Manufacturing Overhead Costs

Manufacturing Overhead Costs - Manufacturing Overhead Costs

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Manufacturing Overhead Costs Companies charge the actual costs of direct materials and direct labor to specific jobs. In contrast,  manufacturing  overhead  relates to production operations  as a whole . As a result, overhead costs  cannot be assigned to specific jobs on the basis of actual costs incurred. Instead, companies assign  manufacturing overhead to work in process and to specific jobs  on an estimated basis through the  use of a predetermined overhead rate . The  predetermined overhead rate  is based on the relationship between estimated annual overhead  costs and expected annual operating activity, expressed in terms of a common  activity base . The  company may state the activity in terms of direct labor costs, direct labor hours, machine hours, or  any other measure that will provide an equitable basis for applying overhead costs to jobs. Companies  establish the predetermined overhead rate at the beginning of the year. Small companies often use a  single, company-wide predetermined overhead rate. Large companies often use rates that vary from  department to department. The formula for a predetermined overhead rate is as follows.   15-10    Formula for predetermined overhead rate
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Manufacturing Overhead Costs - Manufacturing Overhead Costs

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