Wiley CPAexcel Exam Review 2015 Focus Notes: Business Environment and Concepts

Module 46: Cost Measurement and Assignment

Cost Measurement and Assignment

Cost Classifications

Product and Period Costs

Product	Period
Direct materials (DM)	x
Direct labor (DL)	x
Manufacturing overhead (MOH)	x
Selling, general, and administrative expenses (SG&A)	x

Prime and Conversion Costs

Prime	Conversion
DM	x
DL	x	x
MOH	x

Variable and Fixed Costs

Variable	Fixed
DM	x
DL	x
MOH	x	x
SG&A	x	x

Costing Methods

Manufacturing Overhead

1. Calculate the predetermined overhead rate (POHR)

   Estimated variable MOH for period
   +	Estimated fixed MOH for period
   =	Estimated total MOH for period
   ÷	Estimated # of units for period (cost driver)
   =	Predetermined overhead rate (POHR)—often split into fixed and variable rates

2. 2. Apply MOH to WIP

   Actual # of units for period (cost driver)
   ×	POHR
   =	MOH Applied

3. 3. Determine under-applied or over-applied MOH
   • Actual MOH > MOH applied: MOH under-applied
   • Actual MOH < MOH applied: MOH over-applied
4. Dispose of under-applied or over-applied MOH
   • Generally added to or deducted from cost of good sold (COGS)
   • May be charged or credited directly to income
   • May be allocated to WIP, finished goods, and COGS

Job Order Costing

Used when units are relatively expensive and costs can be identified to units or batches

• DM, DL, and MOH applied charged to WIP
• Cost of completed units removed ...