FOH defined Items not qualified as direct materials/labor

Variable

Categories Fixed

Mixed
Est. FOH
Hours Est. DL Hrs
Direct labor
Est. FOH
Base to be used x 100
Cost Est. DL Cost

Machine Est. FOH

hours Est. Machine hrs

Est. FOH
Direct x 100
Est. DM Cost
material
cost

Est. FOH
Units of
Est. units of prod.
production

1. Divide company into departments

Steps in
computation of
2. Estimate FOH for each department
departmentalized
OH Rate
3. Select the base to be used by each dept. Direct method

4. Allocate service dept. cost to producing dept. Step method

5. Compute FOH rate Algebraic method

Labor- Supervision No. of employees, payroll amount of DL Hrs

 Labor- Supervision No. of employees, payroll amount of DL Hrs
related
Allocation bases for
common costs Personnel services Number of employees

Insurance on equipment Value of equipment

Taxes on equipment Value of equipment

Machine-
related
Equipment depreciation Machine hours, equipment value

Equipment maintenance Number of machines, machine hours

Space- Building rental Space occupied

related
Building insurance Space occupied

Heat & air-conditioning Space occupied, volume occupied

Concession rental Space occupied, desirability of location

Interior bldg. maintenance Space occupied

Material handling Quantity/value of materials

Service-
related
Billing and accounting Number of documents

Indirect materials Value of direct materials

Theoretical/maximum/ideal

Capacity production
Practical capacity
Capacity production
Practical capacity

Expected actual capacity

Normal capacity

Non-controlling account system

Accumulating FOH
Costs
Controlling account system

Underapplied

Classification
Overapplied

FOH Variance Spending

Causes
Idle capacity

1. Assemble similar actions in to activity centers

2. Classify costs by activity center and type of expense

5 steps in applying
Activity-Based
Costing
3. Select cost drivers

4. Compute a cost function

5. Assign cost to the cost objective