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costs are recorded as
they occur, and are
accumulated in the
Overhead Control acct Work in Process – Job A
(Overhead) Overhead Applied (Allocated)
YY XX “Normal” overhead
costs are applied to the
jobs and included in
WIP YY 10 Referring to the previous example (total normal overhead applied = 9,600, and total
actual overhead = 12,000), the summary entries, for the period, would be Various Accounts
(Accum Dep’n, Wages
Payable, etc.) 12,000 Overhead Control Actual Overhead Overhead Applied/Allocated
9,600 12,000 Work in Process (Job A, B, etc)
Normal overhead 9,600 ($100/mhr x 96 hrs)
Budgeted rate Actual Machine Time
11 There would be an overhead control account and an overhead applied
account corresponding to each overhead cost pool.
Thus, if a firm had 3 overhead cost pools, there would be 3
overhead control accounts and three overhead applied accounts.
What kind of accounts are the Overhead control and applied accounts?
Both the overhead control account and the overhead applied
accounts are temporary (Work-in-Process) accounts (also,
sometimes referred to as nominal accounts) and, as temporary
accounts, they are closed at the end of the accounting period.
First, the overhead applied account is closed to the overhead
Then, the overhead control account is closed. 12 What happens to the over- or under-applied overhead?
After the overhead applied account has been closed, the balance in the
overhead control account represents the over-applied (credit balance)
or under-applied (debit balance) cost.
To close the overhead control account, there are two alternatives:
1) Close the account, proportionately, to
the Work-in Process Inventory account(s)
the Finished Goods Inventory account(s)
the Cost of Goods Sold account(s)
or 2) Close the account to the Cost of Goods Sold account
However, you will only be responsible for the second
alternative, closing the account to Cost of Goods Sold.
13 Again, referring to the pr...
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This document was uploaded on 01/24/2014.
- Winter '14
- Cost Accounting