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For each company, note that the actual data for both cost and the allocation base differ from the estimates used in computing the predetermined overhead rate. This results in underapplied and overhead as follows

For each company, note that the actual data for both cost and the allocation base differ from the estimates used in computing the predetermined overhead rate. This results in underapplied and overhead as follows

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A summary of these concepts is presented in Exhibit 3-13

At the beginning of the period:

Estimated total

manufacturing

overhead cost



Estimated total

amount of the

allocation base



Predetermined

overhead rate



During the period:

Predetermine

d overhead

rate



Actual total amount of

the allocation base

incurred during the

period



Total

manufacturing

overhead

applied



Total manufacturing

overhead applied



Underapplied

(overapplied)

overhead



At the end of the period:

Actual total

manufacturin

g overhead

cost



Disposition of Underapplied or Overapplied Overhead Balances

The underapplied or overapplied balance remaining in the Manufacturing Overhead account at the

end of a period is treated in one of two ways:

•Closed out to Cost of Goods Sold: closing out the balance in Manufacturing Overhead to Cost of

Goods Sold.

•Allocated between Accounts: allocation of under applied or overapplied overhead between Work

in Process, Finished Goods, and Cost of Goods Sold is more accurate than closing the entire balaned

into Cost of Goods Sold. This allocation assigns overhead costs to where they would have gone had

the estimates included in the predetermined overhead rate matched the actual amounts.



Raw Materials

Debited for the cost of

materials



Credited for direct



purchased



Materials added to

Work in Process



Work in Process



Credited for indirect

materials added to

Manufacturing



Salaries and Wages Payable

Credited for direct labor

added to Work in Process



Debited for the cost

of direct materials,

direct labor, and

manufacturing

overhead applied



Credited for the cost

of goods

manufactured



Finished Goods

Debited for the cost

of goods



Credited for the cost

of goods



Credited for indirect

aboradded to Manufacturing

Overhead



Cost of Goods Sold

Manufacturing Overhead

Debited for actual overhead

costs incurred



Credited for overhead cost

applied to Work in Process



Under applied overhead cost



Overapplied overhead cost



Debited for the cost

of goods sold



Job- order costing is used in service organizations such as law firms, movie

studios, hospitals, and repair shops, as well as in manufacturing

companies.



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For each company, note that the actual data for both cost and the allocation base differ from the estimates used in computing the predetermined overhead rate. This results in underapplied and overhead as follows

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