Job-order CostingCompute a Predetermined Overhead RateWhatever we think is driving overhead can be used as an allocation base. The idea here is, if we believe the overhead goes up with say, the amount of hours worked, then direct labor hours will be the allocation base. This is all based on ESTIMATION. There needs to be a predetermined overhead rate because if we waited till the actual, then we would have to wait 12 months to recognize overhead.The predetermined overhead rate = Estimated total manufacturing overheadUnderstanding Raw Materials’ in T-ChartsCompute Under-applied or Over-applied Overhead CostExam # 2 Study Guide Chapters: 4 - 6Chapter 4 (Job Order Costing – Absorption)- Job-order Costingo Absorption costing is used when many different products are produced during a single period. If a company produces more than one product, they will need to allocate overhead onto different products. o Say you’re a manufacturer of bicycles and a retailer wants to buy 150 bikes. That’s the job… What is the total cost of this job? Companies need to keep track of the cost of each job so they know how much they make money on the job, should they continue, are they making money. They need to know is the product beneficial?o DM + DL + VARI MANUFACTURING OVERHEAD+ FIXED MFCT OHo Examples: OH=$18/hr, DL=$12/hr, $200 TDM, $120 TDL. Direct labor cost is $120/$12= 10 direct labor hours. Now we know we have 10 DLH, so OH cost is $18x10= $180. So 180+120+200= $500. - Compute a Predetermined Overhead Rateo Whatever we think is driving overhead can be used as an allocation base. The idea here is, if we believe the overhead goes up with say, the amount of hours worked, then direct labor hours will be the allocation base. This is all based on ESTIMATION. There needs to be a predetermined overhead rate because if we waited till the actual, then we would have to wait 12 months to recognize overhead.o The predetermined overhead rate = Estimated total manufacturing overheadEstimated total units of allocation baseo Total Job Cost = Fixed estimated Overhead + (variable overhead x allocation base)Allocation baseo First find the allocation base, and then estimate the manufacturing overhead, and finally you are able to do the division. ALWAYS REMEMBER, EVERYTHING IS BASED ON ESTIMATES. Job has $200 direct materials; 10 hours of labor at $15/hr. estimated total overhead was 760,000 for the year with 20,000 direct labor hours. What is the job cost?o $760,000/20,000= $38, $38(10)+ ($15)10 + 200 = $730 job cost Example of Multiple Predetermined Overhead Rateso Milling: Fixed OH = $390,000 / variable ($2/machine hour x 60,000 mhr) $120,000Total Estimated OH = ($390,000 + $120,000) = $510,000POHR = $510,000 = $8.50/mhrACCT 2020 1nd Edition60,000 mhro Assembly: Fixed OH = $500,000 / variable ($3.75/Direct labor x 80,000 DL) $300,000Total Estimated OH = ($500,000 + $300,000) = $800,000POHR = $800,000 = $10/DL80,000 DLo Now apply to Job 407 DM for milling/assembly are $800 + $370 = Total DM=$1170 DL for milling/assembly are $45 + $160 = Total DM=$205 OH for milling/assembly are (90 x $8.50)+ (20 x $10) = Total OH $865 TOTAL JOB COST OF $2,340- Understanding Raw Materials’ in T-Chartso When raw materials are purchased, you debut raw materials and credit cash or account payable. o Once you start using raw materials in production, these materials are now a work in process, which consists of units of production that are only partially complete and need further work to be sellable.There is no expense involved, just a transfer between inventory accounts. o Once completed they can be considered finished goods which are completed goods that are ready to be sold.o Cost of good manufactured includes the costs associated wit them goods that were finished during this period. All of these changes are on the balance sheet, not on the income statement until expenses are incurred.  WIP30,000 (30,000+20,000 –x=72,000)200,000 COGS= 158,00072,000 Finished Goods158,000 (0+158,000 – x=39,500)(158,000 / 1000units) x= 158,000-39,500($158/unit) COGS =118,500(250 units x $158)$39,500 SO, we take the unadjusted COGS (118,500) add the under-applied OH (5,000), so your cost of goods sold is (118,500+5,000) =COGS= $123,500- Compute Under-applied or Over-applied Overhead Costo Final Step of Absorption costing is to adjust for under or over-applied overhead cost. If the applied overhead is less than your actual, then your overhead is considered under-applied then and this amount must be added to cost of goods sold. If applied overhead is greater than the actual overhead costs it is considered over-applied and the amount is subtracted from cost of goods sold. If actual overhead was 95,000 and applied overhead was 90,000, then the under-applied overhead is 5,000. This amount would be added to cost of goods sold on the balance sheet. Uxmaiz Corporation had only one job in process during May. Had no finished goods inventory on May 1, the job was started in April and finished in May. 1. First, get a cost per Unit; Begin BAL=5,000 /applied DM= 8,000/ applied DL =2,000 / applied overhead= 4,000; so total job cost is 19,000. 100 units completed. So 19,000/100; average unit product cost is 190 units.2. Second, multiply that by a cost of unit sold; $190 per unit, and 40 units sold. $190 x 40 units = $7600 unadjusted COGS3. Third, adjust for over or under applied overhead; 1. The overhead applied by $400, so what is the adjusted COGS? 7600-400= $7300Chapter 6 (Activity Based Costing)- Identifying the factors which cause the costs of an organizations major activities:A. Activities cause cost; this could be ordering, assembling, servicing customers, etc. the idea here is that if the organization existed but never did anything, than it should have zero costs.B. Producing products creates demand for these activities; if a manufacturing company never did any manufacturing, than they don’t need to do anything else. If they never produced than they would never need the raw materials etc. C. Costs are assigned to a product (cost object) on the basis of that product (cost object)’s consumption of activities. Because the production is causing the cost, than we are going to assign those costs to those products. - Why ABC Costing?o This method is a supplemental tool because the traditional costing system is needed for GAAP when filling financial reports, but it