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(also known as factory overhead). It usually consists of both variable and fixed components. Examples of
manufacturing overhead cost include indirect materials, indirect labor, depreciation, salary of production
manager, property taxes, fuel, electricity, grease used in machines, and insurance etc.
Unlike direct materials and direct labor, manufacturing overhead is an indirect cost that cannot be directly
assigned to each individual job. This problem is solved by using a rate that is computed at the beginning
of each period. This rate is known aspredetermined overhead rate.
Example:
Suppose the GX company has completed a job order. The time tickets show that the workers have
worked for 27 hours to complete the job. The predetermined overhead rate computed at the beginning of
the year is $8 per direct labor hour. The manufacturing overhead cost would be applied to this job as
follows:
= $8.00 27 DLH
= $216
The manufacturing overhead cost assigned to the job is recorded on the job cost sheet of that particular
job.
216
216