# (3 of 8) Allocation of Manufacturing Overhead Costs

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1.

\$5.50 overhead will be applied to the relevant job for every hour of direct labor work on that job.Betty Queen Motorboat Company used 400 direct labor hours (200 hrs for job #257, 150 hrs for job #258, and 50 hrs for job #259). What is the manufacturing overhead for each job?

Look at our illustration above for direct labor: With an overhead rate of \$5.50 and 400 hours, \$2,200 of manufacturing overhead will be assigned to the following jobs: Job #257 200 hrs @ 5.50 = \$1,100 Job #258 150 hrs @ 5.50 = \$825 Job #259 50 hrs @ 5.50 = \$275 Total: 400 hrs @5.50 = \$2,200 Dr. Factory Overhead ...100,000 Cr. Salaries Payable..................50,000 Cr. Supplies .............................15,000 Cr. Prepaid Insurance ..................5,000 Cr. Accumulated Depreciation ....11,000 Cr. Taxes Payable ......................9,000 Cr. Utilities Payable ..................10,000 In these highly automated, flexible manufacturing environments, we need to look at a more refined costing system so we can achieve a fair and equitable allocation of costs. There is a need for new approaches to tracing overhead costs. If we can identify the causes of costs by activities, we can more accurately assign overhead costs based on the amount of overhead each product truly consumes. This approach/method has given accountants and managers a better understanding of what drives overhead costs. Cost of Goods Sold, reducing it.

2.

A typical entry to record factory overhead costs would be as follows:

3.

Activity-Based Costing or simply ABC

4.

actual overhead costs of \$650,000 and the overhead applied to jobs amounted to \$680,000. That means we over-applied the overhead costs by \$30,000. The over-applied overhead cost is credited to? d

5.

ABC is a costing technique that uses a two-stage allocation process: 1. The first stage identifies activities and assigns the overhead costs on the basis of activities that have consumed resources; 2. In the second stage, costs are allocated from each activity-cost pool to each product line in proportion to the amount of products consumed by the product line. indirect cost are allocated derectely to the cost object by 1) Traditional Coasting or 2) Active Based Costing Consept of active-based-costing Stage 1: Overheads are assigned to activities (costs are first pooled according to activities, and than activei cost driver rates) Stage 2: Products Charge with Cost of activities Ex 1. Activity-Based Costing = Set up cost; Cost Drive = No. of set ups; Cost Driver Rate = Set up cost/No. of Set ups Ex. 2. Active Cost Pool = Ordering Cost; Cost Drive = No. of orders; Cost Driver Rate = Ordering Cost/No. of orders Important to keep in mind that overhead cost are increasing day by day wereas ABC costing is becoming more relevant.

6.

d