The underapplied or overapplied overhead is pro rated

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The underapplied or overapplied overhead is pro-rated among Work in Process Inventory, Finished Goods Inventory and Cost of Goods Sold . As a result of this method, the total of these ending account balances equals the actual costs incurred. Example: Wallace Mfg. has $10,000 of underapplied overhead in Manufacturing Overhead at December 31. The adjusting entry to close the account would be:
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DeGrooteSchool.ca Week 6, Class 1 Outline - Problem P3-47B - Activity Based Costing (ABC) - What? Why? How? - ABC Implementation An Example
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DeGrooteSchool.ca Problem 3-47B
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DeGrooteSchool.ca Problem 3-47B
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DeGrooteSchool.ca Problem 3-47B
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DeGrooteSchool.ca Problem 3-47B
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DeGrooteSchool.ca Activity Based Costing - Introduction Traditional Costing System allocates overhead using a single predetermined rate . Job order costing: Direct labour cost is assumed to be the relevant activity base. The Traditional Costing System was satisfactory when: Direct labour was a major portion of total manufacturing costs. There was a wide acceptance of a high correlation between direct labour and overhead costs.
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DeGrooteSchool.ca ABC (cont.) Tremendous change in manufacturing and service industries. Decrease in amount of direct labour usage. Significant increase in total overhead costs. Often inappropriate to use plant-wide pre-determined overhead rates based on direct labour or machine hours when a lack of correlation exists. Complex manufacturing processes may require multiple allocation bases; this approach is called Activity-Based Costing (ABC).
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DeGrooteSchool.ca ABC - Defined Activity-Based Costing (ABC) is: An overhead cost allocation system that allocates overhead to multiple activity cost pools and Assigns the activity cost pools to products or services by means of cost drivers that represent the activities used. Why? Reasoning: Products consume Activities and Activities consume Resources.
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DeGrooteSchool.ca ABC Terms Defined Activity : Any event, action, transaction, or work sequence that causes a cost to be incurred in producing a product or providing a service.
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