(COGS) – T-Account
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Dr. ……………………I Cr.
Beg. COGS…………I
Underapplied OH ….I Overapplied OH
I
End. COGS
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NOTE: COGS vs OH Variance
“Beg. COGS” trickles down from inventory flows starting from Raw or Direct Materials Inventory through Work in Process Inventory (FYI WIP is truly the meat of Inventory costing and flow), through Finished Goods Inventory, and ultimately to COGS Account
“Under/Overapplied OH” is derived from year end comparisons of Actual OH vs. Applied OH and the resulting variance is closed to COGS at year end, which simultaneously closes out both OH accounts.
It is imperative, in my opinion, to understand the inventory accounts and their flows to truly capture this concept and make it second nature. It took me about a day to do this and actually grasp via T-Accounts, journal entries, and schedules based on T-Accounts. I wish there was a way to embed images to show the whole Inventory flow better.
BACK TO QUESTION @ HAND:
Favorable = Actual OH < Applied OH = Overapplied OH ; therefore, Actual OH incurred was less than Budgeted/Standard/Applied OH, which means that Actual COGS were much less and must be reduced by a credit to COGS
Unfavorable = Actual OH > Applied OH = Underapplied OH ; therefore Actual OH incurred was greater than Budgeted/Standard/Applied OH, which means that Actual COGS were much more and must be increased by a debit to COGS
*The way I remembered Under/Overapplied OH is via Variances… (F) is GOOD vs. U is BAD
Actual – Standard = Actual + -Standard = Actual + (Standard) = A + (S)
If A < (S) = (S) prevails = Favorable = (F) = Overapplied = Credit Entry = GOOD b/c you spent/used less
In short, (Neg. – Variance) = (-) = (F) = O = Cr.
If A > (S) = A prevails = Unfavorable = U = Underapplied = Debit Entry = BAD b/c you spent/used more
In short, Pos. + Variance = + = U = U = Dr.
FAR - 7/16/2012 *76 : 2.5mo [Exp. 1/2014]
AUD - 8/31/2012 *82 : 1mo
REG - 11/27/2012 *83 : 2.5mo
BEC - 2/27/2013 *80 : 2.5mo LET'S DO THIS!!!
Ethics - 3/13
[ 2011 Kaplan Self Study - Textbook, MP3s, FlashCards ]
CMA... Hmmm...???
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