Costs that vary in direct
proportion to volume changes. Ex:
Budgeting is a valuable management tool
for planning and controlling costs
Uses the amount of direct labor
cost that has been charged to the
job as the basis for applying
factory overhead.
Applying factory overhead using
the number of direct labor hours
worked on a job or process.
The cost of the asset (less residual
value if any) is divided by the
estimated working hours.
Applying overhead to products
assumed that all overhead costs
incurred were related to volume.
The estimated factory overhead is
applied to production by a debit to
Work in Process and a credit to an
account
Variable costs
Electricity used to power the
machines
Costs that remain the same, in total,
when production levels
Fixed costs
increase or decrease. Ex: Electricity
used to heat and light the factory
Type A ex. : inspection and
Identifying cost behavior handling costs, and other
patterns indirect labor costs
Costs that have characteristics of both
variable and fixed costs
Type B ex. : Utility costs and
maintenance of factory equipment
Also called the account analysis method, relies
heavily on the ability of an observer to detect a
Observation Method pattern of cost behavior by reviewing past cost and
Budgeting factory Semivariable costs
overhead costs volume data
Direct Labor Cost Method High-Low Method
Compares a high production volume and its related
cost to a low production volume with its related cost
Analyzing Semivariable
Direct Labor Hour Method Factory Overhead Costs The scattergraph method estimates a straight line
along which the semivariable costs will fall
ACCOUNTING FOR
Applying Factory Overhead
to Production FACTORY OVERHEAD Scattergraph Method
The high-low and statistical scattergraph methods both use historical cost
Limitation of High-Low and
Machine Hour Method patterns to predict future costs and are, therefore, subject to the limitations
Statistical Scattergraph Method
that apply to all forecasting techniques
This method use all of the data to separate a
Activity-based Costing Least-squares Regression
semivariable cost into its fixed and variable
Method Method
elements based on the equation for a straight line
Expense-type analysis Provides a separate amount
spreadsheet column for each department
Accounting for Actual and
Factory Overhead Analysis
Applied Factory Overhead
Spreadsheets
Department-type analysis Provides a separate amount column
spreadsheet for each kind of expense
Schedule of Fixed Costs
General Factory Overhead
Expenses
Accumulating actual
overhead costs
At the end of the accounting period, the balance of the
Summary of Factory factory overhead control account is proved by preparing
Overhead a summary of factory overhead from the analysis
spreadsheets
Direct Distribution Method
Distributing Service
Method Sequential Distribution
Department Expenses
Algebraic distribution method