To eliminate the $3,000 debit balance in the Manufacturing Overhead account, we need to credit the Manufacturing Overhead account and debit the Cost of Goods Sold account. The journal entry to dispose of the underapplied overhead is: The effect of this entry is to increase the Cost of Goods Sold account by $3,000. If Manufacturing Overhead had been overapplied (with a credit balance), we would have debited the Manufacturing Overhead account to eliminate the balance and credited (decreased) the Cost of Goods Sold account. CHAPTER SUMMARY LO 1: Describe the key differences between job order costing and process costing. Process costing is used in companies that make homogeneous products using a continuous production process. Job order costing is used in companies that make unique products or provide specialized services. LO 2: Describe the source documents used to direct materials and direct labor costs to the job cost sheet. Direct materials are issued to production by using a materials requisition form showing the costs and quantities of all materials requested and the job they were used for. Direct labor costs are recorded using labor time tickets showing the amount of time workers spent on each specific job. The costs incurred for each job are recorded on a separate job cost sheet. LO 3: Calculate a predetermined overhead rate and use it to apply manufacturing overhead cost to jobs. Because manufacturing overhead costs cannot be traced directly to individual jobs, we use an allocation base or cost driver to apply manufacturing overhead cost to specific jobs. The predetermined overhead rate is calculated by dividing the estimated total manufacturing overhead cost by the estimated value of the allocation base. Manufacturing overhead is applied to specific jobs by multiplying the predetermined overhead rate by the actual amount of the allocation base used on the job. LO 4: Describe how costs flow through the accounting system in job order costing. Initially, raw material purchases are recorded in the Raw Materials Inventory account. When materials are placed into production, direct materials are recorded in the Work in Process Inventory account; indirect materials are recorded in the Manufacturing Overhead account. When costs are incurred, direct labor is recorded in the Work in Process Inventory account; indirect labor is recorded in the Manufacturing Overhead account. Actual manufacturing overhead costs are recorded on the debit side of the Manufacturing Overhead account.
To eliminate the $3,000 debit balance in the Manufacturing Overhead account, we need to credit the Manufacturing Overhead account and debit the Cost of Goods Sold account. The journal entry to dispose of the underapplied overhead is: The effect of this entry is to increase the Cost of Goods Sold account by $3,000. If Manufacturing Overhead had been overapplied (with a credit balance), we would have debited the Manufacturing Overhead account to eliminate the balance and credited (decreased) the Cost of Goods Sold account. CHAPTER SUMMARY LO 1: Describe the key differences between job order costing and process costing. Process costing is used in companies that make homogeneous products using a continuous production process. Job order costing is used in companies that make unique products or provide specialized services. LO 2: Describe the source documents used to direct materials and direct labor costs to the job cost sheet. Direct materials are issued to production by using a materials requisition form showing the costs and quantities of all materials requested and the job they were used for. Direct labor costs are recorded using labor time tickets showing the amount of time workers spent on each specific job. The costs incurred for each job are recorded on a separate job cost sheet. LO 3: Calculate a predetermined overhead rate and use it to apply manufacturing overhead cost to jobs. Because manufacturing overhead costs cannot be traced directly to individual jobs, we use an allocation base or cost driver to apply manufacturing overhead cost to specific jobs. The predetermined overhead rate is calculated by dividing the estimated total manufacturing overhead cost by the estimated value of the allocation base. Manufacturing overhead is applied to specific jobs by multiplying the predetermined overhead rate by the actual amount of the allocation base used on the job. LO 4: Describe how costs flow through the accounting system in job order costing. Initially, raw material purchases are recorded in the Raw Materials Inventory account. When materials are placed into production, direct materials are recorded in the Work in Process Inventory account; indirect materials are recorded in the Manufacturing Overhead account. When costs are incurred, direct labor is recorded in the Work in Process Inventory account; indirect labor is recorded in the Manufacturing Overhead account. Actual manufacturing overhead costs are recorded on the debit side of the Manufacturing Overhead account.
CHAPTER%203%20JOB%20ORDER%20COSTING.docx