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Manufacturing Overhead Paper
Finance & Accounting
Pages 3 (753 words)
Manufacturing Overhead Name University Manufacturing Overhead Overheads are costs that are not associated with nor include direct material or direct labor. (“Overhead”, n.d, Investopedia). Manufacturing overheads are expenses that are indirectly related to the final manufactured product.
Wages of non-production factory employees like the factory’s accountant, or a person employed to check stock levels. This category of employees also include people who have been employed to handle and operate, clean and maintain equipment and machinery and people who perform quality checks on the products being produced in the factory, vi. Insurance expense, vii. Any costs incurred to make the production safer, viii. Any costs incurred to increase the quality of production, ix. Tax expense. x. Depreciation expense on factory machinery and equipment Manufacturing overheads apply to the production process as a whole and thus technically cannot be allocated to a particular work. Therefore, managers in a factory allocate manufacturing overheads to specific work by using a predetermined over head rate. Predetermined overhead rates depend upon two factors; the estimated annual overhead cost and the expected annual operating activity. They are calculated using the following formula: Predetermined overhead rate = Estimated annual overhead cost / Expected annual operating activity Predetermined overhead rates are calculated at the start of the new accounting year. Small companies often use a company-wide predetermined overhead rate however, for large companies the predetermined overhead rate may fluctuate between departments. ...
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