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Management Accounting One

Management Accounting One. Flow of Costs II. Overhead Costs - A Closer Look. Costs that cannot be traced to products and services in a cost effective manner are called indirect costs and are part of manufacturing overhead. Depreciation on Manufacturing Assets. Factory Utilities.

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Management Accounting One

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  1. Management Accounting One Flow of Costs II

  2. Overhead Costs - A Closer Look Costs that cannot be traced to products and services in a cost effective manner are called indirect costs and are part of manufacturing overhead. Depreciation onManufacturingAssets FactoryUtilities Rent onManufacturingFacilities IndirectLabour SupervisorySalaries IndirectMaterials Manufacturing Overhead

  3. Overhead Cost $ Using a predetermined rate makes itpossible toestimatetotal job costs sooner as .... Actual overheadfor the period is notknown until the end of the period.

  4. Cost Driver Any factor that causes a change in the total cost of an activity

  5. Overhead Cost Overhead applied = POHR × Actual activity The Predetermined Overhead Rate is based onestimates, and is determined before the period begins. Actual Activitycan beunits produced, direct labour hours, or machine hours.

  6. Estimated total manufacturingoverhead cost for the year POHR = Estimated total labour hours for the year $40,320 $3.36per hour = POHR = 12,000 hours AllocatingOverhead Cost A predetermined overhead rate (POHR) is used to apply overhead and is determined before the period begins. Ex.

  7. Over/Under Applied Overhead At the end of the period the use of a predetermined overhead rate requires examination of the difference between the actual overhead and the applied overhead

  8. Over/Under Applied Overhead Underapplied Manufacturing Overhead Actual Overhead Applied Overhead XX XXX Debit Balance Charge to

  9. Over/Under Applied Overhead Overapplied Manufacturing Overhead Actual Overhead Applied Overhead XX XXX Credit Balance Credit to

  10. Disposition of Overhead Variances If immaterial (not significant) allocate to cost of goods sold If material (significant) allocate amongst work in process inventory, finished goods inventory, and cost of goods sold

  11. Inventory Control Systems Periodic System -- uses purchases account for increases Perpetual System -- increases and decreases inventory account for purchases and distributions to work-in-process

  12. Job Cost System Used by companies that produce distinct batches of identifiable products Costs are accumulated by job Unit cost computed by dividing total costs by the number of units produced

  13. Flow of Costs in A Job Cost System Raw Materials Work in Process Finished Goods Debited for Credited for Credit for amt put into prod’n Debit for cost of purchases Debited for Credited for cost of cost of DM, cost of each cost of each DL, and OH. finished job goods at time of sale completed Credited for indirect materials used job Factory Payroll Cost of Goods Sold Debited for wages paid Credited for direct labour used in prod’n. Debited for the cost of goods at the time of sale Credit for indirect labour Overhead Costs What inventory method is In use here? Debited for indirect costs, and all other overhead Credited for overhead costs charged to production based on predetermined rate

  14. Product Cost Flow T-Accounts Raw Materials Finished Goods 7,890 324,875327,125 5,640 5,500 53,500 49,000 1,000 Work In Process Payroll 17,500 53,500 117,500 161,300 324,875 24,925 165,500 117,500 48,000 - 0 - Overhead 117,300 Cost of Goods Sold 327,125 48,000 161,300 4,000 Explain the amounts in each of the accounts.

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