ACCT 210 1st Edition Lecture 7Outline of Last Lecture I. Functional cost classifications continuedII. Three stages of productionIII. Inventory cost flowsIV. Example with T-accountsOutline of Current Lecture I. Review of previous materialII. PORIII. Recording overheadCurrent Lecture1. Review of previous materiala. Indirect Costi. AKA manufacutring overheadii. Costs that cannot easily be traced directly to the cost objectb. Product costsi. As they are being produced go on the balance sheet as inventoryii. After they are all sold they go on the income statement as cost of goods soldc. Cost function and behaviord. Work in process (WIP) includes:i. Raw materialii. Direct laboriii. Overheade. Total manufacturing cost is the sum of:i. Direct materialsii. Direct laboriii. Overhead2. PORa. Predetermined Overhead Ratesb. A “standard” rate based on budgeted activity used to “apply” overhead to productsc.POR=Estimated overheadEstimated activity level3. Recording overheada.AccountspayableManufacturing overheadWork inprocessDebits:Actual overhead recorded as invoices are received(actual costs incurred)Credits:Applied overhead recordedduring 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 overheadc. If the amount spent is greater than the amount applied (credits>debits), you over-applied overheadd. Example:i. Ending debit balance: $800,000; Ending credit: $900,000ii. Need to close the account so you have two options:1. Debit 100,000 to manufacturing overheadJournal entry:DR CRManufacturing overhead 100,000Cost of goods sold 100,0002. Disperse amongst the 3 accounts that carry overhead based on the balance sheetFor example…Balance sheet % of 60,000 % of $100,000Work in process 10,000 17 17,000Finished goods 20,000 33 33,000COGS 30,000 50 50,000Total 60,000 100%
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