1. Factory Overhead

2. Manufacturing Overhead Job No. 1 Job No. 2 Job No. 3 Charge direct material and direct labor costs to each job as work is performed. Sequence of Events in a Job- Order Costing System Direct Materials Direct Labor

3. Calculating and Applying Overhead 1.Calculate a Predetermined Overhead Rate based on Budget Data 2.Charge Actual Overhead to the Overhead account 3.Calculate the applied amount of Overhead $$$$, charge to WIP 4.Post applied Overhead to the Manufacturing Overhead account (above) and WIP 5.Balance in Overhead account is equal to Over/Under Applied overhead 6.Transfer ending balance in Manufacturing Overhead out, leaving a ZERO balance in Manufacturing Overhead

4. Manufacturing costs that cannot be traced directly to specific units produced. Manufacturing Overhead Examples: Indirect labor and indirect materials and indirect manufacturing costs (rent, utilities, etc.) Wages paid to employees who are not directly involved in production work. Examples: maintenance workers, janitors and security guards. Materials used to support the production process. Examples: lubricants and cleaning supplies used in the automobile assembly plant.

5. List of costs - BUDGETED: Budgeted Costs Direct mtls $ 1,500,000 Direct labor $ 380,000 Sales commissions $ 650,000 Salary of production supervisors $ 350,000 Salary of purchasing dept. $ 300,000 Indirect materials $ 50,500 Advertising expense $ 75,000 Training for production employees on new system $ 62,000 Training for accounting employees on new system $ 20,000 Rent (factory uses 75% of floorspace) $ 510,000 Utilities $ 100,000

6. List of costs - BUDGETED: Budgeted Costs Direct mtls $ 1,500,000 Direct labor $ 380,000 Sales commissions $ 650,000 Salary of production supervisors $ 350,000 Salary of purchasing dept. $ 300,000 Indirect materials $ 50,500 Advertising expense $ 75,000 Training for production employees on new system $ 62,000 Training for accounting employees on new system $ 20,000 Rent (factory uses 75% of floorspace) $382,500 $ 510,000 Utilities – assume 75% as well.... $75,000 $ 100,000

7. Budgeted Cost Driver For this problem, assume a cost driver of Direct Machine Hours: Budgeted Machine Hours = 302,500 hours What is your Predetermined Overhead Rate?

8. What do you do with Actual overhead?

9. List of costs – ACTUAL, end of year: Actual Costs Direct mtls $ 1,490,000 Direct labor $ 370,000 Sales commissions $ 650,000 Salary of production supervisors $ 350,000 Salary of purchasing dept. $ 300,000 Indirect materials $ 50,000 Advertising expense $ 75,000 Training for production employees on new system $ 60,000 Training for accounting employees on new system $ 20,000 Rent (factory uses 75% of floorspace) $ 500,000 Utilities assume 75% as well.... $ 100,000

10. Do we use ACTUAL costs to apply Overhead to WIP? NO NO NO NO NO NO NO NO NO NO!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Charge to Manufacturing Overhead instead – debit How much and which accounts?

11. List of costs – ACTUAL, end of year: Actual Costs Direct mtls $ 1,490,000 Direct labor $ 370,000 Sales commissions $ 650,000 Salary of production supervisors $ 350,000 Salary of purchasing dept. $ 300,000 Indirect materials $ 50,000 Advertising expense $ 75,000 Training for production employees on new system $ 60,000 Training for accounting employees on new system $ 20,000 Rent (factory uses 75% of floorspace) $375,000 $ 500,000 Utilities assume 75% as well.... $75,000 $ 100,000

12. Manufacturing Overhead Mfg. Overhead ActualApplied $1,210,000

13. How do you apply overhead?

14. Apply overhead to each job using a predeter- mined rate. Sequence of Events in a Job- Order Costing System Direct Materials Direct Labor Job No. 1 Job No. 2 Job No. 3 Manufacturing Overhead

15. Actual amount of the allocation base such as units produced, direct labor hours, or machine hours incurred during the period. Based on estimates, and determined before the period begins. Application of Manufacturing Overhead Overhead applied = POHR × Actual activity

16. How much to Apply? Tiger, Inc. has a predetermined overhead rate of $4.00 per machine hour. Tiger, Inc. expected to work 302,500 hours during the period but actually worked 290,000 machine hours during the period. How much should Tiger apply? 290,000 x $4 = $1,160,000

17. Mfg. Overhead Work in Process (Job Cost Sheet) Direct Materials Overhead Applied Overhead Applied to Work in Process Direct Labor Indirect Labor Indirect Materials ActualApplied If actual and applied manufacturing overhead are not equal, a year-end adjustment is required. Job-Order System Cost Flows Other Indirect Costs

18. Is it Over or Under Applied? Tiger, Inc. had actual manufacturing overhead costs of $1,210,000 and a predetermined overhead rate of $4.00 per machine hour. Tiger, Inc. expected to work 302,500 hours during the period but actually worked 290,000 machine hours during the period. Are you over or under applied? By how much?

19. Mfg. Overhead Work in Process (Job Cost Sheet) 1,190,000 ActualApplied If actual and applied manufacturing overhead are not equal, a year-end adjustment is required. Job-Order System Cost Flows 1,190,000 $1,210,000

20. Manufacturing Overhead Mfg. Overhead ActualApplied $1,210,000$1,190,00 $20,000 balance Actual costs are Greater than Applied Rate: Is this Over or Under Applied????

21. Over/Under Applied Actual $$$ > Applied $$$ = Under Applied or Debit Balance (unfavorable, increases COGS when you adjust) Actual $$$ < Applied $$$ = Over Applied or Credit Balance (favorable, decreases COGS when you adjust)