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Cost Systems
There are two basic systems used by manufacturers to assign costs to their products:
Process costing Job Order costing
Process Costing
Used by companies that produce large numbers of identical units
Textile Business Paper mills Oil refining
Schedule jobs.
Order materials.
Factory Overhead
Indirect
Allocate
Goods in Process
Finished Goods
Labor
Direct
Totals
Materials Requisition
Used to authorize the use of materials on a job. Also serves as the source document for recording material usage in the accounting records.
MATERIALS REQUISITION NO. MR523 _____ Date: _______ 8/03 Item no. Item 47624 Bar steel stock 3 A35161 Subassemblies Total Job No. _____ J9738 Quantity Unit cost Amount 720 lbs $11.50 $8,280 290 units $38.00 11,020 $19,300
Date
Rate
Amount
8/03
MR523
19,300
Totals
Employee: _J K ___________
rle Supervisor: M . M o y
Date
Rate
Amount
8/03 8/04
MR523
19,300
Totals
POHR =
Estimated total direct labor cost as base.
Cost per unit = Date $26223/ 300 Completed = $87.41 FOH Applied
Date Rate Amount
8/03 8/04
MR523
19,300
8/04
54%
2,427
Totals
19,300
4,496
Overall Cost Summary Materials 19,300 4,496 Labor Overhead 2,427 Total Job Cost 26223
Work in Process
Direct Material
FOH Applied
Actual FOH Costs
Work in Process
Direct Material Direct Labor FOH
FOH Applied
Actual FOH Costs FOH Applied to Work in Process
Finished Goods
Cost of Goods Mfd. Cost of Goods Sold
Actual FOH
Calculated at the end of the year Found in the general ledger
FOH applied
The amount of FOH credited from the FOH account and debited to Work in Process using a rate and a base
FOH Application
1. Estimate total FOH for the period. 2. Select an FOH allocation base. 3. Estimate total quantity of the FOH allocation base. 4. Compute the predetermined overhead rate.
FOH Application
5 Obtain actual quantities of the FOH allocation base. 6 Allocate FOH by multiplying the predetermined overhead rate by the actual quantity of the allocation base that pertains to each job.
Objective 1
Objective 2
Account for end-of-period under applied or over applied indirect costs using alternative methods.
End-Of-Period Adjustments
End-Of-Period Adjustments
How was the allocated FOH determined?
2,480 machine-hours $25 budgeted rate = $62,000
End-Of-Period Adjustments
Actual FOH costs of $65,100 are more than the budgeted amount of $60,000. Actual machine-hours of 2,480 are more than the budgeted amount of 2,400 hours.
End-Of-Period Adjustments
Approaches to disposing underallocated or overallocated FOH:
Proration Approach
Ending balances of Work in Process, Finished Goods, and Cost of Goods Sold Work in Process $ 40,000 28% Finished Goods 22,500 16% Cost of Goods Sold 81,500 56% Total $144,000 100%
Proration Approach
FOH 65,100
62,000 3,100
Finished Goods 22,500 496 22,996 Work in Process 40,000 868 40,868