ACG2071 Chapter 2 (Principles of Managerial Accounting)

An accounting system that measure, record, and report product costs.

Job order costing system: An accounting system that accumulates costs by job. Used by companies that manufacture unique products or specialized services.

Process Costing System: An accounting system that accumulates costs by process. Used by companies that manufacture identical units through a series of uniform production steps or processes.

*Used for the Job order cost system

A document that shows the direct materials, direct labor, and manufacturing overhead costs for an individual job

There is a separate subsidiary ledger account for each type of raw material, such as for batteries, and then another for processors.

The subsidiary ledger record shows how much of the raw material was purchased (received), used in production (issued), and balance on hand (balance) at all times.

*They used this since it helps them better keep track of each raw material

A document that request the transfer of raw materials to the production floor

The Direct raw materials go into WIP inventory

The indirect raw materials go into Manufacturing Overhead

A record used to assign direct labor cost to a specific job

The direct labor gets transferred to Work-in-process Inventory

The indirect labor gets transferred to Manufacturing Overhead

The main reason for the predetermined overhead allocation rate is the matching principle. You must match expenses with revenue, however, you do not know the total overhead cost until the period has ended.

*Formula shown in Image

"Total Estimated Overhead costs": Is exactly what it sounds like. Just add up all the overhead costs in that accounting period.

"Total estimated quantity of the overhead allocation base": The "allocation base" is the measure you use to split shared overhead costs among products. So, for example it could be machine hours, direct labor hours, units produced.

ex)

Smart Touch learning estimated they will spend \$100,000 on overhead costs in the period. They also estimate that they will spend 10,000 machine hours making those products (allocation base). This would equal \$10 per machine hour. This means that every time the factory uses 1 machine hour to make a product, \$10 is attributed to that products cost.

ex)
Smart Touch learning estimated they will spend \$100,000 on overhead costs in the period. They also estimate that they will spend \$200,000 on direct labor (allocation base). This would equal 50% of direct labor cost for a product is attributed as overhead cost.

So, if they spend \$1,000 on direct labor for a job, \$500 will be allocated as overhead cost.

The primary factor that causes the cost of a product to increase of decrease.

* Accounts Receivable is also commonly Cash

Underallocated Overhead: Actual manufacturing overhead costs are more than allocated manufacturing costs

Overallocated Overhead: Actual manufacturing overhead costs are less than allocated manufacturing costs

*Image for how to underallocate overhead shown
*If it was to fix overallocated overhead, then manufacturing overhead would be debited and cost of goods sold would be credited

"Allocated Manufacturing Overhead" is just the amount of manufacturing overhead that your ACTUALLY allocate as cost at the end of the period.

So, it would be
Actual machine hours x predetermined overhead rate

So,

16,000 hrs x \$9.30 = 148,800

True

A cost accounting system helps managers track, allocate, and analyze costs (such as materials, labor, and overhead), but it does not directly determine how many or which products to produce. Those decisions are typically part of managerial planning and decision-making, supported—but not dictated—by cost accounting information.

Debits: Actual overhead

Credits: Applied (estimated) overhead

*In the image, its it underallocated.

Debit: Finished Goods inventory
Credit: Work In progress Inventory

FALSE!!!

The costs transferred from Work - in - Process Inventory to Finished Goods Inventory is called Cost of Goods Manufactured.

So, the Journal entry would be a debit to FG and a credit to WIP