T8 Concepts

Total Current Manufacturing Costs = Direct Materials (DM) + Direct Labor (DL) + Manufacturing Overhead Applied (Applied MOH) Cost of Goods Manufactured (COGM) = Total Current Manufacturing Costs + Beginning Work in Process Inventory - Ending Work in Process Inventory Unadjusted Cost of Goods Sold (Unadjusted COGS) = COGM + Beginning Finished Goods Inventory - Ending Finished Goods Inventory Overhead Adjustment = Applied MOH Actual MOH

Adjusted Cost of Goods Sold (Adjusted COGS) = Unadjusted COGS + Overhead Adjustment (Underapplied) Or = Unadjusted COGS - Overhead Adjustment (Overapplied)

Calculation of Applied MOH

1) Must first determine expected number of DL hours. Estimate DL hours = Estimated DL Cost / DL rate 2) Predetermined Overhead Rate = Estimated Mfg. Overhead / Estimated DL hours 3) Applied Overhead = Predetermined Overhead Rate x Actual DL Hours

MOH Overapplied/Underapplied Example

1) Record Actual MOH Dr MOH Cr Indirect Materials/Salaries payable/Accumulated Depreciation/Prepaid Insurance etc. 2) Record Applied MOH Dr Work in Process Inventory Cr MOH (Predetermined Overhead Rate x Actual DL Hours) 3) MOH Ledger

If Balance is here, underapplied

4) Adjustment entry Dr MOH (overapplied balance) Cr COGS

or

Dr COGS Cr MOH (underapplied balance)

3