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ACTG 2020 Lecture Notes - Lecture 9: Finished Good, Earnings Before Interest And Taxes, Operating Leverage

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School
York University
Department
Accounting
Course
ACTG 2020
Professor
Babar Khan

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Document Summary

Prime cost = dm cost + dl cost. Conversion cost = dl cost + manufacturing overhead cost. There are two ways to dispose of over- or underapplied overhead. The more complex approach is to allocate a portion of the over- or underapplied overhead to work in process inventory, finished goods inventory, and cost of goods sold. The allocation would be based on the relative dollar value in each of the three accounts involved. An easier way to deal with the problem, and the method pearco uses, is to adjust cost of goods sold for the entire amount of the over- or underapplied overhead. To estimate profits at a particular sales volume. Simply multiply the number of units sold above break-even by the contribution margin per unit. Units sold = (fixed expense + profit) / cm per unit. Sales = (fixed expense + profit) / cm ratio.

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Related Questions

Stanley Company applies overhead based on machine hours. Thefollowing data was available:

Budgeted factory overhead costs $280,000

Budgeted machine hours 22,000

Actual factory overhead costs $292,000

Actual machine hours 19,050

Cost of goods sold $560,000

Direct materials inventory, ending balance $60,000

Work-in-process inventory, ending balance $190,000

Finished goods inventory, ending balance $250,000
Required: A) Compute the budgeted factory overhead rate.

B) Compute the underapplied or overapplied factory overhead.

C) Under the immediate write-off approach to overhead variances,how would you dispose of the overhead variance?

D) If the immediate write-off approach to overhead variances isnot used, how would you dispose of the overhead variance?

Data
Allocation base
Estimated manufacturing overhead cost $300,000
Estimated total amount of the allocation base 75,000 Machine-hours
Actual manufacturing overhead cost $290,000
Actual total amount of the allocation base 68,000 Machine-hours
Enter a formula into each of the cells marked with a ?below
Computation of the predetermined overheadrate
Estimated manufacturing overhead cost
Estimated total amount of the allocation base ? machine-hours
Predetermined overhead rate ? per machine-hour
Computation of underapplied or overappliedmanufacturing overhead
Actual manufacturing overhead cost ?
Manufacturing overhead cost applied to Work in Process duringthe year:
Predetermined overhead rate ? per machine hour
Actual total amount of the allocation base ? machine-hours
Manufacturing overhead applied ?
Underapplied (overapplied) manufacturing overhead ?

Stangl Inc. has provided the following data for the month of September. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.
Work In Process Finished Goods Cost of Goods Sold Total
Direct materials $ 1,490 $ 7,420 $ 14,440 $ 23,350
Direct labor 5,290 17,680 34,420 57,390
Manufacturing overhead applied 3,796 8,760 16,644 29,200
Total $ 10,576 $ 33,860 $ 65,504 $ 109,940

Manufacturing overhead for the month was underapplied by $3,100.

The company allocates any underapplied or overapplied overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts.

Required:

Determine the cost of work in process, finished goods, and cost of goods sold AFTER allocation of the underapplied or overapplied overhead for the period.