Fundamental Accounting Principles -Hardcover
Fundamental Accounting Principles -Hardcover
22nd Edition
ISBN: 9780077862275
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
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Chapter 19, Problem 7QS
To determine

Introduction:

Cost allocation of Overheads

  • Cost allocation of Overheads takes place on basis of cost objects identified to enable cost allocation. Overheads refer to costs of operations and comprise of direct costs such as manufacturing expenses and of indirect costs in the form of selling and administrative expenses.

  • Examples of Overheads are Salaries of administrative staff, rent of office, advertising expenses etc. The costs of the operations are allocated on basis of cost objects. Cost objects are units of cost allocation identified for overhead allocations and cost estimations.

  • Examples of Cost objects for Overhead allocation are Number of units produced, number of labor hours worked etc.

Journal Entries

  • Journal entries are the first step in recording financial transactions and preparation of financial statements.

  • These represent the impact of the financial transaction and demonstrate the effect on the accounts impacted in the form of debits and credits.

  • Assets and expenses have debit balances and Liabilities and Incomes have credit balances and according to the business transaction, the accounts are appropriately debited will be credited by credited to reflect the effect of business transactions and events.

To Prepare:

Journal entry for recording application of factory overhead at 90% of direct labor cost

Solution:

    TransactionParticularsDebit ($) Credit ($)
    a
    Work in Process
    $117,900
     
     
    Manufacturing Overhead
     
    $117,900
     
    (Being overhead applied at a pre-determined rate of 125% of direct labor cost of $131,000)
     
     

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Chapter 19 Solutions

Fundamental Accounting Principles -Hardcover

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