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Finance & Accounting
Pages 6 (1506 words)
OVERHEAD COSTS NAME COURSE TITLE INSTRUCTOR DATE In the manufacturing world, the demands of the customers are increasing day by day. The company has to meet the demands of the customers by making profits out of it. To make profits, firm has to allocate the cost to each and every product effectively.
The cost of direct labor, direct material and manufacturing overhead must allocate to each and every unit produced. This is done to value the inventory and the costs of goods manufactured, and then report them according to the general accounting principles. Manufacturing overhead may include costs like electricity which is used to operate the factory equipment, depreciation of factory equipment, salary of indirect labor and all the cost related to production except direct labor and direct material. Nonmanufacturing overhead includes activities related to the selling and administration departments. These costs are not included in the cost of goods sold as they are taken directly in the income statement as expense. Nonmanufacturing overhead includes cost such as freight charges, property tax, maintenance of equipment and salary for employees of selling and administrative department etc. Although the nonmanufacturing overhead is not included in the cost of goods sold but they are actually the part of the combined cost incurred in the manufacturing of a product. LITERATURE REVIEW Don R. Hansen, M.M.M.L.G. (2009) Cost Management: Accounting & Control, Cengage Learning. Don Hansen defines overhead cost as all the production costs other than direct labor and direct material that are incurred during production process. ...
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