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Custom built homes
Battleships
Printing shops
Auto repair
Flow of Costs
Direct
Materials
Direct
Labor
Factory
Overhead
Finished
Goods
Inventory
Work in
Process
Invento
ry
Cost of
Goods Sold
Journal EntriesRaw
Materials
Raw Materials
Inventory
Accounts Payable
To record purchase of
raw materials
$10,000
$10,000
Journal EntriesRaw
Materials
Raw materials
inventory
Accounts payable
To record purchase of
raw materials
10,000
Work in process
Raw materials
inventory
Raw materials used in
production
5,000
10,000
5,000
Journal--Factory Labor
and Overhead Labor
Work in process
Manufacturing overhead
Payroll payable
To assign labor costs to
work in process and
overhead
25,000
15,000
40,000
Note: if more than one Job is being debited, then subsidiary ledgers for
Each job will be debited also. For example if the work in process consisted of
$20,000 of payroll going into Job 1 and $5,000 going into job 2, then you
would also Debit Job 1 WIP $20,000, and Job 2 WIP $5,000. The work in
process and Finished goods are control accounts.
JournalTransfer from
Work in Process to
Finished Goods
Finished Goods
Work in Process
To transfer completed
work in process to
finished goods
9,000
9,000
JournalTransfer from
Finished Goods To COGS
Cost of Goods Sold
Finished Goods
5,000
5,000
To record sale of
finished goods
Accounts Receivable
Sales
To record sale of
finished goods
$7,850
7,850
Overhead
Overhead is defined as indirect costs
Three Overhead
Categories
Budgeted overhead
Estimated at the beginning of the year
Used for one purposecalculation of overhead
rate
Actual overhead
Calculated at the end of the year
Found in the general ledger
Overhead applied
The amount of overhead credited from the
Overhead Example
Jensen Woodworking manufactures
custom furniture
Overhead is applied on the basis of
direct labor hours
At the beginning of the year the
controller prepares the information
shown on the next slide
Budget
Estimated direct labor hours =
100,000
Estimated overhead cost =
$1,000,000
Overhead rate = 1,000,000/100,000
= $10 per labor hour
99,500
Actual overhead expense from the
general ledger = $1,020,000
Overhead Applied
Formula: Actual hours worked x
overhead rate
99,500 x $10 = $995,000 overhead
applied
Work in
Process
$995,0
00
Work in
Process
$995,0
00
$25,000
Cost of Goods
Sold
$25,00
0
2,800
600
3,400
given in BE2-2.
During January, time tickets show that the
factory labor of $5,000 was used as follows:
Job 1 $1,200
Job 2 $1,600
Job 3 $1,400
And general factory use $800
4,200
800
5,000
Exercise 2-2
Miller Manufacturing uses a job order
costing system.
On May 1, the company has a balance
in work in process inventory of $3,200
and two jobs in process:
Job 429: $2,000
Job 430: $1,200
Source Documents
Job #
Material
Requisition
Slips
429
$2,500
$1,900
430
3,500
3,000
431
4,400
7,600
Subtotal
$10,400
$12,500
Gen Use
800
1,200
$11,200
$13,700
Total
overhead to jobs
The completion of job 429
Then post the entries to work in
process and prove the agreement of
the control account with the job cost
sheets.
10,400
800
Raw materials
inventory
Work in process
inventory
Manufacturing
overhead
11,200
12,500
1200
10,000
Manufacturing
Overhead
10,000
($12,500 80%)
Finished goods
inventory
Work in process
inventory
($2000 +$2500 +
7,920
7920
May 31
7,920
BW IP
1200
431
1200
DM
3500
DL
3000
MOH
2400
Total
10,10
0
4400
7600
6080
18,08
0
7900
10,60
0
8480
28,18
0
Remaining Problems to Be
Worked on Excel or on Board