Title Costing Systems - Chapter1 - part 2.pdf ✅

Year End Adjustment (over and under allocation of overhead ) Under allocated OH costs occur when allocated (applied) indirect costs is less than the actual (incurred) amount. Over allocated OH costs occur when allocated (applied) indirect costs in an accounting period is greater than the actual (incurred) amount. Variance (Difference) How to Adjust for the difference Material Proration Approach Immaterial Write off to COGs approach Allocated based on the relative values of FG, WIP, COGs It can be closed to COGs Example - MOH control Account Bal. at year end $220,000 - - MOH applied Bal. 200,000 - MOH is under applied by 20,000 - -COGs 2,000,000, FG 2,000,000, WIP 1,000,000 Amount is Immaterial Dr. MOH applied 200,000 Dr. COGs 20,000 Cr. MOH control 220,000 Amount is Material Dr. MOH applied 200,000 Dr. COGs (20,000*2M/5M)8000 Dr. FG (20,000*2M/5M) 8000 Dr. WIP (20,000*1M/5M)4000 Cr. MOH control 220,000
Spoilage Spoilage refers to unacceptable units sold for reduced prices. Spoilage is not raw materials but is units either partially or totally completed. Spoiled goods are severally damaged units that cannot be feasibly reworked. Normal Spoilage Is a product cost and should be included as part of the CGM Abnormal Spoilage Is a period cost and should be charged to a loss account in the period in which detection occurs Spoiled units cannot be sold Spoiled units can be sold Spoiled units cannot be sold Spoiled units can be sold Spoilage up to the normal levels approved by management & regarded as normal by nature of the business & the ordinary course of production A separate account has to be made for spoiled inventory expected to be sold When the spoilage is over and above normal spoilage, the abnormal spoilage should be changed to loss account If spoiled units can be sold, the loss is decreased by the fair market value of the spoiled inventory to be sold No entry is required and normal spoilage is included in the product costs Dr. Spoiled Inventory Cr. WIP-Job 101 Spoiled inventory is maintained at fair market value Dr. loss from abnormal spoilage Cr. WIP-Job 101 Dr. Spoiled inventory Dr. loss from abnormal spoilage Cr. WIP-Job 101 Total Spoilage = Beginning Inventory + units started – units completed & Transferred Out – Ending Inventory