ACCT 2102 1st Edition Lecture 8 Outline of Last Lecture I Job Costing II MOH III Calculating POHR Outline of Current Lecture IV Allocating MOH V Overallocated Underallocated MOH VI Example 1 VII Closing out MOH Current Lecture Job Costing Chapter 3 Part 2 Attendance Taken IV Allocating MOH during the year MOH allocated to a cost object POHR x actual amount of allocation used by the cost object When is MOH allocated to the cost objects o When we need it to be o It is always happening just whenever we need it to work What effect does this allocation of MOH have on the inventory accounts o WIP account affected includes DM DL MOH o Increases WIP o Product cost category that we are adding to whatever job we are doing the allocating for Does each job we work on have a different POHR These 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 o No it happens at beginning of period It is the rate used for ALL production during period not a rate specific to a job V Overallocated Underallocated MOH What is left in the MOH account What does it mean o Overallocated overapplied MOH compare actual and applied applied MOH will be higher than actual MOH costs we put in WIP will be too high finished goods will also be too high COGS will be too high Gross Profit will be too low o Underallocated underapplied MOH actual MOH will be higher than applied MOH costs we put in WIP will be too low finished goods will also be too low COGS will be too low Gross Profit will be too high o MOH account is a temporary account which means we close it out o Factory rent factory supervisor salary and indirect materials are all in applied MOH We need POHR and actual allocation base for each job we are applying WIP to Where is the error currently sitting if we ve sold most of the jobs we ve produced during the year the usual case since we don t want to build inventory unless we know we can sell it fairly quickly COGS o How do we close overallocated MOH Decrease GOGS by the difference between applied and actual o How do we close underallocated MOH Increase GOGS by the difference between applied and actual VI What do we do if the amount of over underallocation is fairly large and we still have a lot of the inventory left unfinished or unsold Spread overapplied or underapplied amount over WIP FG and COGS doing a weighted average Example 1 Lazy Boy Furniture makes recliners and sofas in small batches Before the year began Lazy Boy estimated its manufacturing overhead costs for the year to be 2 million The company uses DL hours as its allocation base The company thinks it will use 10 000 DL hours throughout the year POHR 2 000 000 200 DL hours 10 000 DL hours Job AKF is a batch of 10 identical recliners The job was started in the current period Requisitioned direct materials for Job AKF that totaled 500 500 used for AKF Time records show the following direct labor was used in producing Job AKF o Rylee logged 12 hours at 20 per hour and Jessie logged 8 hours at 7 50 per hr o DL Cost 12 hours x 20 8 hours x 7 50 240 60 300 Lazy Boy sells 2 recliners from Job AKF at a sales price of 1 000 each What is the gross profit on each unit Where are the other job costs sitting at the end of the period o MOH POHR x hours used 200 DL hour x 20 hours 4 000 o Sales Price 1 000 unit cost 480 520 JOB 520 Costs Beginning Balance 0 Direct Materials 500 Direct Labor 300 MOH 4 000 Total Job Cost units in job Cost per unit 4 800 10 480 What information would you need to close out MOH 1 Need actual MOH 2 MOH applied to any other jobs we worked on during period VII When you see estimated MOH allocation base go ahead and calculate POHR When you see Started in previous period it means you have costs in beginning WIP for that job Closing out MOH Recall that Lazy Boy estimated its manufacturing overhead to be 2 million for the year LazyBoy also estimated that it would use 10 000 DL hours during the year Let s say that by the end of the year Lazy Boy had actually incurred 1 950 000 of MOH costs and had actually used a total of 10 500 DL hours working on jobs throughout the year Compute the over or underallocated MOH for the year and close out the account assuming that most of the inventory produced during the year has been sold POHR 2 000 000 10 000DL hours 200 DL hr Actual MOH 1 950 000 Applied 200 x 10 500 2 100 000 150 000 over MOH 150 000 overallocated which means close out a decrease to COGS by 150 000 Now assume all of the same facts as above EXCEPT assume that the company had actually used only 9 700 DL hours Was MOH over or underallocated for the year By how much Close out the account POHR 2 000 000 9 700DL hours 206 DL hr Actual MOH 1 950 000 Applied 206 19 x 10 500 2 164 995 214 995 over MOH 241 995 overallocated which means close out a decrease to COGS by 214 995 Types of MOH Budgeted MOH get POHR Applied MOH put in WIP Actual MOH compared to applied to close out COGS