Chapter 3

Question 1

IV. Possible ACTUAL and ESTIMATED overhead items Part 1

Answer 1

Indirect materials                                    
Supplies
Indirect labor
Engineer
Utilities factory
Property taxes factory

Question 2

IV. Possible ACTUAL and ESTIMATED overhead items Part 2

Answer 2

Insurance factory
Equipment rental	
Maintenance
Janitorial/Custodian
Factory supervisor salaries
Depreciation expense, factory

Question 3

PROH =

Answer 3

total estimated Overhead costs ÷ total estimated activity = predetermined
Overhead rate

Question 4

APPLIED OH =

Answer 4

PROH x Actual Activity

Question 5

Cost of Goods Manufactured Formula

Answer 5

Direct Material Used   (*)			
Direct Labor Cost
Applied Overhead            
Total manufacturing cost this period
\+ Beg work-in process inventory
-   End WIP Inven                              
=Cost of Goods Manufactured

Question 6

Direct Materials/Raw Materials Formula

Answer 6

* Beginning raw materials inventory
   \+ Purchases of Raw Materials 
   Raw materials available for use
   Less:   End raw materials
      Raw materials used in production
      Less: Indir, materials included in overhead   
       =Direct Materials Used

Question 7

Unadjusted Costs of Goods Sold Formula

Answer 7

Beginning finished goods inventory
Add: cost of goods manufactured
Goods available for sale
Deduct: Ending finished goods inv.
           =Unadjusted Cost of Goods Sold

Question 8

New Traditional Income Statement Formula

Answer 8

Sales
- Adjusted Cost of goods sold
  Gross Margin
- Operating expenses    (also called Selling & Operating expenses)         	
 = Net Operating Income (NOI)

Question 9

Adjusted Costs of Goods Sold

Answer 9

Unadjusted Cost of Goods Sold
+ underapplied overhead or – overapplied overhead
Adjusted Cost of goods Sold

Question 10

Gross Margin Formula

Answer 10

Sales

Minus Adjusted Cost of goods sold

Question 11

Net Income Formula

Answer 11

Gross margin

Minus period costs also called selling & administrative expenses

Question 12

I. Every job has 3 PRODUCT costs:

Answer 12

Direct materials (DM)
Direct labor (DL)
APPLIED Overhead

Question 13

Additions and Deductions Formula

Answer 13

beginning inventory + additions this period= ending inventory + deductions this period

Question 14

There are 2 main methods to close the MOH and adjust for actual expenses

Answer 14

1. Most popular method - adjust entire balance in MOH account to COGS.
2. Most accurate: adjust by allocating the entire balance on the MOH account proportionately to:
   applied OH in WIP
   applied OH in FG
   applied OH in unadjusted COGS

Question 15

Over/under applied OH does NOT

Answer 15

affect COGM (Cost of Goods Manufactured) or period costs (selling & admin.) but
does affect COGS (an expense) and the gross margin and net income.

Question 16

What goes on the balance sheet?

Answer 16

• raw materials inventory
• work in process inventory
• finished goods inventory

Question 17

What goes on the income statement?

Answer 17

• costs of goods sold

- selling and administrative expenses

Question 18

When to Apply Overhead?

Answer 18

Apply when job is completed (i.e., it has all its DM and DL) and while it is still in the WIP (work in process) account…then…the job is transferred to FG (finished goods) account.
AND:
2. Apply to any unfinished jobs still in WIP at the end of the period.

Question 19

There are 2 main methods to close the MOH and adjust for actual expenses

Answer 19

1. Most popular method - adjust entire balance in MOH account to COGS.
2. Most accurate: adjust by allocating the entire balance on the MOH account proportionately to:
   applied OH in WIP
   applied OH in FG
   applied OH in unadjusted COGS

Question 20

What do you never do when tracing jobs?

Answer 20

never subtract

Question 21

When a good is not finished how do you subtract it out of the COGM formula?

Answer 21

subtract the entire COGS

Question 22

What are the costs considered? (1st page)

Answer 22

• raw materials purchased
• direct labor
• manufacturing overhead