ACCT 2102 1st Edition Lecture 8 Outline of Last Lecture: I. Job Costing II. MOH III. Calculating POHROutline of Current Lecture: IV. Allocating MOH V. Overallocated/Underallocated MOH VI. Example #1 VII. Closing out MOHCurrent Lecture: Job Costing (Chapter 3, Part 2)*Attendance TakenIV. 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 beo 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, MOHo Increases WIPo 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 lowo 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 higho 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)? COGSo How do we close overallocated MOH? Decrease GOGS by the difference betweenapplied and actualo How do we close underallocated MOH? Increase GOGS by the difference between applied and actual• ***What do we do if the amount of over/underallocation is fairly large, and we still havea lot of the inventory left (unfinished or unsold)? Spread overapplied or underapplied amount over WIP, FG, and COGS (doing a weighted average)VI. 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 hoursJob 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 = $300Lazy-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 used200/DL hour x 20 hours = $4,000o Sales Price ($1,000) – unit cost ($480) = $520JOB #520 CostsBeginning Balance 0Direct Materials 500Direct Labor 300MOH 4,000 Total Job Cost 4,800# units in job ÷10 Cost per unit $480What information would you need to close out MOH?1. Need actual MOH2. MOH applied to any other jobs we worked on during period- 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 forthat job.VII. Closing out MOHRecall that Lazy-Boy estimated its manufacturing overhead to be $2 million for the year. Lazy-Boy 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 Applied1,950,000 $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 Applied1,950,000 $206.19 x 10,500 = $2,164,995$214,995 over• MOH $241,995 overallocated which means close out a decrease to COGS by $214,995Types of MOH:Budgeted MOH- get POHRApplied MOH- put in WIPActual MOH- compared to applied to close out