A) Explain in detail how a single, plant-wide factory overhead allocation rate is established (i.e., what is the formula?). Pate Company uses a job order cost accounting system. The company's management estimated that they would incur 250,000 hours of direct labor hours at a cost of $12.00 per hour, totaling $3,000,000; they also estimate that total factory overhead costs would be $1,500,000 for the current period. At the end of the period, the records show that the actual number of direct labor hours amounted to 248,000. The records also showed that actual (not the allocated amount) overhead costs amounted to $1,520,000. (B) Using the preceding example, calculate the pre-determined factory overhead allocation rate that was used, assuming that direct labor hours were used as the base. (C) Did Pate Company OVER-allocate or UNDER-allocate factory overhead for the period?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
- A) Explain in detail how a single, plant-wide factory
overhead allocation rate is established (i.e., what is the formula?).
Pate Company uses a
(B) Using the preceding example, calculate the pre-determined factory overhead allocation rate that was used, assuming that direct labor hours were used as the base.
(C) Did Pate Company OVER-allocate or UNDER-allocate factory overhead for the period?
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