Cost Accounting Chapter 6

Front 1

Manufacturing Overhead Costs

Back 1

are generally defined as those costs that are not conveniently identified with particular orders or units of products.

includes all factory costs other than direct materials and direct labor.

other names: manufacturing expenses, factory burden, factory overhead, factory expenses, indirect manufacturing costs.

Front 2

Actual Costing

Back 2

Under __________, manufacturing overhead costs is charged to production at an arbitrary manufacturing overhead costs using an arbitrary overhead application rate determined at the end of the period.

The procedure is inconvenient on the part of the management, because complete costing of jobs finished during the period will have to be deferred until the end of the period.

Front 3

Normal Costing

Back 3

To avoid delay in the costing of jobs

it uses a predetermined overhead rate to allocate manufacturing overhead costs to jobs.

Front 4

Predetermined overhead rate

Back 4

is simply a rate calculated at the beginning of a period, usually a year.

is computed by the preparation of a manufacturing overhead budget based on a certain activity level

Front 5

Direct Labor Costs Basis

Back 5

This method is widely used because it is simple and easy to use.

predetermined overhead rate is calculated by dividing the estimated manufacturing overhead costs by the estimated direct labor costs.

%

Front 6

Direct Labor Hour Basis

Back 6

This method assumes that overhead costs tend to vary with the number of hours of direct labor used. It is calculated by dividing the estimated manufacturing overhead costs by the estimated direct labor hours.

Front 7

Machine Hours Basis

Back 7

This basis is usually used in automated factory where machines perform most of the work and each item goes through a similar sequence of machine.

is not applicable if different kinds of machines are used for various products.

Front 8

Units of Production basis

Back 8

have limited uses. This is used only if the manufacturing process is simple one and only if one type, or a few similar types, of products are produced.

Front 9

Overapplied Manufacturing Overhead

Back 9

credit balance in the manufacturing overhead control account.

results when product costs are overstated because the actual overhead costs were lower than expected.

is shown in the interim statement of FP as other liabilities.

overstate COGS.

Front 10

Underapplied Manufacturing Overhead

Back 10

debit balance in the manufacturing overhead control account.

results when product costs are understated because the actual overhead costs were higher than expected.

is treated as deferred charge and is shown under prepaid expenses.

understate COGS.

Front 11

fixed costs

Back 11

they do not vary substantially (in total) regardless of changes in the ((number of labor hours worked during the year))

Front 12

variable costs

Back 12

these costs tend to vary in proportion to the ((number of direct labor hours worked during the year))

Front 13

volume variance or capacity variance

Back 13

number of labor hours actually worked during the month deviates form the estimated number or labor hours used in computing the overhead rate.

Front 14

spending variance or controllable variance

Back 14

the remainder of the underapplied or overapplied overhead represents the amount by which actual expenditures exceeds the amount that should have been spent for overhead based on the number of hours worked.

Front 15

unfavorable

Back 15

The variance is ________ if actual costs are more than the costs applied to production.

Front 16

favorable

Back 16

The variance is ___________ if the actual overhead costs are less than the costs applied to production.