Documente Academic
Documente Profesional
Documente Cultură
Chapter 9
This chapter…
Discusses the methods, procedures and
bases available for applying factory overhead
Describes methods and procedures for
classifying and accumulating actual factory
overhead
Shows computations for over or underapplied
factory overhead
Analyzes the total net variance
Factory Overhead
Factory overhead is generally defined as:
Indirect materials
Indirect labor
All other factory expenses that cannot
conveniently be identified with specific jobs or
products.
Factory Overhead
Also known as:
Factory burden
Manufacturing expense
Manufacturing overhead
Factory expense
Indirect manufacturing cost
Factory Overhead possesses two
characteristics:
Machine hours
Estimated factory overhead = Rate per machine hour
Estimated machine hours
Factors to be considered in Selection
of Overhead rates
Activity level selection
Normal capacity – long-term approach
An overhead rate in which expenses and
production are based on average utilization of
the physical plant over a time period long
enough to level out the highs and lows that
occur in every business venture
The rate does not change because of changes
in actual production
Factors to be considered in Selection
of Overhead rates
Expected actual capacity – short-term
approach
A rate in which overhead and production are
based on the expected actual output for the
next production period.
The use of predetermined rate based on
expected actual production is often due to the
difficulty of judging current performance on a
long range or normal capacity.
Example
Normal capacity= 150,000 DLH
Actual capacity= 116,000 hours
Expected actual capacity= 120,000DLH
Fixed expense= $120,000
Variable expense= $0.50/ DLH
Solution
Direct costing
Only variable overhead is included in
overhead rates.
The fixed expense does not become a product
cost but is treated as a period cost.
Calculation of Factory Overhead Rate
Identifying the base to be used
Work in process
Applied Factory Overhead
Or
Income Summary
Factory overhead