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Unformatted text preview: anagerial accounting purposes, manufacturing costs may be
assigned to the product using any one of three product costing
We discussed two of those earlier – actual costing and normal costing.
The third, standard costing, we will discuss later in the semester. 6 Example (Actual vs Normal Costing):
Job A, which was completed during the year, used $500 of direct
materials and $300 of direct labor as well as 10 machine hours to
The following information is available regarding the firm’s total
overhead costs for the year:
Overhead Actual $10,000 $12,000 100 96 Allocation Base
What is the total cost of Job A using
a) Normal costing ?
b) Actual costing ? 7 Normal Costing
Direct Materials 500 Actual Costing
500 Direct Labor 300 300 Overhead 10,000 x 10 =
100 1,000 12,000 x 10 =
96 1,800 Total Cost Budgeted OH
Allocation Rate 1,250
2,050 Actual OH
Allocation Rate 8 Over- or Under-Applied Overhead Costs
Typically, with normal costing, the amount of overhead applied to all of
the jobs worked on during a period (both those completed and those
remaining in-process at the end of the period) will not equal the actual
amount of overhead costs incurred.
The difference between the actual overhead costs incurred and the
costs applied/allocated to the jobs (referred to as a “variance”) is
Over-applied if overhead applied > actual overhead incurred Under-applied if overhead applied < actual overhead incurred Question Referring to Job A, from the previous example, under normal
costing was there a variance? If so what was the amount
and was the overhead over- or under-applied? 9 Accounting for Overhead Cost Variances
When a firm uses a normal costing system, its accounting records will
contain two additional accounts: an overhead control account and an
overhead applied (allocated) account:
(Accum Dep’n, Wages
Payable, etc.) XX Overhead Contr...
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This document was uploaded on 01/24/2014.
- Winter '14
- Cost Accounting