MGA 202 1st Edition Lecture 5Outline of Last Lecture: Chapter 1I. Classify Costs in relation to COST OBJECTS: Direct vs. Indirect Costs.II. Classify Costs for Decision Making: Differential, Opportunity, & Sunk CostOutline of Current Lecture-Chapter 2: Job-Order Costing & Product Costing SystemsI. Job-Order Costing - Companies that make products to ORDER use this system. Supply & Demand leads to changes in prices. - The unique nature of each order requires tracing or allocating costs to each job, & maintain them. - Job-Order Costing differs significantly across different areas of product manufacturing.A. Sales & Production Order: - Sales Order is for a customer& includes pricing info. - Production Order is just for internal use. - Receive Order > Request Materials > Begin ProductionOR- Sales Order > Production Order > Manufacturing ProcessB. Job Cost Sheet - Direct Materials Cost comes from the Materials Requisition Form- Materials Requisition Form includes type, quantity, & total cost of materials used in & charged to the Job. - Direct Labor comes from Employee Time Tickets- But…Manufacturing Overheadcan not be directly traced like DL&DMExample: grease used in machines, electricity in factory- We must use Manufacturing Overhead Application: this is allocating/applyingcosts to Manufacturing OverheadC. Manufacturing Overhead Application Process1) Select an cost allocation base: this is a cost driver that causes overheadExample: DL hours, machine hours, or DL dollars2) Compute the predetermined overhead rate (POHR)-$/Allocation BasePOHR = Estimated total MOH cost for the coming periodEstimated total units∈the allocation base for the coming periodThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.3) Apply OH to individual jobs OH Applied to Job = POHR × Actual Activity D. End of Period Adjustment: Under or Over applied Overhead- Actual MOH @ the end of the period ≠ Applied (Calculated) MOH - If…Applied MOH > Actual MOH it’s OVERAPPLIED- If…Applied MOH < Actual MOH it’s UNDERAPPLILED- Because they are not equal we need to make an end of period adjustment- The OVERAPPLIED MOH can be allocated to the following accounts…Work in Process, Finished Goods, or Cost of Goods SoldNext Lecture-2/11I. Chapter 2: Job-Order Costing & Product Costing SystemsE. Job-Order Costing: Cost Flow (T accounts & Journal Entries)F. Applying Actual Material, Labor, & OverheadG. Job Completed & Sales H. Review of Job-Order