2. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 1 Transactions Work in Process Control: Job No. 65019,000 Job No. 651 3,000 Manufacturing Overhead Control 5,000 Wages Payable27,000

3. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 2 Transactions Wages Payable Control 3. 27,000 Work in Process Control 2. 60,000 3. 22,000 Manufacturing Overhead Control 2. 15,000 3. 5,000 Job 650 2. 50,000 3. 19,000

4. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 3 Transactions Wages payable were paid. Wages Payable Control 4. 27,000 Cash Control Wages Payable Control 27,000 Cash Control 27,000 3. 27,000

5. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 4 Transactions Assume that depreciation for the period is $26,000. Other manufacturing overhead incurred amounted to $19,100. What is the journal entry?

6. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 5 Transactions Manufacturing Overhead Control 45,100 Accumulated Depreciation Control 26,000 Various Accounts 19,100 What is the balance of the Manufacturing Overhead Control account?

7. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 6 Transactions $62,000 of overhead was allocated to the various jobs of which $12,500 went to Job 650. Work in Process Control62,000 Manufacturing Overhead Control62,000 What are the balances of the control accounts?

8. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 7 Transactions Manufacturing Overhead Control Work in Process Control 2. 15,000 3. 5,000 5.45,100 Bal. 3,100 2.60,000 3.22,000 6.62,000 Bal. 144,000 6. 62,000

9. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 8 Transactions The cost of Job 650 is: Job 650 2.50,000 3.19,000 6.12,500 Bal.81,500

10. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 9 Transactions Jobs costing $104,000 were completed and transferred to finished goods, including Job 650. What effect does this have on the control accounts?

11. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 10 Transactions Work in Process Control Finished Goods Control 2.60,000 3.22,000 6.62,000 Bal.40,000 7. 104,000

12. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 11 Transactions Job 650 was sold for $114,800. What is the journal entry? Accounts Receivable Control114,800 Revenues 114,800 Cost of Goods Sold 81,500 Finished Goods Control 81,500

13. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 12 Transactions What is the balance in the Finished Goods Control account? $104,000 – $81,500 = $22,500 Assume that marketing and administrative salaries were $9,000 and $10,000. What is the journal entry?

14. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 13 Transactions Marketing and Administrative Costs 19,000 Salaries Payable Control19,000

15. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 14 Transactions Direct Materials Used $60,000 Direct Labor and Overhead $84,000 Ending WIP Inventory $40,000 Cost of Goods Manufactured$104,000 – = +

16. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 15 Transactions Cost of Goods Manufactured$104,000 Ending Finished Goods Inventory $22,500 Cost of Goods Sold $81,500 = –

17. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 16 Learning Objective 6 Account for end-of-period underallocated or overallocated indirect costs using alternative methods.

18. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 17 End-Of-Period Adjustments Underallocated indirect costs Overallocated indirect costs Manufacturing Overhead Control Bal. 65,100 Manufacturing Overhead Applied Bal. 62,000

19. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 18 End-Of-Period Adjustments How was the allocated overhead determined? 2,480 machine-hours × $25 budgeted rate = $62,000 $65,100 – $62,000 = $3,100 (underallocated)

20. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 19 End-Of-Period Adjustments Actual manufacturing overhead costs of $65,100 are more than the budgeted amount of $60,000. Actual machine-hours of 2,480 are more than the budgeted amount of 2,400 hours.

21. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 20 End-Of-Period Adjustments Approaches to disposing underallocated or overallocated overhead: 1. Adjusted allocation rate approach 2. Proration approaches 3. Immediate write-off to Cost of Goods Sold approach

22. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 21 Adjusted Allocation Rate Approach Actual manufacturing overhead ($65,100) exceeds manufacturing overhead allocated ($62,000) by 5%. 3,100 ÷ 62,000 = 5% Actual manufacturing overhead rate is $26.25 per machine-hour ($65,100 ÷ 2,480) rather than the budgeted $25.00.

23. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 22 Adjusted Allocation Rate Approach The manufacturing company could increase the manufacturing overhead allocated to each job by 5%. Manufacturing overhead allocated to Job 650 under normal costing is $12,500. $12,500 × 5% = $625 $12,500 + $625 = $13,125, which equals actual manufacturing overhead.

24. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 23 Proration Approach Basis to prorate under- or overallocated overhead: – total amount of manufacturing overhead allocated (before proration) – ending balances of Work in Process, Finished Goods, and Cost of Goods Sold

25. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 24 Proration Approach “A” Assume the following manufacturing overhead component of year-end balances (before proration): Work in Process$23,500 38% Finished Goods 26,000 42% Cost of Goods Sold 12,500 20% Total$62,000100%

26. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 25 Proration Approach “A” Manufacturing Overhead Finished Goods 65,100 62,000 22,500 3,100 1,302 0 23,802 Cost of Goods Sold Work in Process 81,500 40,000 620 1,178 82,120 41,178

27. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 26 Proration Approach “B” Ending balances of Work in Process, Finished Goods, and Cost of Goods Sold Work in Process$ 40,000 28% Finished Goods 22,500 16% Cost of Goods Sold 81,500 56% Total$144,000100%

28. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 27 Proration Approach “B” Manufacturing Overhead Finished Goods 65,100 62,000 22,500 3,100 496 0 22,996 Cost of Goods Sold Work in Process 81,500 40,000 1,736 868 83,236 40,868

29. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 28 Immediate Write-off to Cost of Goods Sold Approach Manufacturing Overhead 65,100 62,000 3,100 0 Cost of Goods Sold 81,500 3,100 84,600

30. ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 29 End of Chapter 4