Goods in Transit

Goods in Transit: Definition Goods in transit are purchased goods that have not yet been received by the purchaser. These goods are easily overlooked when counting the ending inventory because they are not physically located at either the seller’s or the purchaser’s warehouse. Accounting Treatment of Goods in Transit When accounting for goods in transit, the fundamental question is whether a sale…

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Periodic Inventory System

What Is a Periodic Inventory System? A periodic inventory system does not keep continuous track of ending inventories and the cost of goods sold. Instead, these items are determined at the end of each quarter, year, or accounting period.  Although this method offers ease of use for record-keeping, it hinders the managerial decision-making process. However, the sheer volume of transactions in some…

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Factory Overhead: Practical Problems and Solutions

Factory Overhead Application Methods Problem 1 IQIZ estimated its factory overhead for the next period at $160,000. It is estimated that 40,000 units will be produced at a materials cost of $200,000. Production will require 40,000 man-hours at an estimated wage cost of $80,000. The machines will run for approximately 25,000 hours. Required: Calculate the factory overhead rate that may be used in a…

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Important Techniques of Factory Overhead Costing

Factory Overhead Absorption Methods/Methods for FOH Application 1. Direct Material Cost Basis Direct material cost basis = (Estimated FOH for the period / Estimated D.M. cost) x 100 2. D.L. Cost Basis D.L. Hours Basis = (Estimated FOH for the period / Estimated D.L. Cost) x 100 3. D.L. Hours Basis (Estimated FOH for the period / Estimated D.L. hours) = Per D.L. hour 4. Machine Hours Basis (Estimat…

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Important Techniques of Labour Costing

This article explains important techniques and formulas for calculating labor cost, payroll, and incentive wages. 1. Measurement of Labor Turnover Separation Method Labor turnover = (No. of separations in a period / Average no. of workers) x 100 LT = (NS / ANW) x 100 Replacement Method Labor turnover = (No. of replacements in a period / Average no. of workers) x 100 LT = (NR / ANW) x 100 Flux Meth…

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Labor Costing: Practical Questions With Answers

Question 1 Consider the following information concerning the monthly remuneration of three workers: Standard production per month per worker 1,000 units Actual production during the month: A, 850 units; B, 750 units; and C, 950 units. Piece work rate is $0.10 per unit (actual production) Additional production bonus is $10 for each percentage of actual production that exceeds 80% over standard Dear…

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Job Order Costing: Examples, Practical Problems, and Solutions

Problem 1: Job Order Costing Cycle Excellent Ltd. had the following inventories on 1 April 2019: $ Raw Materials 50,000 Finished Goods 28,000 WIP – Materials 2,000 WIP – Labor 30,000 WIP – FOH 12,000 During the month, the cost of materials purchased was $120,000. Also, the direct labor cost was $160,000 and factory overhead applicable to production was $60,000. On 30 April, the inventories were as…

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Predetermined Overhead Rate

Predetermined Overhead Rate: Definition A predetermined overhead rate is an allocation rate given for indirect manufacturing costs that are involved in the production of a product (or several products). It is used to estimate future manufacturing costs. The estimate is made at the beginning of an accounting period, before the commencement of any projects or specific jobs for which the rate is need…

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Cost of Production Report (CPR) Questions and Answers

Question 1 The MST Manufacturing Company produces one product that passes through a single process in a manufacturing cycle lasting approximately 18 days. Therefore, there will generally be some work-in-process inventories at the end of each month. After MST started its manufacturing operations on 1 January, the costs of production for the rest of the month are given as follows:   Materials $…

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Incentive Plans

Incentive Plans: Definition Incentive plans are used by companies to keep employees motivated. These plans rely on the power of incentives to affect employee behavior. When incentives are aligned through the use of incentive plans, this encourages employees to perform their tasks with more effort and efficiency. Advantages of Incentive Plans In the context of factories, the following advantages ty…

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