McGraw-Hill/Irwin ¤ 2005 The McGraw-Hill Companies, Inc. Managerial Accounting, 6/e 4-3 4-11 The difference between normal and actual costing lies in the calculation of the manufacturing-overhead cost of the current period. Under actual costing, the manufacturing-overhead cost of the current period is the actual overhead cost incurred during the period. Under normal costing, the current-period manufacturing overhead is computed as the product of the predetermined overhead rate and the actual level of the cost driver used to apply manufacturing overhead. 4-12 If manufacturing overhead were applied according to some activity base (or cost driver) other than direct labor, then direct-labor costs and manufacturing-overhead costs would be accounted for separately instead of being combined into one account called "conversion costs." Thus, instead of two columns for direct-material and conversion costs, there would be three columns: direct material, direct labor, and manufacturing overhead. 4-13
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