traceable to a specific job, the cost is considered indirect labor and is debited to the Manufacturing Overhead account. Assume Toll Brothers recorded the following costs: See Exhibit 3 5 for a summary of how these costs would appear in the Manufacturing – Overhead and Work in Process Inventory accounts. Exhibit 3 5 Recording Direct and Indirect Labor Costs – RECORDING ACTUAL MANUFACTURING OVERHEAD Actual manufacturing include all of the indirect manufacturing costs, or those that cannot be traced to specific units or jobs. These costs are not recorded directly in the Work in Process Inventory account. Instead, these indirect costs are accumulated in the Manufacturing Overhead account. We have already recorded the indirect materials and indirect labor costs in the Manufacturing Overhead account. Assume Toll Brothers recorded the following additional manufacturing overhead costs during the month: These actual manufacturing overhead costs are added to the Manufacturing Overhead account (see Exhibit 3 6). Actual manufacturing overhead costs are always shown on the left-hand – (debit) side of the Manufacturing Overhead account. Next we show how these indirect costs are applied to the Work in Process Inventory account using the predetermined overhead rate. RECORDING APPLIED MANUFACTURING OVERHEAD Remember that manufacturing overhead are applied to jobs based on the predetermined overhead rate that was estimated at the beginning of the accounting period. As jobs are worked on during the period, we determine the amount of manufacturing overhead cost to apply to specific jobs by multiplying the predetermined overhead rate by the actual number of direct labor hours worked. In our home-building example, we estimated the manufacturing overhead rate to be $75 per direct labor hour. This rate is not the cost of the direct labor itself, but rather the amount of manufacturing overhead cost that needs to be added for each direct labor hour worked to cover the indirect costs of building the home (equipment depreciation, insurance, supervision, etc.).
traceable to a specific job, the cost is considered indirect labor and is debited to the Manufacturing Overhead account. Assume Toll Brothers recorded the following costs: See Exhibit 3 – 5 for a summary of how these costs would appear in the Manufacturing Overhead and Work in Process Inventory accounts. Exhibit 3 – 5 Recording Direct and Indirect Labor Costs RECORDING ACTUAL MANUFACTURING OVERHEAD Actual manufacturing include all of the indirect manufacturing costs, or those that cannot be traced to specific units or jobs. These costs are not recorded directly in the Work in Process Inventory account. Instead, these indirect costs are accumulated in the Manufacturing Overhead account. We have already recorded the indirect materials and indirect labor costs in the Manufacturing Overhead account. Assume Toll Brothers recorded the following additional manufacturing overhead costs during the month: These actual manufacturing overhead costs are added to the Manufacturing Overhead account (see Exhibit 3 – 6). Actual manufacturing overhead costs are always shown on the left-hand (debit) side of the Manufacturing Overhead account. Next we show how these indirect costs are applied to the Work in Process Inventory account using the predetermined overhead rate. RECORDING APPLIED MANUFACTURING OVERHEAD Remember that manufacturing overhead are applied to jobs based on the predetermined overhead rate that was estimated at the beginning of the accounting period. As jobs are worked on during the period, we determine the amount of manufacturing overhead cost to apply to specific jobs by multiplying the predetermined overhead rate by the actual number of direct labor hours worked. In our home-building example, we estimated the manufacturing overhead rate to be $75 per direct labor hour. This rate is not the cost of the direct labor itself, but rather the amount of manufacturing overhead cost that needs to be added for each direct labor hour worked to cover the indirect costs of building the home (equipment depreciation, insurance, supervision, etc.).
CHAPTER%203%20JOB%20ORDER%20COSTING.docx