Mcgraw hill managerial accounting 7th edition

Chapter 3 Job-Order Costing Solutions to Questions By definition, manufacturing overhead seasonal factors or variations in output. For this consists of costs that cannot be practically traced reason, most companies use predetermined over- to jobs.

Therefore, if these costs are to be as- head rates to apply manufacturing overhead costs signed to jobs, they must be allocated rather than to jobs. If the allocation base does not really cause level of production. The second step is to esti- the overhead, then costs will be incorrectly at- mate the total fixed manufacturing overhead cost tributed to products and jobs and product costs for the coming period and the variable manufac- will be distorted.

The units pro- overhead cost the numerator for the coming duced may not be sold and if they are sold, they period. The fourth step is to compute the prede- may not be sold at prices sufficient to cover all termined overhead rate.

It is a myth that assigning costs to prod- ucts or jobs ensures that those costs will be re- The job cost sheet is used to record all covered. Costs are recovered only by selling to costs that are assigned to a particular job. These customers—not by allocating costs. Generally, the amount of overhead ap- used to compute the unit product cost. In addition, some actual overhead cost exceeds the amount of production costs such as indirect materials cannot overhead cost applied to Work in Process invento- be easily traced to jobs.

If these costs are to be ry during the period. Overapplied overhead occurs assigned to products, they must be allocated to when the actual overhead cost is less than the the products. Underapplied or If actual manufacturing overhead cost is overapplied overhead is disposed of by either applied to jobs, the company must wait until the closing out the amount to Cost of Goods Sold or end of the accounting period to apply overhead by allocating the amount among Cost of Goods and to cost jobs.

If the company computes actual Sold and ending inventories in proportion to the overhead rates more frequently to get around this applied overhead in each account.

All rights reserved. In a mul- of Goods Sold and inventories. Some derapplied for several reasons. Control over over- companies use multiple overhead rates rather head spending may be poor.

Or, some of the than plantwide rates to more appropriately allo- overhead may be fixed and the actual amount of cate overhead costs among products. Multiple the allocation base may be less than estimated at overhead rates should be used, for example, in the beginning of the period. In this situation, the situations where one department is machine in- amount of overhead applied to inventory will be tensive and another department is labor inten- less than the actual overhead cost incurred.

This results in an increase in the pre- derstated. Therefore, underapplied overhead is determined overhead rate—particularly if it is added to cost of goods sold. On the other hand, based on direct labor. The journal entries are recorded as follows: Raw Materials The journal entry is recorded as follows: Work in Process The journal entry is recorded as follows: Finished Goods The completed T-account is as follows: Work in Process Beg.

The journal entry is recorded as follows: Cost of Goods Sold The amount of underapplied overhead is computed as follows: Actual direct labor-hours a The income statement is as follows: Sales Total direct labor-hours required for Job A Direct labor cost a Unit product cost for Job A Total manufacturing cost a Raw Materials Work in Process Manufacturing Overhead Cash Raw Materials a 94, a 94, b 89, c , Bal.

Cost of Goods Manufactured Direct materials: Raw materials inventory, beginning Cost of Goods Sold Finished goods inventory, beginning Manufacturing overhead incurred a Raw Materials Inventory Finished Goods Cost of Goods Sold Manufacturing Overhead Work in Process b 12, f , Bal.

Job W direct labor cost a Mason Company Income Statement Sales Actual manufacturing overhead costs Direct materials: Raw materials inventory, beginning This exercise can also be used as a launching pad for a discussion of Appendix 3B.

The fixed portion of the manufacturing overhead cost is causing the unit product costs to fluctuate. The unit product cost increases as the level of production decreases because the fixed overhead is spread over few- er units.

The unit product cost can be stabilized by using a predetermined over- head rate that is based on expected activity for the entire year. The cost formula created in requirement 1 can be adapted to compute the annual predetermined overhead rate. Total manufacturing cost assigned to Job Direct materials Yes; if some jobs require a large amount of machine time and a small amount of labor time, they would be charged substantially less overhead cost if a plantwide rate based on direct labor hours were used.

It ap- pears, for example, that this would be true of Job which required considerable machine time to complete, but required a relatively small amount of labor hours. Item a : Actual manufacturing overhead costs incurred for the year. Item b : Overhead cost applied to work in process for the year.

Item c : Cost of goods manufactured for the year. Item d : Cost of goods sold for the year. The underapplied overhead will be allocated to the other accounts on the basis of the amount of overhead applied during the year in the end- ing balance of each account: Work in Process The plantwide and departmental approaches for applying manufacturing overhead costs to products produce identical cost of goods sold figures. However, these two approaches lead to different bid prices for Jobs D- 70 and C This is because the departmental cost pools reflect the fact that Job D is an intensive user of Molding machine-hours.

However, it can have a huge impact on internal decisions with respect to individual jobs, such as establishing bid prices for those jobs.

Job-order costing systems that rely on one plantwide overhead cost pool are commonly used to value ending inventories and cost of goods sold for external reporting purposes, but they can create costing inaccura- cies for individual jobs that adversely influence internal decision making.

