Deck 3: Job-Order Costing: Cost Flows and External Reporting

Answer 1

The link that connects these two schedules is the cost of goods manufactured. It is calculated within a schedule of cost of goods manufactured and then it plugs into the schedule of cost of goods sold to enable calculating the cost of goods available for sale.

Answer 2

The Manufacturing Overhead clearing account is credited when overhead cost is applied to Work in Process. The applied overhead cost for the period will probably not equal the actual overhead cost because overhead application relies on a predetermined overhead rate that is based on estimates made at the beginning of the period.

Answer 3

Underapplied overhead occurs when the actual overhead cost exceeds the amount of overhead cost applied to Work in Process inventory during the period. Overapplied overhead occurs when the actual overhead cost is less than the amount of overhead cost applied to Work in Process inventory during the period. Underapplied or overapplied overhead is disposed of by either closing out the amount to Cost of Goods Sold or by allocating the amount among Cost of Goods Sold and ending Work in Process and Finished Goods inventories in proportion to the applied overhead in each account. The adjustment for underapplied overhead increases Cost of Goods Sold (and the two inventories) whereas the adjustment for overapplied overhead decreases Cost of Goods Sold (and the two inventories).