Acc Ch2

Assigning manufacturing overhead to a specific job is complicated by

1) The average cost of actual fixed manufacturing overhead will vary depending on how many units are produced in a period, 2) manufacturing overhead is an indirect cost that is either impossible or difficult to trace to a particular job, 3) manufacturing overhead consists of both variable and fixed costs

Cost driver for overhead

Important to correctly allocate costs to units, triggers changes in the costs of an activity

Manufacturing overhead is applied by

Predetermined overhead rate x actual cost driver for the job (usually direct labor hours)

Predetermined overhead rate

The rate used to apply manufacturing overhead to work in process inventory

Predetermined overhead rate formula

total manufacturing overhead/ estimated cost driver(usually direct labor hours)