Chapter 19, Problem 6E

To determine

Introduction:

Cost allocation of Overheads

• Cost allocation of Overheads takes place on basis of cost objects identified to enable cost allocation. Overheads refer to costs of operations and comprise of direct costs such as manufacturing expenses and of indirect costs in the form of selling and administrative expenses.

• Examples of Overheads are Salaries of administrative staff, rent of office, advertising expenses etc. The costs of the operations are allocated on basis of cost objects. Cost objects are units of cost allocation identified for overhead allocations and cost estimations.

• Examples of Cost objects for Overhead allocation are Number of units produced, number of labor hours worked etc.

Journal Entries

• Journal entries are the first step in recording financial transactions and preparation of financial statements.

• These represent the impact of the financial transaction and demonstrate the effect on the accounts impacted in the form of debits and credits.

• Assets and expenses have debit balances and Liabilities and Incomes have credit balances and according to the business transaction, the accounts are appropriately debited will be credited by credited to reflect the effect of business transactions and events.

To Prepare:

Journal entries to record the transactions