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    Accounting For Factory Overheads: Lecture # 9

    Uploaded by

    Amna Nasser
    cost accounting

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Accounting For Factory Overheads: Lecture # 9

    Uploaded by

    Amna Nasser
    44 views17 pages
    cost accounting

    Original Title

    Lecture 9

    Copyright

    © © All Rights Reserved

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    PPTX, PDF, TXT or read online from Scribd

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    cost accounting

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    44 views17 pages

    Accounting For Factory Overheads: Lecture # 9

    Uploaded by

    Amna Nasser
    cost accounting

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 17

    Accounting For Factory

    Overheads

    Lecture # 9
    ACCOUNTING FOR ACTUAL FACTORY OVERHEAD

     Cost accounting systems are designed to


    accumulate, classify, and summarize the factory
    overhead costs actually incurred.

    Principles of Cost Accounting, 17th Edition, Edward J. VanDerbeck, ©2015 Cengage Learning. All Rights Reserved.
    May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
    GATHERING INFORMATION OF ACTUAL FACTORY OVERHEADS

     The principal source documents for recording


    overhead in the journal are:
     Purchase vouchers
     Materials requisitions
     Labor time tickets
     General journal voucher.
    SCHEDULE OF FIXED COSTS

    Principles of Cost Accounting, 17th Edition, Edward J. VanDerbeck, ©2015 Cengage Learning. All Rights Reserved.
    May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
    SUMMARY OF FACTORY OVERHEAD

    Figure 4-9 Summary of Factory Overhead

    Principles of Cost Accounting, 17th Edition, Edward J. VanDerbeck, ©2015 Cengage Learning. All Rights Reserved.
    May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
    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.

    Principles of Cost Accounting, 17th Edition, Edward J. VanDerbeck, ©2015 Cengage Learning. All Rights Reserved.
    May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
    DISTRIBUTING SERVICE DEPARTMENT EXPENSES

     Direct Distribution Method


     Sequential Distribution or Step-Down Method
     Reciprocal Method

    Principles of Cost Accounting, 17th Edition, Edward J. VanDerbeck, ©2015 Cengage Learning. All Rights Reserved.
    May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
    DIRECT DISTRIBUTION METHOD

    Figure 4-10 Method 1-Spreadsheet for Direct Distribution of Service Department Costs to Production Departments

    Principles of Cost Accounting, 17th Edition, Edward J. VanDerbeck, ©2015 Cengage Learning. All Rights Reserved.
    May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
    SEQUENTIAL DISTRIBUTION METHOD
    Figure 4-11 Method 2-Spreadsheet for Sequential Distribution of Service Department Costs Based on Magnitude of Total
    Costs in Service Departments

    Principles of Cost Accounting, 17th Edition, Edward J. VanDerbeck, ©2015 Cengage Learning. All Rights Reserved.
    May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
    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.

    Principles of Cost Accounting, 17th Edition, Edward J. VanDerbeck, ©2015 Cengage Learning. All Rights Reserved.
    May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
    APPLYING FACTORY OVERHEAD TO PRODUCTION

     Management should give a high priority to


    attaining the most accurate predetermined factory
    overhead rate.

    Principles of Cost Accounting, 17th Edition, Edward J. VanDerbeck, ©2015 Cengage Learning. All Rights Reserved.
    May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
    APPLYING FACTORY OVERHEAD TO PRODUCTION

     Direct Labor Cost Method


     Direct Labor Hour Method
     Machine Hour Method
     Activity-based Costing Method

    Principles of Cost Accounting, 17th Edition, Edward J. VanDerbeck, ©2015 Cengage Learning. All Rights Reserved.
    May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
    FACTORS TO BE CONSIDERED IN SELECTION OF OVERHEAD
    RATES

     Base to be used
     Physical output

    Estimated factory overhead = factory overhead/unit


    Estimated units of production

     Direct materials cost

    Estimated factory overhead *100 = % of overhead/direct material cost


    Estimated material cost
    FACTORS TO BE CONSIDERED IN SELECTION OF OVERHEAD
    RATES

     Direct labor cost

    Estimated factory overhead *100 = % of overhead/direct labor cost


    Estimated Direct labor cost
     Direct labor costs = Direct labor hours* hourly wage rate

     Direct labor hours


    Estimated factory overhead = Rate per direct labor hour
    Estimated Direct labor hours

     Machine hours
    Estimated factory overhead = Rate per machine hour
    Estimated machine hours
    DETERMINING THE PREDETERMINED OVERHEAD RATE
    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
    Normal Capacity Expected Actual Capacity
    Fixed expense 120,000 120,000
    Variable expense:
    150,000 hrs*0.50 75,000
    120,000 hrs*0.50 60,000
    ______ ______
    Total estimated overhead195,000 180,000
    Estimated DLHs 150,000 120,000
    Factory overhead/hr $1.30 $1.50
    * 116,000 hrs * 116,000 hrs
    Applied Overheads $150,800 $174,000

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