Factory overhead cost and production data for a firm for a year were as follows: Variable Cost Fixed Cost Machine Hours $ $ Actual 90,000 205,000 20,000 Budget 95,000 190,000 19,000 Factory overhead is recovered from production using machine hours as the cost driver. REQUIRED: (a) Calculate the factory overhead recovery rate. (b) Determine the amount of over or under-applied overhead. Your answer must clearly state whether the calculated amount is over or under-applied. (c) Analyse over/under applied overhead into a spending variance and a capacity variance.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
|
|
Variable Cost |
Fixed Cost |
Machine Hours |
|
|
$ |
$ |
|
|
Actual |
90,000 |
205,000 |
20,000 |
|
Budget |
95,000 |
190,000 |
19,000 |
Factory overhead is recovered from production using machine hours as the cost driver.
REQUIRED:
(a) Calculate the factory overhead recovery rate.
(b) Determine the amount of over or under-applied overhead. Your answer must clearly state whether the calculated amount is over or under-applied.
(c) Analyse over/under applied overhead into a spending variance and a capacity variance.
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