This amount is shown in entry a below: Manufacturing Overhead Maintenance 21, a , Indirect materials 8, Indirect labor 60, Utilities 32, Insurance 7, Depreciation 56, Balance 4, Work in Process Direct materials , Direct labor 90, Overhead a , 3. When overhead is applied using a predetermined rate based on ma- chine-hours, it is assumed that overhead cost is proportional to ma- chine-hours.

Howev- er, the actual manufacturing overhead did not drop by this much. These issues will be covered in more detail in later chapters. Manufacturing Overhead Work in Process b 58, f , b , c , c 60, d 75, f , e 62, 3. The journal entry is: Finished Goods Total factory wages accrued during the year credits to the Factory Wages Payable account Actual manufacturing overhead cost The underapplied balance would be allocated using the following per- centages: Overhead applied during the year in: Work in process Total cost of Job Molding Painting Dept.

Total Direct materials Molding Painting Dept. Manufacturing overhead incurred Before the underapplied or overapplied overhead can be computed, we must determine the amount of direct materials used in production for the year. Raw materials inventory, beginning Unadjusted cost of goods sold: Finished goods inventory, beginning Direct materials Advertising Expense Accounts Receivable Raw Materials Work in Process Bal. Cash Accounts Receivable Bal. Entry n above records the closing of this overapplied overhead balance to Cost of Goods Sold.

Supreme Videos, Inc. The artifi- cially high predetermined overhead rate is likely to result in overapplied overhead for the year. The cumulative effect of overapplying the over- head throughout the year is all recognized in December when the bal- ance in the Manufacturing Overhead account is closed out to Cost of Goods Sold.

If the balance were closed out every month or every quar- ter, this effect would be dissipated over the course of the year. This question may generate lively debate. Is she working for the general manager of the division or for the corporate controller? How far should Terri go in bucking her boss on a new job? While individuals can certainly disagree about what Terri should do, some of the facts are indisputable. First, understating direct labor-hours artificially inflates the overhead rate.

This has the effect of inflating the Cost of Goods Sold in all months prior to December and overstating the costs of inventories. In December, the huge adjustment for overapplied overhead provides a big boost to net operating income. Penn State University, M. University of Virginia, Ph. He has published widely in academic business journals, and several of his articles have won major awards.

He is a leading thinker in undergraduate management accounting curriculum innovation and is a frequent presenter at various professional and academic conferences. A former auditor, he continues as a consultant on case writing to numerous firms.

Reduce course material costs for your students while still providing full access to everything they need to be successful. It isn't too good to be true - it's Inclusive Access. Learn more about Inclusive Access here. When your students still want a book but don't want to keep it, McGraw-Hill's Textbook Rental program provides students with our latest editions at our most affordable hardcover prices.

Learn more about our Textbook Rental program. By prompting students to engage with key concepts, while continually adapting to their individual needs, Connect activates learning and empowers students to take control resulting in better grades and increased retention rates. Proven online content integrates seamlessly with our adaptive technology, and helps build student confidence outside of the classroom.

Available within Connect, SmartBook 2. SmartBook 2. With the ReadAnywhere mobile app, students can now read and complete SmartBook 2. For instructors, SmartBook 2.

Creating accessible products is a priority for McGraw-Hill. We have put in place processes to make accessibility and meeting the WCAG AA guidelines part of our day-to-day development efforts and product roadmaps. Please review our accessibility information for this specific product. McGraw-Hill sites may contain links to websites owned and operated by third parties. McGraw-Hill has no control over and is not responsible for the content or accessibility of any linked website. After completing your transaction, you can access your course using the section url supplied by your instructor.

Skip to main content x Sign In. Garrison's 17th edition improves student learning and fosters course and career readiness with its emphasis on relevance, accuracy, and clarity while also embracing innovation through the incorporation of Data Analytics Exercises. With world class content, combined with the powerful platform of Connect to engage and enhance learning, students are provided with a framework to achieve higher outcomes in their Managerial Accounting course and beyond.

Affirms its tradition of guiding accounting and business majors safely through the course while embracing innovation through the incorporation of Data Analytics Exercises. Lowest Price. Rent now. Listing page for eBook Subscription Program. Your monthly rental cart is already full. Click continue to view and update your selected titles. Back Continue. Rent or purchase for a fraction of the printed textbook price Easily highlight, take notes and search Download the free ReadAnywhere App for offline access and anytime reading Watch a quick video to learn more Note: the eBook does not include access to Connect.

If your instructor assigned Connect, click the "Digital" tab. Rent for a fraction of the printed textbook price Rental transaction occurs through McGraw Hill's authorized rental partner. Purchase un-bound 3-ring binder ready textbook Flexibility and ease of selecting chapters to take where you want to go What are my shipping options?

Personalize your learning, save time completing homework, and possibly earn a better grade Access to eBook, homework and adaptive assignments, videos, and study resources Download free ReadAnywhere App for offline access to eBook for anytime reading Connect may be assigned as part of your grade.

Check with your instructor to see if Connect is used in your course. Program Details. Eric Noreen Eric W. Peter Brewer Peter C.

Affordability Find out more about our affordable course material programs. Want more information? Our Learning Technology Representatives can help.