MyGame Station Sdn Bhd makes gaming devices using latest automated technology. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of machine hours. The following estimates were used in preparing the predetermined overhead rate at the beginning of the year: Machine hours 22,500 Manufacturing overhead cost RM320,000 During the year 2020, a surplus of gaming devices on the market resulted in cutting back production. The company’s cost records revealed the following actual cost and operating data for the year: Machine hours 25,000 Manufacturing overhead cost RM385,000 Inventories at year-end: Raw Materials RM12,000 Work in process (includes overhead applied of RM12,000) RM40,000 Finished goods (includes overhead applied of RM40,000) RM150,000 Cost of goods sold (includes overhead applied of RM152,000) RM400,000 REQUIRED: Compute the predetermined overhead rate. Compute the underapplied or overapplied overhead. Determine how much of the underapplied or overapplied overhead computed in (2) will be allocated to Work In Process (WIP), Finished Goods (FG) and Cost of Goods Sold (COGS) on the basis of the amount of overhead applied that remains in each account at the end of the year.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
MyGame Station Sdn Bhd makes gaming devices using latest automated technology. The company uses a job-order costing system and applies
|
Machine hours |
22,500 |
|
Manufacturing overhead cost |
RM320,000 |
During the year 2020, a surplus of gaming devices on the market resulted in cutting back production. The company’s cost records revealed the following actual cost and operating data for the year:
|
Machine hours |
25,000 |
|
Manufacturing overhead cost |
RM385,000 |
|
Inventories at year-end: |
|
|
Raw Materials |
RM12,000 |
|
Work in process (includes overhead applied of RM12,000) |
RM40,000 |
|
Finished goods (includes overhead applied of RM40,000) |
RM150,000 |
|
Cost of goods sold (includes overhead applied of RM152,000) |
RM400,000 |
REQUIRED:
- Compute the predetermined overhead rate.
- Compute the underapplied or overapplied overhead.
- Determine how much of the underapplied or overapplied overhead computed in (2) will be allocated to Work In Process (WIP), Finished Goods (FG) and Cost of Goods Sold (COGS) on the basis of the amount of overhead applied that remains in each account at the end of the year.
- Prepare
journal entry to record the underapplied or overapplied overhead computed in (c).
- What If Analysis:
- Repeat Requirement (a) to (c), assuming the estimated machine hours
is 24,000 only.
- Repeat Requirement (a) to (b), assuming the actual manufacturing overhead cost is RM355,000 (not RM385,000).
- How would you adjust and record for the amount of underapplied or overapplied overhead computed in (b).
- Prepare journal entry to record the underapplied or overapplied overhead computed in (c).
- Explain why does a company apply predetermined overhead rates rather than assign actual manufacturing overhead
costs to jobs.
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