ACCT 2102 1st Edition Lecture 9 Outline of Last Lecture I Allocating MOH II Overallocated Underallocated MOH III Example 1 IV Closing out MOH Outline of Current Lecture V In class Example Current Lecture In Class Example Finding Cross Profit Angry Birds Inc designs and builds walls for individual customers On August 1 2 jobs were in process Level 1 with a beginning balance of 10 400 and Level 2 with a beginning balance of 8 600 During August 1 Level 3 and 4 were started Level 1 was completed and sold at cost plus 40 during August All other jobs remained in process at month end The company applies manufacturing overhead at a rate of 11 per direct labor hour Direct labor wages average 10 per hour The following additional cost information is available for August Level 1 Level 2 Level 3 Level 4 Direct Materials 1 200 8 000 2 100 3 000 Direct Labor 1 800 4 000 200 800 The sales staff is paid a 2 commission on all sales for the period Calculate the Gross Profit reported on the Income Statement for August assuming the company incurred 8 000 in actual MOH during August This information is irrelevant for solving this problem because sales commission is a period cost which we do not need to calculate GP Breakdown of problem On August 1 2 jobs were in process Level 1 with a beginning balance This means that jobs 1 and 2 were not sold or completed at the end of the previous period job 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 Level 1 was completed and sold at cost This means that Level 1 job will close to COGS since the job was completed All other jobs remained in process This means that all other jobs will close to WIP What is the problem asking Find Gross Profit We must do this by first adjusting the COGS account Given Actual MOH 8 000 POHR 11 DL hour Wage rate 10 DL hour Level 1 COGS Level 2 WIP Level 3 WIP Level 4 WIP Beginning Balance 10 400 8 600 0 0 DM 1 200 8 000 2 100 3 000 DL 1 800 4 000 200 800 MOH Applied Need to find Applied MOH for each job Applied MOH POHR x hours machine or DL for this problem we use DL hours DL Cost wage rate x DL hours Rearrange the 2 equations and we get Applied MOH DL Cost x POHR Wage rate Solve Applied MOH Level 1 1 800 x 11 1 980 10 Total Applied MOH Applied MOH Level 2 4 000 x 11 4 400 10 Applied MOH Level 3 200 x 11 220 10 Applied MOH Level 4 800 x 11 880 10 Level 1 COGS Level 2 WIP Level 3 WIP Level 4 WIP Beginning Balance 10 400 8 600 0 0 DM 1 200 8 000 2 100 3 000 DL 1 800 4 000 200 800 MOH Applied 1 980 4 400 220 880 15 380 25 000 2 520 4 680 Total Applied MOH 7 480 From table above we see that ending WIP 25 000 2 520 4 680 32 200 We also know that finished goods 0 The problem asks for Gross Profit SR Sales Revenue Adjusted COGS Gross Profit Therefore we need to find SR and adjusted COGS Level 1 was completed and sold at cost plus 40 during August SR 15 380 15 380 x 40 21 532 Actual 8 000 given MOH Applied 7 480 found in previous table 8 000 7 480 520 under Here we see COGS needs to be adjusted by 520 MOH was underallocated which means it must be added to Adjusted COGS Adjusted COGS 15 380 520 15 900 Solve for Gross Profit SR Sales Revenue Adjusted COGS Gross Profit 15 380 15 900 5 632
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