4
Relating Chapter costs to specific cost objects on a per unit level
Dependent upon the operating environment
2 environments
1. Job Order a wide variety of products; costs accumulated by JOB
a. Construction company
2. Process homogeneous products; costs accumulated by DEPARTMENT
a. Coca Cola
Sister Hazel acoustic album Before the Amplifier, Inc.
2 Costing systems for accounting for indirect costs
1. Actual Costing = DM + DL + actual MOH
a. Advantages accurate
b. Disadvantages not timely
2. Normal Costing = DM + DL + applied MOH
a. Advantages timely
b. Disadvantages not as accurate
Estimating applied MOH
1. Calculate the predetermined rate overhead (does not affect accounting records)
a. POHR = Estimated (or Budgeted or Forecasted) Annual Overhead/Estimated Annual
Activity Level
i. Labor Intensive environment = focus on DL costs
ii. Highly automated environment = focus on DM costs
2. Apply overhead to production throughout the year
a. Applied MOH = POHR x Actual Activity Level
3. Reconcile the difference b/w actual and applied (called overhead variance)
a. b/c youre estimations arent perfect
The MOH costs (actual and applied) are accumulated in a temporary MOH account that is closed
to COGS at the end of the period
Debit Actual MOH
Credit Applied MOH