Paradis Ltd adopts a standard costing system. The standard cost card for their product is as follows: Direct material $14.50 Direct labour (2 hours at $25 per hour) $50.00 Manufacturing overhead (2 hours at $11 per hour) $22.00 Total standard cost $86.50 The annual budgeted manufacturing overhead totals $6,600,000, of which $3,600,000 is variable. The company allocates overhead costs based on machine hours and calculates separate rates for variable and fixed overheads. The normal annual level of machine hours is 600,000 hours. The planned production for each month is 25,000 units. Paradis Ltd produced 26,000 units this month and used 53,500 machine hours. Actual manufacturing overhead for the month was $320,000 variable and $260,000 fixed. The total manufacturing overhead applied during the month was $572,000. Required: Prepare journal entries to record: Actual overhead costs Adding manufacturing overhead to work in process inventory. The closing of variances to cost of goods sold.
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.
Paradis Ltd adopts a
|
Direct material |
$14.50 |
|
Direct labour (2 hours at $25 per hour) |
$50.00 |
|
Manufacturing overhead (2 hours at $11 per hour) |
$22.00 |
|
Total standard cost |
$86.50 |
The annual budgeted manufacturing overhead totals $6,600,000, of which $3,600,000 is variable. The company allocates overhead costs based on machine hours and calculates separate rates for variable and fixed
Required:
Prepare
- Actual overhead costs
- Adding manufacturing overhead to work in process inventory.
- The closing of variances to cost of goods sold.
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