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    Accounting For FOH

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    The document discusses accounting for factory overhead costs. It covers identifying variable and fixed overhead costs, budgeting overhead, accounting for actual overhead costs, allocating overhead to production departments using various bases or rates, and analyzing variances between budgeted and actual overhead. The goal is to rationally allocate all factory costs, including indirect materials, labor, utilities and other expenses, to the products manufactured.

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    Accounting For FOH

    Uploaded by

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    105 views23 pages
    The document discusses accounting for factory overhead costs. It covers identifying variable and fixed overhead costs, budgeting overhead, accounting for actual overhead costs, allocating overhead to production departments using various bases or rates, and analyzing variances between budgeted and actual overhead. The goal is to rationally allocate all factory costs, including indirect materials, labor, utilities and other expenses, to the products manufactured.

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    Accounting for FOH

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    The document discusses accounting for factory overhead costs. It covers identifying variable and fixed overhead costs, budgeting overhead, accounting for actual overhead costs, allocating overhead to production departments using various bases or rates, and analyzing variances between budgeted and actual overhead. The goal is to rationally allocate all factory costs, including indirect materials, labor, utilities and other expenses, to the products manufactured.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    105 views23 pages

    Accounting For FOH

    Uploaded by

    joint account
    The document discusses accounting for factory overhead costs. It covers identifying variable and fixed overhead costs, budgeting overhead, accounting for actual overhead costs, allocating overhead to production departments using various bases or rates, and analyzing variances between budgeted and actual overhead. The goal is to rationally allocate all factory costs, including indirect materials, labor, utilities and other expenses, to the products manufactured.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 23

    Inspired by our faith in God, by our Catholic traditions, and by the charism

    of St. John Baptist De La Salle, educational innovator par excellence, we,


    together and by association, are committed to give quality human and
    Christian education to all, building a society founded on equity and justice
    and on sustainable and inclusive development

    Accounting for Factory Overhead


    Learning Objectives
     Identify cost behavior pattern.
     Separate semi-variable costs into variable
    and fixed components.
     Prepare a budget for factory overhead
    costs.
     Account for actual factory overhead.
     Compute a factory overhead rate using
    the different bases.
    Learning Objectives
     Apply the concept of actual factory
    overhead and applied factory overhead.
     Identify the different methods of
    allocating budgeted service department to
    producing departments.
     Distribute service department factory
    overhead costs to production
    departments
    Learning Objectives
     Apply factory overhead using
    predetermined rates.
     Compute the different factory overhead
    variances.
     Apply the concept of activity based
    costing.
    Factory Overhead
    • Overhead costs are a very big deal costing
    matters in companies, large and small, each
    year.

    • It must be allocated in a rational way to all jobs


    produced during the period.

    • All costs incurred in the factory that are not direct


    materials or direct labor.
    Factory Overhead
    • Factory Overhead includes:
    (1) indirect materials consumed in the
    factory, such as glue and nails in the production
    of wooden furniture and oil used for
    maintaining factory equipment.

    (2) indirect factory labor, such as wages of


    janitors, forklift operators and supervisors, and
    overtime premiums paid to all factory workers.
    Factory Overhead

    (3) all other indirect manufacturing


    expenses, such as insurance, property
    taxes, and depreciation on the factory
    building and equipment.
    Cost Behavior Pattern
    • Variable costs are costs that vary in direct
    proportion to volume changes.

    • Fixed costs are costs that remain the same in


    total, when production levels increase or decrease.

    • Semivariable costs have characteristics of both


    variable and fixed costs.
    Cost Behavior Pattern
    Analyzing Semi-variable Factory Overhead Costs
    • Observation Method relies heavily on the ability
    of an observer to detect a pattern of cost
    behavior by reviewing past cost and volume
    data.

    • High-Low Method compares a high production


    volume and its related cost to a low production
    volume with its related cost.
    Analyzing Semi-variable Factory Overhead Costs
    • Scattergraph method estimates a straight line
    along which the semivariable costs will fall.
    Analyzing Semi-variable Factory Overhead Costs

    • The high-low and statistical scattergraph methods


    use historical cost patterns to predict future costs
    and are, therefore subject to limitations that apply
    to all forecasting techniques.

    • Statistical software packages are often used to


    analyze semivariable factory overhead.
    Analyzing Semi-variable Factory Overhead Costs
    • Least-squares regression method uses all of the
    data to separate a semivariable cost into its
    fixed and variable elements based on the
    equation for a straight line:
    Y = a + bX, where:
    X = activity level
    Y = the total semivarible cost
    a = the total fixed cost
    b = the variable cost per unit
    Budgeting Factory Overhead Costs
    • Budgets are management’s operating plans
    expressed in quantitative terms, such as units of
    production and related costs.

