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#CACH TINH INCURRED EXPENSES PROFESSIONAL#

This means that as far as fixed overheads go it will be assumed to have been made in 5 hours costing $2 per hour. This means that when production enters finished goods we will value it as if it was made at standard cost.

However, output in a standard costing system production will be costed at standard cost. This situation is shown in graph 7 where actual overhead expenditure is the same as budgeted and actual production is 1,000 units.īecause the company works at above budgeted capacity (5,400 labour hours as compared to 5,000 budgeted hours) a favourable variance (over absorption of overhead) of $800 is recorded. If everything goes according to budget then no variances will occur. You simply need to remember that an over absorption of overhead is equivalent to a favourable variance (because it is added back to profit) and by similar logic an under absorption of overhead is equivalent to an adverse variance.Īssume that the standard fixed overhead absorption rate for a product is $10 per unit, based upon a budgeted output of 1,000 units, and budgeted fixed overhead expenditure of $10,000. Standard costing fixed overhead expenditure and volume variancesĪ similar approach may be used to understand standard costing fixed overhead variances.

Interestingly, when a calculation question is a set on this topic the performance is better. If actual hours worked are below budget then by applying the predetermined absorption rate (which is based on budgeted hours) to this lower number of actual hours will lead to under absorption.Īnswers 1 and 3 were chosen by a significant number of candidates, indicating a general lack of understanding of the topic.

#CACH TINH INCURRED EXPENSES PROFESSIONAL#

An introduction to professional insightsĪnswer 2 was the most popular of the wrong answers, which suggests that candidates understood that situation (1) leads to over absorption and that it was situation (2) that caused the problem.

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(double decling: 200% in 5 years  40% each). Sep 30 Depreciation expense 3333 Accumulated dep – equipment (16/4x10/12) 3333 Cash 5. Allowance for doubtful account (eventually pay the amountowed) 10000 March 1 Less on disposal 4. Jul 31 Interest receiable 67 Interest revenue ( 10 x 8% x 1/12) 67 OCT 1 CASH 10200 Notes receiable 10000 Interest revenue (notes honored) (10000x8%x3/12) 200 Oct 1 Bad debt expense 10.

Operating expenses The cost of the merchandise returned was $600.

Oct 25 Sales return and Less: sales discount 20. 25 Issued a credit memo to TL for $1,000 for merchandise returned by him from the sale on October 20. The cost of the merchandise sold was $9,500. The company takes all discounts to which it is entitled 20 Sold merchandise for $16,000 to TL on account. 15 Paid for merchandise purchased on October 8. 10 Paid freight bill of $200 for merchandise purchased on October 8. 8 Purchased merchandise for $12,000 on account.

5 Paid $15,000 cash for operating expenses that were incurred and properly recorded in the previous period. Part 2 For each situation given below prepare journal entries on the October for BC Company B us perpetual inventory system. They are paid each Friday for a five-day workweek that begins cach Monday, June 30 is a Thursday in 2016. TL&MA Company has two office employees who earn $80 and 590 per day, respectively. It is estimated that the annual depreciation will be $8,400. On March 31, 2018, CLH Company purchased a delivery van for $42,000. A physical count of office supplies at June 30 revealed that there was $ still on hand. During June, office supplies costing 5600 were purchased. On June 1, 2018, the balance in the Office Supplies account was $100. The amount received was credited to the Unearned Rent account. On January 1, 2018, a tenant in an apartment building owned by CLH Company paid 55,400, which represents six months' rent in advance. Lance Company purchased a 3-year insurance policy on March 1, 2018, and debited Prepaid Insurance for $7. Aporopriate adjusting entries had been recorded in previous months. You are to prepare the necessary adjusting journal entries for CLH Company for the month of January for each situation given. Part 1: The following information for CLH Company is available on June 30, 2018, the end of a monthly accounting period.