At the beginning of the year, Infodeo established its predetermined overhead rate for movies produced during the year by using the following cost predictions: overhead costs, $2,150,000,and direct labor costs, $500,000. At year-end, the company's records show that actual overhead costs for the year are $1,464,400. Actual direct labor cost had been assigned to jobs as follows. Movies completed and released Movies still in production $300,000 43,000 $343,000 Total actual direct labor cost 1. Determine the predetermined overhead rate for the year. 283. Enter the overhead costs incurred and the amounts applied to movies during the year using the predetermined overhead rate and determine whether overhead is overapplied or underapplied. 4. Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold.
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.
At the beginning of the year, Infodeo established its predetermined
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Manufacturing Overhead:
Manufacturing overhead is also known as Indirect Cost to the product cost. These are the costs that are not directly related to the production or manufacturing process. They can be either variable or fixed costs in nature. Examples of manufacturing overhead include depreciation of factory equipment, indirect materials cost, factory supervisors' salary, etc.
For the accounting treatment of Manufacturing Overhead, first, we will account for the application of the manufacturing overhead during the accounting period on the basis of the predetermined overhead rate. Then, when the actual manufacturing overhead is incurred, then we will account for them. Then, if the manufacturing overhead is underapplied or overapplied, the difference between them is accounted against the Cost of Goods Sold.
Predetermined Overhead Rate:
Manufacturing overheads are difficult to be assigned to units produced during the accounting period, therefore, we calculate the predetermined overhead rate by dividing the Estimated Manufacturing Overhead by the Estimated Activity Base. We multiply this rate with the actual activity base used during the accounting period, to calculate the Applied Manufacturing Overhead.
Formula:
Pre-Determined Overhead Rate = Estimated Manufacturing Overhead/Estimated Activity Base.
Let us now look into the problem, and discuss the accounting treatment for manufacturing overhead as required.
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