Transactions
Work in Process Control:
Job No. 650
Job No. 651
Manufacturing Overhead Control
Wages Payable
19,000
3,000
5,000
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
27,000
4-1
Transactions
Wages Payable
Control
3. 27,000
Manufacturing
Overhead
Control
2. 15,000
3. 5,000
Work in Process
Control
2. 60,000
3. 22,000
Job 650
2. 50,000
3. 19,000
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4-2
Transactions
Wages payable were paid.
Wages Payable Control
Cash Control
Wages Payable
Control
4. 27,000 3. 27,000
27,000
27,000
Cash
Control
4. 27,000
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4-3
Transactions
Assume that depreciation for the
period is $26,000.
Other manufacturing overhead
incurred amounted to $19,100.
What is the journal entry?
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4-4
Transactions
Manufacturing Overhead Control
Accumulated Depreciation
Control
Various Accounts
45,100
26,000
19,100
What is the balance of the Manufacturing
Overhead Control account?
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4-5
Transactions
$62,000 of overhead was allocated to the
various jobs of which $12,500 went to Job 650.
Work in Process Control 62,000
Manufacturing Overhead Control
62,000
What are the balances of the control accounts?
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4-6
Transactions
Manufacturing Overhead
Control
2.
15,000 6. 62,000
3.
5,000
5.
45,100
Bal. 3,100
Work in Process
Control
2.
60,000
3.
22,000
6.
62,000
Bal. 144,000
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4-7
Transactions
The cost of Job 650 is:
Job 650
2. 50,000
3. 19,000
6. 12,500
Bal. 81,500
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4-8
Transactions
Jobs costing $104,000 were completed and
transferred to finished goods, including Job 650.
What effect does this have on the control accounts?
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
4-9
Transactions
Work in Process
Control
2.
60,000 7. 104,000
3.
22,000
6.
62,000
Bal. 40,000
Finished Goods
Control
7. 104,000
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Transactions
Job 650 was sold for $114,800.
What is the journal entry?
Accounts Receivable Control 114,800
Revenues
114,800
Cost of Goods Sold
81,500
Finished Goods Control
81,500
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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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?
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Transactions
Marketing and Administrative Costs 19,000
Salaries Payable Control
19,000
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Transactions
Direct Materials Used
$60,000
+
–
Direct Labor and Overhead
$84,000
=
Ending WIP Inventory
Cost of Goods Manufactured
$104,000
$40,000
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Transactions
Cost of Goods Manufactured
$104,000
–
Ending Finished Goods Inventory $22,500
=
Cost of Goods Sold
$81,500
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4 - 15
Learning Objective 6
Account for end-of-period
underallocated or overallocated
indirect costs using
alternative methods.
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End-Of-Period Adjustments
Manufacturing
Overhead Control
Bal. 65,100
Manufacturing
Overhead Applied
Bal. 62,000
Underallocated indirect costs
Overallocated indirect costs
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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)
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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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.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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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
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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.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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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.
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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
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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
$62,000 100%
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Proration Approach “A”
Manufacturing Overhead
65,100 62,000
3,100
0
Cost of Goods Sold
81,500
620
82,120
Finished Goods
22,500
1,302
23,802
Work in Process
40,000
1,178
41,178
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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
$144,000 100%
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Proration Approach “B”
Manufacturing Overhead
65,100 62,000
3,100
0
Cost of Goods Sold
81,500
1,736
83,236
Finished Goods
22,500
496
22,996
Work in Process
40,000
868
40,868
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4 - 27
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
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End of Chapter 4
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