Accounts Receivable and Inventory Management
Foundation University
Masters in Business Administration
MBA 06a Managerial Accounting
Report on
Factory Overhead: Actual, Planned and Applied
Submitted to:
Engr. Marlon Tanilon
Submitted by:
Hazel R. Tanilon
04 February 2012
Factory Overhead • Defined as indirect material, indirect labor and other that cannot be conveniently identified with or charged directly to specific jobs, products, or other final cost objects. • Other Terminologies: ▪ Factory Burden ▪ Manufacturing Expenses ▪ Manufacturing Overhead ▪ Factory Expense ▪ Indirect Manufacturing Cost
Nature of Factory Overhead
❖ Characteristics of Factory Overhead
▪ Related to the product. Overhead is invisible part of the finished product. Yet overhead is as much a part of a product’s manufacturing cost as direct materials and direct labor. ▪ Related to the volume of production. Overhead can be fixed, variable and semi variable. As volume changes, the different overhead cost behavior patterns cause per-unit manufacturing cost to fluctuate considerably. As a result, some method is needed to determine an amount of overhead charged to the units produced.
❖ Use of a Predetermined Overhead Rate
▪ Because of the impossibility of tracing overhead to specific jobs or specific products, overhead cost is allocated across jobs and units. ▪ A predetermined overhead rate permits a consistent and logical allocation to each unit of output ▪ It serves management’s needs for product cost information, to identify inefficiencies, and to smooth out the illogical month-to-month
Masters in Business Administration
MBA 06a Managerial Accounting
Report on
Factory Overhead: Actual, Planned and Applied
Submitted to:
Engr. Marlon Tanilon
Submitted by:
Hazel R. Tanilon
04 February 2012
Factory Overhead • Defined as indirect material, indirect labor and other that cannot be conveniently identified with or charged directly to specific jobs, products, or other final cost objects. • Other Terminologies: ▪ Factory Burden ▪ Manufacturing Expenses ▪ Manufacturing Overhead ▪ Factory Expense ▪ Indirect Manufacturing Cost
Nature of Factory Overhead
❖ Characteristics of Factory Overhead
▪ Related to the product. Overhead is invisible part of the finished product. Yet overhead is as much a part of a product’s manufacturing cost as direct materials and direct labor. ▪ Related to the volume of production. Overhead can be fixed, variable and semi variable. As volume changes, the different overhead cost behavior patterns cause per-unit manufacturing cost to fluctuate considerably. As a result, some method is needed to determine an amount of overhead charged to the units produced.
❖ Use of a Predetermined Overhead Rate
▪ Because of the impossibility of tracing overhead to specific jobs or specific products, overhead cost is allocated across jobs and units. ▪ A predetermined overhead rate permits a consistent and logical allocation to each unit of output ▪ It serves management’s needs for product cost information, to identify inefficiencies, and to smooth out the illogical month-to-month