Normal Costing and Estimating Overhead

Normal Costing and Estimating Overhead - Normal Costing and...

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Normal Costing and Estimating Overhead Using a normal costing system, the total cost of a job is calculated using: actual costs for direct materials actual costs for direct labor a predetermined (estimated) rate to assign (apply) overhead costs to products and services In normal costing, overhead must be estimated and then applied to production. The three steps to assigning overhead to products are: Step 1: Calculate the predetermined overhead rate. (This rate is calculated at the beginning of the year.) Overhead rate = Estimated annual overhead/Estimated annual activity level (cost driver) Step 2: Apply overhead to production throughout the year. Overhead is assigned or applied to each job by multiplying the predetermined overhead rate in Step 1 by the activity for that particular job. For example, if a firm selected direct labor hours as the activity, applied overhead would be calculated by multiplying the number of hours worked on the particular job by the predetermined rate.
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Normal Costing and Estimating Overhead - Normal Costing and...

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