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Overapplied overhead which occurs when actual

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Overapplied overhead, which occurs when actual overhead is less than appliedoverhead.b.Overhead variances occur because the overhead rate is based on estimates in thenumerator (budgeted overhead) and estimates in the denominator (budgeted activity).The firm has traded the convenience of applying overhead throughout the year withthe loss of accuracy that results from using estimates.At the end of a year, overhead variances need to be disposed of because the financialstatements must report actual costs rather than estimated amounts.
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Chapter 24 / Exercise 7
College Accounting, Chapters 1-27
Heintz/Parry
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72Chapter 4E.Disposition of Overhead VariancesThere are two ways to dispose of overhead variances at the end of the reporting period:1.Assigned to Cost of Goods SoldUnder this practice, all overhead variance is assigned to cost of goods sold. This is the mostcommon practice since overhead variances are usually immaterial. It is most appropriatewhen the variance is small (not material) and the method of dis-posing of the variance is notcritical.2.Allocation to Production AccountsUnder this practice, the overhead variance is allocated (prorated) between work in process,finished goods, and cost of goods sold based on the ending applied overhead balances in eachaccount.The allocation disposal practice is most appropriate in the following situations:If the overhead variance is material, it should be allocated to the period s production.Not all of the production has been completed; or if it all has been completed it has beensold.IV.The Job-Order Costing System:General DescriptionA.Overview of the Job-Order Costing System1.The key feature of thejob-order costing systemis that the cost of one job differs from thatof another job and must be kept track of separately. A job-costing system must have thecapability to identify the quantity of direct materials, direct labor, and overhead consumed byeach job.2.Each job identifies and accumulates its manufacturing costs using:Ajob-order cost sheet, which in a manual accounting system is a document that identifieseach job.A record in thework-in-process filein an automated accounting system. Usually, eachrecord corresponds to a cost sheet.3.Other key documents used in a job cost system include:A materials requisition form, used to assign direct material.Time tickets, used to assign direct labor.Predetermined overhead rates, used to assign overhead.Review textbook Exhibit 4-6, which shows a sample job-order cost sheet.B.Materials Requisitions1.Amaterials requisition formis used to assign the direct materials cost to a particular job.2.Key information includes the description, quantity, and unit cost of the direct materials issuedfor a specific job number.3.Indirect materials are included in overhead.

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The document you are viewing contains questions related to this textbook.
College Accounting, Chapters 1-27
The document you are viewing contains questions related to this textbook.
Chapter 24 / Exercise 7
College Accounting, Chapters 1-27
Heintz/Parry
Expert Verified

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