Thursday, January 17, 2008

Manufacturing Overhead

Manufacturing costs are typically classified as either (1) direct materials, (2) direct labor, or (3) manufacturing overhead.

Fixed manufacturing overhead costs present certain problems in determining product cost
and operating profit (that is, profit before interest and income tax expenses). Manufacturing overhead consists of costs that are indirectly associated with the making of a finished product. These costs may also be manufacturing costs that cannot be classified as direct materials or direct labor.

Manufacturing overhead typically includes indirect materials, indirect labor, depreciation on factory buildings and machines, and insurance, taxes, and maintenance on factory facilities.While manufacturing overhead costs are indirect manufacturing costs they, nonetheless, increase the cost of producing a product and need to be properly managed to avoid cost overruns and ensure that a competitively priced product can be brought to market.

What is the predetermined overhead rate (POHR)?

The predetermined overhead rate used to apply overhead to finished jobs is determined before the period begins. Are any of the accounting records affected at this point in time?

Estimated total manufacturing overhead cost for the coming period
Estimated total units in the allocation base for the coming periodThe next important step is to apply manufacturing overhead to production that has occurred....

Overhead applied = POHR × Actual activity

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roter789 said...

i have a question about predetermined overhead rates: Explain the types of businesses that use predetermined overhead rates? Why?

roter789 said...

i just have a question regarding predetermined overhead rates. How do some types of businesses use predetermined overhead rates? Explain. Why?

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