AFM481 Midterm Prep - Chapter Summaries (Ch 1 to 6).docx

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Accounting & Financial Management
AFM 481
Grant Russell

AFM481 Final Exam (35%) Midterm Material (Chapter 1 to 6) Chapter 5: Job Costing Product Costs: costs from making or purchasing a product Period Costs: operating costs, such as sales and admin expenses Prime Cost: DM and DL combined Conversion Cost: DL and MO combined Raw Materials Inventory Account: Beginning Inventory + Purchases - DM used - IM used = Ending Inventory Work-In-Process Inventory Account: Beginning Inventory + DM used + DL + MO (allocation) - COGM = Ending Inventory Finished Goods Inventory Account: Beginning Inventory + COGM - COGS = Ending Inventory Manufacturing Overhead Control Account: IM used + IL, Utilities, Insurance - MO (Allocation) Fully completed products are transferred from WIP to FG. When products are sold, total costs are transferred from FG to COGS. Actual Costing Normal Costing Direct Costs Recorded Actual Cost of DM and DL Actual Cost of DM and DL Overhead Cost Allocation Rate Actual Total Manufacturing Estimated Total Manufacturing Overhead / Actual Total Units in Overhead / Estimated Total Units Or Predetermined (budgeted) the Allocation Base (e.g. labour or in the Allocation Base (e.g. labour overhead rate machine hours) or machine hours) Overhead Allocation Actual allocation rate * Actual Estimated Allocation Rate or quantity of allocation base Predetermined Overhead Rate * Actual quantity of allocation base Total MO applied/allocated to all jobs - Total MO actual cost incurred = + Overapplied or -Underapplied Overhead E.g. 1) Machining: $1,400,000 Production Overhead / 25,000 Machine Hours = $56.00 per Machine Hour 2) Machining: 100 machine hours for Job 482 * $56.00 per Machine Hour = $5,600 3) Total Cost $73,600 = DM requisitioned $40,000 + DL Cost $28,000 + Overhead Allocated $5,600 Journal Entries Debit Credit 1. To record DM and IM Work in Process (DM) Raw Materials Inventory requisitioned for Job 482 in Overhead Cost Control (IM) machining 2. To record DL and IL used for Work in Process (DL) Wages Payable Job 482 in machining Overhead Cost Control (IL) 3. To record overhead allocated to Work in Process Machining Department Overhead Job 482 in machining Cost Control 4. To record completion of Job 482 Finished Goods Inventory Work In Process Inventory 5. To record the delivery of Job Cost of Goods Sold Finished Goods Inventory 482 Assembly Department Supervisor's Assembly Department Overhead Wages Payable Salary Cost Control Overhead allocated to individual Work In Process Control Account jobs Overapplied Overhead: Actual costs < total amount of overhead allocated to inventory accounts Underapplied Overhead: Actual costs > total amount of overhead allocated to inventory accounts If the overapplied or underapplied overhead amount is immaterial, it is assigned to COGS.  If (Underapplied or Overapplied Overhead Amount / Total Actual Costs) < 10%, considered immaterial  Journal Entry: DR COGS $300,000 DR Assembly Department Overhead Cost Control (overapplied) $180,000 CR Machining Department Overhead Cost Control (underapplied) $480,000 If actual production < range of normal capacity, assign excess fixed overhead to COGS If material, prorate among work in process, finished goods and cost of goods sold 1) Use the ending balances of WIP, FG, and COGS as the basis for proration  Journal Entry: DR Ending WIP (100,000/10,120,000 * 300,000) 2,964 DR Finished Goods (20,000/10,120,000 * 300,000) 593 DR Cost of Goods Sold (10,000,000/10,120,000 * 300,000) 296,443 DR Assembly Department Overhead Cost Control 180,000 CR Machining Department Overhead Cost Control 480,000 2) The balances of the overhead amounts in each account as the basis for proration, if known Spoilage: units of product that are unacceptable and are discarded, reworked, or sold at a reduced price.  Normal Spoilage: defective units that arise as part of regular operations.  Charged to overhead  Abnormal Spoilage: spoilage that is not part of everyday operations. (e.g. out-of-control manufacturing processes, unusual machine breakdowns, unexpected outages)  Charged to loss account  Rework: spoiled units that are repaired and sold as if they were originally produced correctly.  Normal rework = charged to overhead  Abnormal rework = charged to loss account  Scrap: bits of DM left over from normal manufacturing processes  Scrap revenue reduces the cost of the job associated. The scrap revenue offsets overhead cost  If not material, record as other income.  Journal Entries: DR Overhead Cost Control (Normal Spoilage) CR Work-in-process Inventory (cost of spoiled sheet metal) DR Raw Materials Inventory (metal to be sold to recycler) CR Work-in-process Inventory DR Cash CR Raw Material Inventory Key From Questions (5.37, 5.38, 5.48, 5.50) 1) Overhead Allocation Rate = $6400 Anticipated Overhead Costs / $5000 Anticipated DL Costs = $1.28 per DL dollar. 2) Job 207: Overhead = $1,400 DL for Job 207 * $1.28 Rate = $1,792 3) Total Costs = DM + DL + Allocated Overhead Overapplied or Underapplied Overhead = Actual Overhead ($750 IM + $2200 IL + $3600 Other Overhead Costs including rent, amortization, taxes, insurance, utilities = $6550) - Allocated Overhead (Total of the allocated overheads for the jobs = $7,040) = $490 is overapplied and needs to be removed from COGS. Chapter 6: Process Costing with Spoilage Process Costing assigns costs to production departments and allocates the costs from a department to individual units of mass-produced products. Product Cost: DM and conversion costs Conversion Cost: DL and Production Overhead Costs Equivalent Units measure the resources used in partially completed units relative to the resources needed to complete the units. First-in, First-Out (FIFO) method: allocate the current period's costs only to units that had work performed this period  Only reflects the current period costs  Equivalent unit cost: current period costs are divided by the # of equivalent units for total work performed this period Weighted Average Method: Costs from beginning WIP are averaged with costs incurred during the current period, then allocated to units completed and ending WIP  Blends last period's and this period's costs  Average costs are allocated to the units completed and in ending WIP. Journal Entries Debit Credit 1. DM used in moulding Moulding Dept WIP Raw Materials Inventory department 2. Conversion costs incurred in Moulding Dept WIP Cash, A/P, etc. moulding department 3. Costs transferred to assembly Assembly Dept WIP Moulding Dept WIP department for units completed in moulding department All DMs are added at the beginning of production, and conversion costs are incurred evenly throughout production. 1. Summarize Total Costs to Account For. DM Conversion Costs Total Cost Beginning WIP $ $ $ Current Period Costs $ $ $ Total Costs to Account For $ $ $ 2. Summarize Total Physical and Equivalent Units. Beginning Complete Start and Start Total Work Total to WIP (40%) Beginning WIP Complet
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