Prepare journal entry to record the underapplied or overapplied overhead computed in (c). What If Analysis:
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
|
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 |
REFFERAL ANSWERs
a) Predetermined overhead cost= Manufacturing overhead/ total hours
Manufacturing overhead= 320,000
Total hours = 22500
Predetermined overhead cost= 320000/22500
= $14.22
b) Actual machine hours = 25000
And predetermined overhead cost= 14.22
the applied overhead cost = 12000+40000+152000= 204000
And the actual overhead cost = 385,000
Underapplied overhead is when the actual overhead is more than the applied overhead. So in this case as the actual overhead is 385,000 and applied Is 204000, it is a case of under applied overhead.
c). Under applied overhead = total overhead cost actually incurred – overhead applied to work
= 385000-204000
= 181000
The applied overhead percentage :
|
|
applied overhead |
Percentage |
|
work in progress |
$ 12,000.00 |
5.88% |
|
finished good |
$ 40,000.00 |
19.61% |
|
cost of good sold |
$ 152,000.00 |
74.51% |
|
|
$ 204,000.00 |
|
So allocating the under applied overhead :
Work in progress = 181000*5.88%= $10647.06
Finished good= 181000*19.61%= $35490.20
COGS= 181000*74.51%= $134862.75
REQUIRED :
Prepare
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).
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