ACCT 210 1st Edition Lecture 7 Outline of Last Lecture I Functional cost classifications continued II Three stages of production III Inventory cost flows IV Example with T accounts Outline of Current Lecture I Review of previous material II POR III Recording overhead Current Lecture 1 Review of previous material a Indirect Cost i AKA manufacutring overhead ii Costs that cannot easily be traced directly to the cost object b Product costs i As they are being produced go on the balance sheet as inventory ii After they are all sold they go on the income statement as cost of goods sold c Cost function and behavior d Work in process WIP includes i Raw material ii Direct labor iii Overhead e Total manufacturing cost is the sum of i Direct materials ii Direct labor iii Overhead 2 POR a Predetermined Overhead Rates b A standard rate based on budgeted activity used to apply overhead to products Estimated overhead POR c Estimated activity level 3 Recording overhead a Accounts payable Work in process Manufacturing overhead Debits Actual overhead recorded as invoices are received actual costs incurred Credits Applied overhead recorded during the period as overhead is applied to a specific job how you applied overhead b If the amount applied is greater than the amount spent debits credits you under applied overhead c If the amount spent is greater than the amount applied credits debits you over applied overhead d Example i Ending debit balance 800 000 Ending credit 900 000 ii Need to close the account so you have two options 1 Debit 100 000 to manufacturing overhead Journal entry DR Manufacturing overhead 100 000 CR Cost of goods sold 100 000 2 Disperse amongst the 3 accounts that carry overhead based on the balance sheet For example Balance sheet of 60 000 of 100 000 Work in process 10 000 17 17 000 Finished goods 20 000 33 33 000 COGS 30 000 50 50 000 Total 60 000 100 100 000
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