Matakuliah : COST ACCOUNTING
Tahun : 2009
Chapter 12
FACTORY OVERHEAD: PLANNED,
ACTUAL, AND APPLIED
Learning 19, 20

The Nature of Factory Overhead
Factory Overhead : is generally defined as indirect materials, indirect labor, and all other factory costs that cannot be conveniently identified with or charged directly to specific jobs, lots, products, or other final cost objects.
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Factory overhead has two characteristics that require consideration if products are to be charged with a reasonable amount of this cost:
1.
Overhead’s relationships to the product
2.
Overhead’s relationships to the volume of production
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1. Overhead’s relationships to the product
Unlike direct materials and direct labor, overhead is an invisible part of the finished product.
There is no materials requisition or labor time tickets to indicate the amount of overhead that enters into a job or product.
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2. Overhead’s relationships to the volume of production
Overhead can be fixed, variable, or semivariable.
Fixed overhead remains relatively constant regardless of changes in the level of output, within the relevant range.
Variable overhead changes proportionately with production volume, within the relevant range, variable overhead per unit of output is constant.
Semivariable overhead is neither fixed nor variable; its amount changes, but not in proportion to production volume.
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Use a Predetermined Overhead Rate
Because of the impossibility of tracing overhead to specific jobs or specific products, overhead cost is allocated across jobs and units.
A predetermined overhead rate permits a consistent and logical allocation to each unit of output
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Factors Considered in Selecting Overhead Rates
Five factors influence the selection of overhead rates:
1. Base to be used
2. Activity level selection
3. Including or excluding fixed overhead
4. Use of a single rate or several rates
5. Use of separate rates for service activities
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1. Base to be used
The factor measured in the denominator of an overhead rate is called the overhead rate base .
Selection of the base is important if a cost system is to provide meaningful data.
The primary objective in selecting a base is to ensure the application of overhead in a reasonable proportion to the indirect factory resources used by the jobs, products, or work performed.
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1. Base to be used a. Physical output
Factory overhead per unit
= Estimated factory overhead
Estimated units of production b. Direct materials cost
Factory overhead as a % of direct materials = Estimated factory overhead x 100 cost Estimated material cost
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1. Base to be used c. Direct labor cost
Factory overhead as a % of direct labor cost
= Estimated factory overhead x 100
Estimated direct labor cost d. Direct labor hours
Factory overhead per = Estimated factory overhead direct labor hour Estimated direct labor hours
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1. Base to be used e. Machine hours
Factory overhead per = Estimated factory overhead machine hour Estimated machine hours f. Transactions or activities
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2. Activity level selection a. Theoretical capacity b. Practical capacity c. Expected actual capacity d. Normal capacity e. Effect of capacity on overhead rates f.
Idle capacity versus excess capacity
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3. Including or excluding fixed overhead a. Absorption costing b. Direct costing
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4. Use of single rate or several rates a. Plantwide or blanket rate b. Department rates c. Subdepartmental and activity rates
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Actual Factory Overhead
Determining the base and activity level, estimating total overhead, and calculating the overhead rate take place prior to incurring or recording actual factory overhead costs.
Actual factory overhead is the amount of indirect cost incurred.
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Applied Factory Overhead and the Over- or
Underapplied Amount
At the end of the month or year, applied factory overhead and actual factory overhead are compared.
Applied factory overhead is the amount of cost allocated to output.
The applied factory overhead account subsequently is closed to factory overhead control account at the end of the year
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Applied Factory Overhead and the Over- or
Underapplied Amount
Debits to the factory overhead control account reflect actual factory overhead costs incurred during the period, while credits reflect applied amounts.
The debits and credits are seldom equal, there is usually a debit or credit balance in the account.
A debit balance indicated that factory overhead has been underapplied ; a credit balance means that factory overhead has been overapplied .
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These over or underapplied balances are a source of much information needed by management for controlling and judging the efficiency of operations and the use of available capacity, and for calculating predetermined factory overhead rates in subsequent periods.
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Disposition of Over- or Underapplied Amount
At the end of the accounting period, it can be either treated as a period cost or allocated between inventories and the cost of goods sold.
If the amount of over- or underapplied factory overhead is insignificant, it should be closed directly to Income
Summary or to Cost of Goods Sold as a period cost.
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