230 Chapter 3 - Overhead Bulldog

8/4/2019 230 Chapter 3 - Overhead Bulldog

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Chapter 3 - Overhead

You will get this

Never give up

Never surrender!


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ManufacturingOverhead


Job No. 1

Job No. 1

Job No. 2

Job No. 2

Job No. 3

Job No. 3

Chargedirect

material anddirect labor

costs to

each job aswork isperformed.

Chargedirect

material anddirect labor

costs to

each job aswork isperformed.

Sequence of Events in a Job-Order Costing System

Direct Materials

Direct Materials

Direct Labor

Direct Labor


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Calculating and ApplyingOverhead

1. Calculate a PredeterminedOverhead Rate based on BudgetData

2. Charge Actual Overhead to theOverhead account

3. Calculate the applied amount of

Overhead $$$$, charge to WIP4. Post applied Overhead to theManufacturing Overheadaccount (above) and WIP

5. Balance in Overhead account isequal to Over/Under Appliedoverhead

6. Transfer ending balance inManufacturing Overhead out,leaving a ZERO balance inManufacturing Overhead


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Manufacturing costs that cannot be traceddirectly to specific units produced.

Manufacturing Overhead

Examples: Indirect labor and indirect materials andindirect manufacturing costs (rent, utilities, etc.)

Examples: Indirect labor and indirect materials andindirect manufacturing costs (rent, utilities, etc.)

Wages paid to employees

who are not directlyinvolved in production

work.Examples: maintenance

workers, janitors and

security guards.

Materials used to support

the production process.

Examples:lubricants andcleaning supplies used in theautomobile assembly plant.


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Tiger Co.List of costs:

Budgeted Costs

Direct mtls $ 1,500,000

Direct labor $ 380,000

Sales commissions $ 650,000

Salary of production supervisors $ 350,000

Salary of purchasing dept. $ 300,000

Indirect materials $ 50,500

Advertising expense $ 75,000

Training for production employees on new system $ 62,000

Training for accounting employees on new system $ 20,000

Rent (factory uses 75% of floorspace) $ 510,000

Utilities $ 100,000


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Budgeted Cost Driver

For this problem,assume a cost driverofDirect MachineHours:

Budgeted MachineHours = 305,000hours

What is yourPredeterminedOverhead Rate?


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Predetermined Overhead rate

$1,220,000/305,000hours = $4/per what?

_________________


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Do we use ACTUAL costs toapply Overhead to WIP?

NO NO NO NO NO NO NO NO NO NO!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Charge to Manufacturing Overhead instead debit

How much and which accounts?


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How do you apply overhead?


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Applyoverhead to

each jobusing a

predeter-mined rate.

Apply

overhead toeach jobusing a

predeter-mined rate.

Sequence of Events in a Job-Order Costing System

Direct MaterialsDirect Materials

Direct LaborDirect Labor

Job No. 1Job No. 1

Job No. 2Job No. 2

Job No. 3Job No. 3ManufacturingOverhead



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Actual amount of the allocationbase such as units produced,direct labor hours, or machine

hours incurred during the

period.

Actualamount of the allocationbase such as units produced,direct labor hours, or machine

hours incurred during the

period.

Based on estimates, anddetermined before the

period begins.

Based onestimates, anddetermined before the

period begins.

Application of ManufacturingOverhead

Overhead applied = POHR Actual activity


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ACTUAL Costs











Utilities $ 104,000


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ACTUAL Costs











Utilities $ 78,000


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Mfg. OverheadWork in Process(Job Cost Sheet)Direct

Materials

OverheadApplied

Overhead

Applied toWork inProcess

DirectLaborIndirect

Labor

Indirect

Materials

Actual Applied

If actual and appliedmanufacturing overheadare not equal, a year-endadjustment is required.


Job-Order System Cost Flows

Other

IndirectCosts


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How much to Apply?

Tiger, Inc. has a predetermined overheadrate of $4.00 per machine hour. Tiger,Inc. expected to work 305,000 hours

during the period but actually worked290,000 machine hours during theperiod. How much should Tiger apply?


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How much to Apply?

Tiger, Inc. has a predetermined overheadrate of $4.00 per machine hour. Tiger,Inc. expected to work 305,000 hours

during the period but actually worked290,000 machine hours during theperiod. How much should Tiger apply?

290,000 x $4 = $1,160,000


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MOH Cost flows

Mfg. Overhead

Actual Applied$ 350,000

$ 300,000$ 50,000

$ 60,000$ 375,000$ 78,000

$ 53,000

$ 1,160,000


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Is it Over or Under Applied?

Tiger, Inc. had actual manufacturingoverhead costs of:

$1,213,000Tiger, Inc. expected to work:

305,000 machine hours

but actually worked:

290,000 machine hours


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Mfg. OverheadWork in Process(Job Cost Sheet)

1,190,000

Actual Applied



Job-Order System Cost Flows

1,190,000$1,213,000


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MOH Cost flows

Mfg. Overhead


$ 300,000

$ 50,000

$ 60,000$ 375,000$ 78,000

$ 1,213,000

$ 53,000

$ 1,160,000

Actual costs are Greater thanApplied Rate:

Is this OverorUnderApplied????


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MOH Cost flows

Mfg. Overhead


$ 300,000$ 50,000

$ 60,000$ 375,000$ 78,000

$ 53,000

$ 1,160,000

Overhead is UNDER applied


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Over/Under Applied

Actual $$$ > Applied $$$ = Under Appliedor Debit Balance (unfavorable, increasesCOGS when you adjust)

Actual $$$ < Applied $$$ = Over Appliedor Credit Balance (favorable, decreasesCOGS when you adjust)


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What affect does this adjustingentry have:

On COGS (increase or decrease)

On Net income (increase or decrease)


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230 Chapter 3 - Overhead Bulldog

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