ADMS 2510 Lecture Notes - Lecture 3: Cost Driver, Fixed Cost, Continuous Production

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ceruleanchinchilla657

7 Dec 2016

School

York University

Department

Administrative Studies

Course

ADMS 2510

Professor

Li Zhi Ma

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ADMS 2510 Full Course Notes

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Direct costs: traced to product, ex direct material and labour. Indirect: not easily traceable to product, aka overhead or non-manufacturing overhead. Use allocation base and predetermined overhead rates to assign mo in both job-order costing and process costing system. Manufacturing overhead = indirect mats, labour, maintenance, etc. Allocation base: assigns mo to jobs or depts. Pohr = estimated total mo for coming period / estimated total units of ab for coming period. Ab is pre-determined, has not occurred before period begins. Variable overhead rate: activity measure should give relationship between activity and cost. The rate does not change with activity level. Voh = estimated voh / estimated activity level (for upcoming period) Fixed overhead rate: select specific activity level: expected annual, theoretical, practical, normal. Foh = estimated foh / estimated activity level (for upcoming period) Usually use multiple pohr for different types of manufacturing overhead. Sometimes use single lump-sum pohr called plant wide overhead rate.

Related Questions

When overhead costs are incurred they are recorded in an Accounttitled Manufacturing Overhead Control Account. The account isdebited for each overhead expense billed and an appropriate accountsuch as Cash or Accounts Payable is credited. Since overhead costscannot be traced directly to a cost object or to a Job, the totalannual overhead cost for the coming year are estimated at the endof the preceeding year and a formula is used to estimate the amountof overhead that should be charged to each job or product. Theamount charged to jobs or products is credited to the MOH accountand debited to the Work In Process Account. This estimated amountis a surrogate for the actual overhead costs that are incurredduring the year. At the end of the accounting period, the estimatedamounts charged to all jobs or products may be higher or lower thanthe actual overhead costs incurred during the year. This situationgives rise to the phenomenon of Under /Over applied overhead. Sinceoverhead expenses are just like ordinary expenses except for thefact that they are incorporated in the cost of product, then theMOH account is like any other temporary account and therefore itmust be closed at the end of the accounting period.

Applied overhead is calculated using the following formula:Predetermined Overhead Application Rate (POHAR) x Actualconsumption of the Activity Base. For example, if the POHAR is $10per direct labor hour consumed by a product and the productconsumes 5 direct labor hours, then Applied Overhead would be: 10 X5 = $50. Under/ Over applied overhead is calculated as: ActualOverhead costs - Applied Overhead. If Actual is greater thanapplied then Overhead is described as under applied and if theApplied is greater than Actual then it is described as overapplied.

Assignment: The estimated overhead costs of Abel Furniture were$2,200,000 and the estimated basis used for charging overhead toproduction is direct labor hours estimated at 500,000. The actualoverhead incurred during the year was $2,800,000 and the amountcharged to production was $2,400,000. Calculate the amount ofUnder/Over applied overhead and close the balance to Cost of Goodssold.

ceruleangoat931

The Pacific Manufacturing Company operates a job-ordercosting system and applies overhead cost to jobs on the basis ofdirect labor cost. Its predetermined overhead rate was based on acost formula that estimated $113,100 of manufacturing overhead foran estimated allocation base of $87,000 direct labor dollars. Thecompany has provided the following data:

Inventories Beginning Ending

Raw materials $ 27,000 $ 10,000

Work in process $ 49,000 $ 36,000

Finished goods $ 74,000 $ 55,000

The following actual costs were incurred during theyear:

Purchase of raw materials (all direct) $ 131,000

Direct labor cost $ 83,000

Actual manufacturing overhead costs:

Insurance, factory $ 8,700

Depreciation of equipment $ 18,000

Indirect labor $ 27,200

Property taxes $ 8,700

Maintenance $ 15,000

Rent, building $ 34,000

________________________________________

Compute the predetermined overhead rate for theyear.

Predetermined overhead rate %

Compute the amount of underapplied or overapplied overheadfor the year. (Input the amount as a positive value.)

overhead $

Prepare a schedule of cost of goods manufactured for theyear. Assume all raw materials are used in production as directmaterials. (Input all amounts as positive values.)

Pacific Manufacturing Company

Schedule of Cost of Goods Manufactured

Direct materials:

Total raw materials available

Raw materials used in production $

Total manufacturing cost

Cost of goods manufactured $

Compute the unadjusted cost of goods sold for the year. (Donot include any underapplied or overapplied overhead in your costof goods sold figure.

Unadjusted cost of goods sold $

Job 137 was started and completed during the year. What pricewould have been charged to the customer if the job required $3,600in materials and $4,000 in direct labor cost, and the companypriced its jobs at 50% above the job%u2019s cost according to theaccounting system?

Price to customer $

Direct labor made up $8,500 of the $36,000 ending Work inProcess inventory balance. Supply the information missingbelow:

Direct materials $

Direct labor 8,500

Manufacturing overhead

Work in process inventory $ 36,000

**how to compute price to customer?

beigekoala601

The Pacific Manufacturing Company operates a job-order costingsystem and applies overhead cost to jobs on the basis of directlabor cost. Its predetermined overhead rate was based on a costformula that estimated $113,100 of manufacturing overhead for anestimated allocation base of $87,000 direct labor dollars. Thecompany has provided the following data:

Inventories Beginning Ending

Raw materials $ 27,000 $ 10,000

Work in process $ 49,000 $ 36,000

Finished goods $ 74,000 $ 55,000

The following actual costs were incurred during the year:

Purchase of raw materials (all direct) $ 131,000

Direct labor cost $ 83,000

Actual manufacturing overhead costs:

Insurance, factory $ 8,700

Depreciation of equipment $ 18,000

Indirect labor $ 27,200

Property taxes $ 8,700

Maintenance $ 15,000

Rent, building $ 34,000

________________________________________

Compute the predetermined overhead rate for the year.

Predetermined overhead rate %

Compute the amount of underapplied or overapplied overhead forthe year. (Input the amount as a positive value.)

overhead $

Prepare a schedule of cost of goods manufactured for the year.Assume all raw materials are used in production as directmaterials. (Input all amounts as positive values.)

Pacific Manufacturing Company

Schedule of Cost of Goods Manufactured

Direct materials:

Total raw materials available

Raw materials used in production $

Total manufacturing cost

Cost of goods manufactured $

Compute the unadjusted cost of goods sold for the year. (Do notinclude any underapplied or overapplied overhead in your cost ofgoods sold figure.

Unadjusted cost of goods sold $

Price to customer $

Direct labor made up $8,500 of the $36,000 ending Work inProcess inventory balance. Supply the information missingbelow:

Direct materials $

Direct labor 8,500

Manufacturing overhead

Work in process inventory $ 36,000

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ADMS 2510 Lecture Notes - Lecture 3: Cost Driver, Fixed Cost, Continuous Production

ADMS 2510 Full Course Notes

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