work in Other Process Overhead
If actual and applied manufacturing overhead are not equal, a year-end adjustment is required.
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17,500 17,500
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Finished Goods
Cost of Goods Mfd.
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Finished Goods
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Learning Objective 6
Prepare schedules of cost of goods manufactured and cost of goods sold and an income statement.
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Manufacturing Costs
Direct materials
Work In Process
+ =
As items are removed from raw materials inventory and placed into the production process, they are called direct materials.
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Manufacturing Costs
Direct materials + Direct labor + Mfg. overhead applied = Total manufacturing costs
Work In Process
+ =
Conversion costs are costs incurred to convert the direct material into a finished product.
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Manufacturing Costs
Direct materials + Direct labor + Mfg. overhead applied = Total manufacturing costs
Work In Process
Beginning work in process inventory + Total manufacturing costs = Total work in process for the period
+ =
All manufacturing costs added to production during the period are added to the beginning balance of work in process.
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Manufacturing Costs
Direct materials + Direct labor + Mfg. overhead applied = Total manufacturing costs
Work In Process
Beginning work in process inventory Total manufacturing costs Total work in process for the period Ending work in process inventory Cost of goods manufactured
+ =
with the goods that are completed during the period are transferred to finished goods inventory.
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Finished Goods
Beginning finished goods inventory + Cost of goods manufactured = Cost of goods available for sale - Ending finished goods inventory Cost of goods sold
+ = =
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Quick Check
Beginning raw materials inventory was $32,000. During the month, $276,000 of raw material was purchased. A count at the end of the month revealed that $28,000 of raw material was still present. What is the cost of direct material used? a. $276,000 b. $272,000 c. $280,000 d. $ 2,000
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Quick Check
Beginning raw materials inventory was $32,000. During the month, $276,000 of raw material was purchased. A count at the end of the month revealed that $28,000 of raw material was still present. What is the cost of direct material used? Beg. raw materials $ 32,000 + Raw materials a. $276,000 purchased 276,000 b. $272,000 = Raw materials available for use in production $ 308,000 c. $280,000 Ending raw materials inventory 28,000 d. $ 2,000
= Raw materials used in production $ 280,000
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Quick Check
Direct materials used in production totaled $280,000. Direct labor was $375,000, and $180,000 of manufacturing overhead was added to production for the month. What were total manufacturing costs incurred for the month? a. $555,000 b. $835,000 c. $655,000 d. Cannot be determined.
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Quick Check
Direct materials used in production totaled $280,000. Direct labor was $375,000, and $180,000 of manufacturing overhead was added to production for the month. What were total manufacturing costs incurred for the month? a. $555,000 b. $835,000 c. $655,000 Direct Materials $ 280,000 d. Cannot be determined.
+ Direct Labor + Mfg. Overhead Applied = Mfg. Costs Incurred for the Month 375,000 180,000
$ 835,000
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Quick Check
Beginning work in process was $125,000. Manufacturing costs added to production for the month were $835,000. There were $200,000 of partially finished goods remaining in work in process inventory at the end of the month. What was the cost of goods manufactured during the month? a. $1,160,000 b. $ 910,000 c. $ 760,000 d. Cannot be determined.
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Quick Check
Beginning work in process was $125,000. Manufacturing costs added to production for the month were $835,000. There were $200,000 of partially finished goods remaining in work in process inventory at the end of the month. What was the cost of goods manufactured during the month? Beginning work in process inventory $ 125,000 a. $1,160,000 + Mfg. costs incurred b. $ 910,000 for the period 835,000 = Total work in process c. $ 760,000 during the period $ 960,000 d. Cannot be determined. Ending work in
process inventory = Cost of goods manufactured 200,000 $ 760,000
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Quick Check
Beginning finished goods inventory was $130,000. The cost of goods manufactured for the month was $760,000. And the ending finished goods inventory was $150,000. What was the cost of goods sold for the month? a. $ 20,000 b. $740,000 c. $780,000 d. $760,000
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Quick Check
Beginning finished goods inventory was $130,000. The cost of goods manufactured for the month was $760,000. And the ending finished goods inventory was $150,000. What was the cost of goods sold for the month? a. $ 20,000 $130,000 + $760,000 = $890,000 b. $740,000 $890,000 - $150,000 = $740,000 c. $780,000 d. $760,000
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Learning Objective 7
Compute underapplied or overapplied overhead cost and prepare the journal entry to close the balance in Manufacturing Overhead to the appropriate accounts.
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Quick Check
Tiger, Inc. had actual manufacturing overhead costs of $1,210,000 and a predetermined overhead rate of $4.00 per machine hour. Tiger, Inc. worked 290,000 machine hours during the period. Tigers manufacturing overhead is: a. $50,000 overapplied. b. $50,000 underapplied.
c. $60,000 overapplied.
d. $60,000 underapplied.
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Quick Check
Tiger, Inc. had actual manufacturing overhead costs of $1,210,000 and a predetermined overhead rate of $4.00 per machine hour. Tiger, Inc. worked 290,000 machine hours during the period. Tigers manufacturing overhead is: a. $50,000 overapplied. b. $50,000 underapplied. Overhead Applied
c. $60,000 overapplied.
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OR
Work in Process Finished Goods Cost of Goods Sold
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$68,000 $680,000
10% $30,000
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Manufacturing Overhead Work in Process Invenory Finished Goods Inventory Cost of Goods Sold
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Quick Check
What effect will the overapplied overhead have on PearCos net operating income?
a. Net operating income will increase. b. Net operating income will be unaffected. c. Net operating income will decrease.
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Quick Check
What effect will the overapplied overhead have on PearCos net operating income?
a. Net operating income will increase. b. Net operating income will be unaffected. c. Net operating income will decrease.
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