MANAGEMENT ACCOUNTING (2)

Chapter (4) Job Order Costing

Lecture (9)
Accounting for over/under Allocation
MOH control Actual MOH Allocated
100 2,080
900
400
550

1,950 minus

Allocated > Actual Over allocated

Allocated < Actual Under allocated

2,080 – 1950 = 130 Over allocated Over costing

Dr. MOH allocated 2,080

Reduce costs
Cr. COGS 130
Cr. MOH Control 1,950
Reduce COGS
 Dealing With over/under costing
Close the difference to the COGS

Allocated > Actual Over allocation Over costing Reduce

Costs
Dr.MOH Allocated
Cr.COGS
Cr.MOH Control

increase
Allocated < Actual under allocation under costing
Costs
Dr.MOH Allocated
Dr.COGS
Cr.MOH Control

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The Zaf Radiator Company uses a normal-costing system with a single manufacturing overhead cost pool and
machine-hours as the cost-allocation base. The following data are for 2011:

Machine-hours data and the ending balances (before proration of under- or overallocated overhead) are as follows:

Budgeted indirect cost rate = Budgeted MOH 4,800,000

= $60/machine
Budgeted cost driver 80,000 hour

Under (0ver) Allocated MOH = ………………………………

Allocated - ………………………………….
Actual

If ………………MOH
Allocated > …………………..MOH
Actual called Over-allocation
If ………………MOH
Allocated < …………………..MOH
Actual called Under- allocation

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 Under (0ver) Allocated MOH = Allocated MOH - Actual MOH

= 4,500,000 – 4,900,000 = ($400,000) Under allocated

3Dispose of this amount using the following:

a) Write-off to Cost of Goods Sold
Transaction Dr. Cr.

MOH allocated 4,500,000

COGS 400,000
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MOH control 4,900,000
Question (2):Comprehensive Problem. .
Production Company produces gadgets for the coveted small appliance market
Production Co. uses a normal costing system and allocates overhead to work in process
at a rate of $2.50 per direct manufacturing labor dollar. Indirect materials are
insignificant so there is no inventory account for indirect materials.
a) The purchase of direct material
Material Control 124,000
Accounts payable 124,000

b) The issuance of direct material to the manufacturing process

WIP 122,000
Material Control 122,000

How to calculate the raw materials used during the production process?
Beginning materials + purchased - Ending

9,000 + 124,000 - 11,000 = $122,000

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c) The incurring of direct labor cost

WIP 80,000
Wages Payable 80,000

d) The incurring of indirect labor cost

MOH control 54,500

Wages Payable 54,500

e) The incurring of depreciation of factory equipment

MOH control 30,000

Accumulated Depreciation 30,000

f) The incurring of factory maintenance costs

MOH control 20,000

Accounts payable 20,000

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g) The incurring of miscellaneous MOH

MOH control 9,500

Accounts Payable 9,500

h) The incurring of factory building rent

MOH control 70,000

Rent Payable 70,000

i) The application of MOH to the manufacturing process

WIP .$200,000
MOH Applied/Allocated .$200,000

MOH allocated = budgeted rate x actual driver

MOH allocated = $2.5 x 80,000 = .$200,000

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j) The incurring of depreciation of office equipment

Depreciation Expense 7,000

Accumulated Depreciation 7,000

k) The incurring of advertising expenses All what have

been charged to
Advertising Expense 90,000 the WIP account
Accounts payable 90,000 during the
current period
l) The incurring of sales commission expense

Sales Commission Expense 30,000

Commission Payable 30,000 DM + DL + MOH

m) The completion of goods

Finished Goods 387,000

WIP 387,000
Goods completed during the current period = Cost of goods manufactured
Cost of goods manufactured = WIP beginning + manufacturing costs – WIP ending
6,000 + [122,000 + 80,000 + 200,000] - 21,000
n) The cost of goods sold

COGS $432,000
Finished Goods $432,000
NB: Not all finished are necessarily sold
Cost of goods sold = beginning FG + cost of goods manufactured - Ending FG
69,000 + 387,000 - 24,000 = $432,000
o) The over/under allocation using the cost of goods sold method
MOH Control MOH Allocated
54,500 indirect labor
200,000
30,000 depreciation
20,000 maintenance
9,500 rent
70,000 miscellaneous

184,000
200,000 – 184,000 = $16,000 Over allocation Over costing
MOH Allocated 200,000
COGS 16,000
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MOH Control 184,000
 End of Lecture (9)
Covered today
• Computing Over and Under allocation
• Accounting for Over and under allocation
using COGS Method
• Solving Comprehensive Exercise

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