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Chapter 13
Accounting for
Overhead Costs
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Learning
Objective 1 Accounting for Factory Overhead
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Budgeted Overhead Application Rates
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Budgeted Overhead Application Rates
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Illustration of Overhead Application
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Learning
Objective 2 Choice of Cost-Allocation Bases
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Choice of Cost-Allocation Bases
Base 1 Pool 1
Base 2 Pool 2
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Learning
Objective 3 Normalized Overhead Rates
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Disposing of Underapplied
or Overapplied Overhead
Suppose that Enriquez applied
$375,000 to its products.
$392,000 actual
–375,000 applied
$ 17,000 Underapplied
The $375,000 becomes part of Cost of Goods Sold when the
product is sold. The $17,000 must also become an expense.
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Disposing of Underapplied
or Overapplied Overhead
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Immediate Write-Off
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Prorating Among Inventories
$17,000 × 155/2,667
= 988 to Work-in-Process Inventory
$17,000 × 32/2,667
= $204 to Finished Goods Inventory
$17,000 × 2,480/2,667
= $15,808 to Cost of Goods Sold
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Variable and Fixed Application Rates
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Variable Versus Absorption Costing
Variable Absorption
costing costing
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Facts and Illustration
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Facts and Illustration
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Learning Variable- Costing Method
Objective 4 Cost of Goods Sold
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Variable-Costing Method
Comparative Income Statement
(thousands of dollars) 20X7 20X8
Sales, 14,000 and 16,000 units $7,000 $8,000
Variable expenses:
Variable manufacturing
cost of goods sold 42001 48001
Variable selling expenses,
at 5% of dollar sales 350 400
Contribution margin $2,450 $2,800
Fixed expenses:
Fixed factory overhead $1,500 $1,500
Fixed selling and admin. expenses 650 650
Operating income, variable costing $ 300 $ 650
1 from Cost of Goods Sold previous calculation
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Fixed-Overhead Rate
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Learning Absorption-Costing Method
Objective 5 Cost of Goods Sold
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Absorption-Costing Method
Comparative Income Statement
(thousands of dollars) 20X7 20X8
Sales $7,000 $8,000
Cost of goods sold, at standard 5,6001 6,4001
Gross profit at standard $1,400 $1,600
Production-volume variance* 200 F 100 U
Gross margin or gross profit “actual” $1,600 $1,500
Selling and administrative expenses 1,000 1,050
Operating income, variable costing $ 600 $ 450
*Based on expected volume of production of 15,000 units:
20X7: (17,000 – 15,000) × $100 = $200,000 F
20X8: (14,000 – 15,000) × $100 = $100,000 U
1From Cost of Goods Sold previous calculation
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Learning
Objective 6
Production-Volume Variance
Production-volume variance =
(actual volume – expected volume) X fixed overhead rate
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Production-Volume Variance
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Variable Costing and Absorption Costing
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Variable Costing and Absorption Costing
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Learning
Objective 7
Why Use Variable Costing?
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Flexible-Budget Variances
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Flexible-Budget Variances
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Effects of Sales and Production
on Reported Income
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The End
End of Chapter 13
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