Managerial Accounting Chapter 3 Notes PDF

Title Managerial Accounting Chapter 3 Notes
Author Sorin Moore
Course Acct Info For Decision Making
Institution Loyola Marymount University
Pages 2
File Size 86 KB
File Type PDF
Total Downloads 106
Total Views 163

Summary

in-class lecture notes about Chapter 3. Professor Richard A. Minot....


Description

Managerial Accounting Chapter 3 Notes 9/16/21 Chapter 3 is about 1) cost flows and 2) external reporting Cost Flows: Product Costs include: 1. Direct materials 2. Direct labor 3. Manufacturing overhead applied on predetermined basis Remember: costs that are not product costs are period costs and are all expensed in the period that they are incurred. ● Costs can either be VARIABLE (constant on an item basis and increase in total as production varies) or FIXED (cost does not change in total as production varies BUT the amount of fixed cost that is assigned to the product varies on an item basis as the production volume increases and decreases.) Purchases of Raw Materials: ● Are added (debited) to the stores (amount) of raw material inventory when they are received ● When raw materials are taken from the raw materials inventory account, the raw materials account is decreased (credited) and transferred to either the work-in-process inventory account (debit) reflecting direct materials OR they are transferred to the Overhead account reflecting that they are indirect materials being used in the production process. Direct Labor: is charged to the work-in-process account as it is incurred while indirect labor is charged to the overhead account as it is incurred and sales and administrative salaries are recorded as period costs. The Overhead Account: is charged/increased (debited) for all of the actual manufacturing expenses/costs that are not either direct labor or direct materials. The entries to accomplish this includes a debit to overhead and a credit to either cash, accounts payable, or other relevant accounts. Application of Overhead to W-I-P: overhead is applied to the work-in-process inventory account on a predetermined overhead rate basis. Completion of Work in W-I-P: when production is completed in W-I-P the goods are deemed to be finished and they are moved to the Finished Goods Inventory (these costs are the Cost of Goods Manufactured) Sale of Completed Inventory: when a sale is made and the finished goods inventory is actually sold the finished goods inventory is reduced and cost of goods sold is increased. Over/Under Application of Overhead: when overhead is applied using PDOHR and actual driver amounts, the actual amounts of overhead accumulated in the period will be reduced. There will almost always be an ending balance after the overhead is applied. When:

● The ending balance in overhead is a DEBIT the overhead has been UNDER applied ● The ending balance in overhead is a CREDIT the overhead has been OVER applied When overhead is applied, it goes to W-I-P, then when the items are completed, they go to Finished Goods Inventory and then when the items are finally sold, they go to Cost of Goods Sold. Any over/under applied overhead costs can be found in all of the previous locations/accounts. ● The over/under applied amount remaining in the overhead account needs to be zeroed out and applied to either the Cost of Goods Sold OR IF THE AMOUNT IS REMAINING IN W-I-P AND FINISHED GOODS INVENTORY IS MATERIAL then the zeroing out of the under/over applied overhead may need to be applied to W-I-P and Finished Goods Inventory AS WELL AS to the Cost of Goods Sold. Statement of Cost of Goods Manufactured: As part of the reporting process to management, managerial accounting has 2 reports, along with the financial statements in both the traditional and contribution format, that lets other members of management know and understand what is going on. Their reports are fairly to prepare and to understand and follow the flow of goods as outlined above....


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