Post on 14-Dec-2015
Lecture 12
Lecture overview
• Application of Manufacturing Overhead• The Need for a Predetermined Manufacturing
Overhead Rate• Over/underapplied FOH• MCQs Test with Example
The Following data pertain to the Hudebia Restaurant Supply company for the year just ended.Budgeted Sales Revenue Rs. 205000
Actual Manufacturing Overhead 340000
Budgeted Machine Hours 10000
Budgeted direct labor hours 20000
Budgeted Direct labor rate Rs. 14
Budgeted Manufacturing overhead Rs. 364000
Budgeted Machine hours 11000
Actual Direct Labor hours 18000
Actual Direct labor rate Rs. 15
1. Compute the firm’s predetermined overhead rate for the year using each of the following common cost drivers: a) machine hours, b) direct labor hours, c) direct labor dollars.
2. Calculate the over applied or under applied overhead for the year using each of the cost drivers listed above
Let’s summarize the document flow we have been discussing in
a job-order costing system.
Job-Order CostingDocument Flow Summary
Job-Order CostingDocument Flow Summary
Job Cost Sheets
MaterialsRequisition
Manufacturing Overhead Account
Direct materials
Indirect materials
Materials usedmay be either
direct orindirect.
Job-Order CostingDocument Flow Summary
Job Cost Sheets
Employee Time
Manufacturing Overhead Account
Direct Labor
Indirect Labor
An employee’stime may be eitherdirect or indirect.
Job-Order CostingDocument Flow Summary
Manufacturing Overhead Account
OtherActual OHCharges
Job Cost Sheets
AppliedOverhead
MaterialsRequisition
IndirectMaterial
EmployeeTime
IndirectLabor
Let’s examine the cost flows in a job-order costing system. We will
use T-accounts and start with materials.
Job-Order System Cost Flows
Raw Materials
MaterialPurchases
Mfg. Overhead
Job-Order System Cost FlowsWork in Process(Job Cost Sheet)
Direct Materials
Direct Materials
Indirect Materials
Indirect Materials
Actual Applied
Next add labor costs and applied manufacturing
overhead to the job-order cost flows.
Job-Order System Cost Flows
Job-Order System Cost Flows
Mfg. Overhead
Salaries and Wages Payable
Work in Process(Job Cost Sheet)
Direct
Materials
Overhead Applied
OverheadApplied to
Work inProcess
Direct Labor
Direct Labor
IndirectLabor
IndirectLabor
Indirect Materials
Actual AppliedIf actual and applied
manufacturing overheadare not equal, a year-end adjustment is required.
If actual and applied manufacturing overheadare not equal, a year-end adjustment is required.
Finished Goods
Cost ofGoodsMfd.
Cost ofGoodsMfd.
Cost of Goods Sold
Cost ofGoodsSold
Cost ofGoodsSold
Job-Order System Cost FlowsWork in Process(Job Cost Sheet)
Direct
MaterialsDirect Labor
Overhead Applied
Overhead Application Example
PearCo’s actual overhead for the year was $650,000 for a total of 170,000 direct labor hours.
How much total overhead was applied to PearCo’s jobs during the year? Use PearCo’s predetermined overhead
rate of $4.00 per direct labor hour.
Overhead Application Example
SOLUTIONApplied Overhead = POHR × Actual Direct Labor Hours
Applied Overhead = $4.00 per DLH × 170,000 DLH = $680,000
PearCo’s actual overhead for the year was $650,000 for a total of 170,000 direct labor hours.
How much total overhead was applied to PearCo’s jobs during the year? Use PearCo’s predetermined overhead
rate of $4.00 per direct labor hour.
SOLUTIONApplied Overhead = POHR × Actual Direct Labor Hours
Applied Overhead = $4.00 per DLH × 170,000 DLH = $680,000
PearCo’s actual overhead for the year was $650,000 for a total of 170,000 direct labor hours.
How much total overhead was applied to PearCo’s jobs during the year? Use PearCo’s predetermined overhead
rate of $4.00 per direct labor hour,
Overhead Application Example
Work inProcess
FinishedGoods
Cost of Goods Sold
$30,000may be allocated
to these accounts.
Overapplied and Underapplied Manufacturing Overhead
$30,000 may beclosed directly to
cost of goods sold.
Cost of Goods Sold
PearCo’s Method
OR
Overapplied and Underapplied Manufacturing Overhead
PearCo’sMfg. Overhead
Actualoverhead
costs
$650,000
$30,000 overapplied
PearCo’s Costof Goods Sold
Unadjusted Balance
$30,000
$30,000
AdjustedBalance
OverheadAppliedto jobs
$680,000
MCQs Test What effect will the overapplied overhead have on
PearCo’s cost of goods sold?a. Cost of goods sold will increase.b. Cost of goods sold will be unaffected.c. Cost of goods sold will decrease.
MCQs Test What effect will the overapplied overhead have on
PearCo’s cost of goods sold?a. Cost of goods sold will increase.b. Cost of goods sold will be unaffected.c. Cost of goods sold will decrease.
MCQs Test What effect will the overapplied overhead have on
PearCo’s net income?a. Net income will increase.b. Net income will be unaffected.c. Net income will decrease.
MCQs Test What effect will the overapplied overhead have on
PearCo’s net income?a. Net income will increase.b. Net income will be unaffected.c. Net income will decrease.
Overapplied and Underapplied Manufacturing Overhead - Summary
If ManufacturingOverhead is . . .
UNDERAPPLIED INCREASECost of Goods Sold
(Applied OH is lessthan actual OH)
OVERAPPLIED DECREASECost of Goods Sold
(Applied OH is greaterthan actual OH)
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. Tiger’s manufacturing overhead is
a. $50,000 overapplied.
b. $50,000 underapplied.
c. $60,000 overapplied.
d. $60,000 underapplied.
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. Tiger’s manufacturing overhead is
a. $50,000 overapplied.
b. $50,000 underapplied.
c. $60,000 overapplied.
d. $60,000 underapplied.
MCQs Test
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. Tiger’s manufacturing overhead is
a. $50,000 overapplied.
b. $50,000 underapplied.
c. $60,000 overapplied.
d. $60,000 underapplied.
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. Tiger’s manufacturing overhead is
a. $50,000 overapplied.
b. $50,000 underapplied.
c. $60,000 overapplied.
d. $60,000 underapplied.
MCQs Test
Overhead Applied $4.00 per hour × 290,000 hours = $1,160,000
Underapplied Overhead $1,210,000 - $1,160,000 = $50,000
Lecture overview
• Problem Question• Job-Order Costing Document Flow Summary• Job-Order System Cost Flows• Overhead Application Example• Overapplied and Underapplied Manufacturing
Overhead• MCQs Test Questions
End of Lecture 12