    • The segregation of fixed and variable cost


    components permits the company to prepare a
    flexible budget. A flexible budget is a budget that
    shows estimated costs at different production
    volumes.
    Accounting for Actual Factory Overhead
    • Cost accounting systems are designed to
    accumulate, classify, and summarize the factory
    overhead costs actually incurred.
    Schedule of Fixed Costs
    Item of Costs January February March April May June

    Depreciation - machinery
    Dept. A 15,000.00 15,000.00 15,000.00 15,000.00 15,000.00 15,000.00
    Dept. B 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00
    Dept. C 7,500.00 7,500.00 7,500.00 7,500.00 7,500.00 7,500.00
    Dept. D 25,000.00 25,000.00 25,000.00 25,000.00 25,000.00 25,000.00
    Total 57,500.00 57,500.00 57,500.00 57,500.00 57,500.00 57,500.00

    Property tax
    Dept. A 14,000.00 14,000.00 14,000.00 14,000.00 14,000.00 14,000.00
    Dept. B 13,500.00 13,500.00 13,500.00 13,500.00 13,500.00 13,500.00
    Dept. C 12,500.00 12,500.00 12,500.00 12,500.00 12,500.00 12,500.00
    Dept. D 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00
    Total 50,000.00 50,000.00 50,000.00 50,000.00 50,000.00 50,000.00

    Insurance
    Dept. A 19,600.00 19,600.00 19,600.00 19,600.00 19,600.00 19,600.00
    Dept. B 18,900.00 18,900.00 18,900.00 18,900.00 18,900.00 18,900.00
    Dept. C 17,500.00 17,500.00 17,500.00 17,500.00 17,500.00 17,500.00
    Dept. D 14,000.00 14,000.00 14,000.00 14,000.00 14,000.00 14,000.00
    Total 70,000.00 70,000.00 70,000.00 70,000.00 70,000.00 70,000.00

    Total fixed costs 177,500.00 177,500.00 177,500.00 177,500.00 177,500.00 177,500.00


    Summary of Factory Overhead
    Summary of Factory Overhead
    For the Month Ended January 2019

    Departmental Classification
    Expenses: Dept. A Dept. B Dept. C Dept. D Total
    Indirect materials 15,000.00 2,500.00 2,000.00 1,500.00 21,000.00
    Indirect labor 10,000.00 7,500.00 7,000.00 8,000.00 32,500.00
    Power 7,500.00 7,000.00 6,000.00 5,000.00 25,500.00

    Depreciaton 15,000.00 10,000.00 7,500.00 25,000.00 57,500.00


    Factory property tax 14,000.00 13,500.00 12,500.00 10,000.00 50,000.00
    Insurance 19,600.00 18,900.00 17,500.00 14,000.00 70,000.00
    General factory expenses 7,500.00 17,500.00 10,000.00 15,000.00 50,000.00

    Total 88,600.00 76,900.00 62,500.00 78,500.00 306,500.00


    Distributing Service Department Expenses
    • Departments are divided into two classes: service
    departments and production departments.
    • A service department is an essential part of the
    organization, but it does not work directly on the
    product.
    • A production department performs the actual
    manufacturing operations that physically change
    the units being processed.
    Distributing Service Department Expenses

    • Direct Distribution Method

    • Sequential Distribution or Step-Down Method

    • Reciprocal Method or Algebraic Method


    Distributing Service Department Expenses

    • Direct Distribution Method

    • Sequential Distribution or Step-Down Method

    • Reciprocal Method or Algebraic Method


    Applying Factory Overhead to Production

    • Predetermined factory overhead rates are


    computed by dividing the budgeted factory
    overhead cost by the budgeted production.
    • The budgeted production may be expressed in
    such terms as machine hours, direct labor hours,
    direct labor cost, and units produced.
    • Management should give a high priority to
    attaining the most accurate predetermined
    factory overhead rate.
    Applying Factory Overhead to Production

    • Direct Labor Cost Method

    • Direct Labor Hour Method

    • Machine Hour Method

    • Activity-based Costing Method


    Applying Factory Overhead to Production

    • Direct Labor Cost Method

    • Direct Labor Hour Method

    • Machine Hour Method

    • Activity-based Costing Method

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