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Manufacturing Cost

This document discusses different types of manufacturing overhead costs including factory costs that are not directly associated with specific orders or products. It describes actual costing which uses an arbitrary overhead rate determined at the end of the period to charge products, and normal costing which uses a predetermined overhead rate set at the beginning of the year based on budgets to allocate costs to jobs. Common bases to calculate the predetermined overhead rate include direct labor cost, hours, material cost, machine hours, and units of production.

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Kristine Perez
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74 views1 page

Manufacturing Cost

This document discusses different types of manufacturing overhead costs including factory costs that are not directly associated with specific orders or products. It describes actual costing which uses an arbitrary overhead rate determined at the end of the period to charge products, and normal costing which uses a predetermined overhead rate set at the beginning of the year based on budgets to allocate costs to jobs. Common bases to calculate the predetermined overhead rate include direct labor cost, hours, material cost, machine hours, and units of production.

Uploaded by

Kristine Perez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Manufacturing Overhead Cost

• not conveniently identified with particular orders


• cost that are not conveniently identified with a particular orders or units of
products.
• includes FACTORY COSTS, other than Direct Materials and Direct Labor
• other names are MANUFACTURING EXPENSES, FACTORY BURDEN,
FACTORY OVERHEAD, FACTORY EXPENSES AND INDIRECT
MANUFACTURING COST.

Actual Costing
• arbitrary manufacturing overhead cost
• charge the product with the use of arbitrary overhead application rate
determined at the END OF THE PERIOD.

Normal Costing
• uses predetermined overhead rate to allocate manufacturing overhead costs
to jobs at the beginning of the year based on budgets
• used to avoid any DELAY in the costing of jobs as experienced in actual
costing

Predetermined Overhead Rate


• used to ESTIMATE the manufacturing overhead cost
• to charge a fair share of overhead cost to each job
• calculated at the BEGINNING of the period.
• computed by the preparation of a manufacturing overhead budget based on
a certain activity level.
• ratio called OVERHEAD APPLICATION RATE

THE COMMON BASES


⁃ Direct Labor Cost
⁃ Direct Labor Hours
⁃ Direct Material Cost
⁃ Machine Hours
⁃ Unit of Production

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