![]() Overhead applied to a particular job = (Predetermined overhead rate) x (Amount of the allocation base incurred by the job) The predetermined overhead rate is then used to apply overhead cost to jobs throughout the period. The predetermined overhead rate is computed before the period begins. X= estimated total amount of the allocation baseĤ. Y=estimated total manufacturing overhead costĪ=estimated total fixed manufacturing overhead costī= estimated variable manufacturing overhead cost per unit of the allocation base Use the cost formula to estimate the total manufacturing overhead cost for the coming period. ![]() Estimate the total fixed manufacturing overhead cost for the coming period and the variable manufacturing overhead cost per unit of the allocation base.ģ. Estimate the total amount of the allocation base (the denominator) that will be required for next period's estimated level of production.Ģ. ![]() Predetermined overhead rate = (estimated total manufacturing overhead) ÷ (estimated total amount of allocation base)ġ. Total manufacturing overhead costs tend to remain relatively constant from one period to the next. Manufacturing Overhead is an indirect cost.Ĭonsists of many items ranging from grease used in machines to annual salary of the production manager. Separates costs into fixed and variable costs.Ĭan be conveniently traced to a specific cost object.Ĭannot be traced to a specific cost object.Ī cost that has already been incurred and cannot be changed. ![]() The high-low and least squares regression methods estimate the fixed and variable elements of a mixed costs by analyzing past records of cost and activity data. Examples are: direct labor hours, machine hours, units produces, units sold, and number of (miles).Įxamples are: straight line-depreciation, insurance, property taxes, rent, supervisory salaries, and advertising.Ĭontains both variable and fixed cost elements. Examples are: goods sold for a merchandising company, direct materials, supplies, and power, and variable elements of selling and administrative expenses such as commissions and shipping costs.Ī measure of whatever causes the incurrence of a variable cost. The relative proportion of each type of cost in an organization is the cost structure.ĭirect proportions to changes in the level of activity. They do this by categorizing costs into variable, fixed, or mixed. A manager must be able to anticipate which one of these will happen. As the activity level rises and falls, a particular cost may rise and fall as well. Refers to how a cost reacts to changes in the level of activity. Period costs are expensed on the income statement in the period in which they are incurred using accrual accounting. All selling and administrative expenses are treated as period costs. When the goods are sold, the costs are released from inventory as expenses (COGS) and matched against sales revenue.Īll the costs that are not product costs. Product costs are initially assigned to an inventory account on the balance sheet. Involved in acquiring or making a product: direct materials, direct labor, and manufacturing overhead. ![]() Examples are: executive compensation, general accounting, secretarial, and public relations. Include all costs associated with the general management of an organization. Examples are: advertising, shipping, sales, travel, sales commissions, sales salaries, and cost of finished goods. Includes all costs that are incurred to secure customer orders and to get the finished product to the customer. Only costs associated with operating the factory are included in manufacturing overhead. Includes indirect materials, indirect labor, maintenance and repairs, heat and light, property taxes, depreciation, and insurance. Labor costs that cannot be traced to particular products are indirect labor. Labor that can be easily traced to individual units of the product. Indirect materials are included in manufacturing overhead, things like glue. Direct materials become an integral part of the finished product and whose cost can be conveniently traced to the finished product. Materials that go into the final product. ![]()
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