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Overhead Applied- Always has credit balance, tracks all estimated O/H costs applied
Overhead Control- Always has debit balance, tracks all actual O/H costs incurred
Closing
Practical - Difference between “applied OH” and “actual OH” -> goes to COGS
Theory – Close to WIP, FINISHED GOODS, COGS
**Standard Costing** - Eliminates need to compute cost per EU (std cost = cost/EU)
Normal Spoilage -> Rate set by MGT, uncontrollable in the short run
• Inventoried as a product cost
• Generally -> Do not include in EFU’s (shifts costs to units actually completed)
ABC Costing
DM and DL are handled same as other costing systems
Overhead is handled differently
Identifies “value-adding” activities
Eliminate “non-value-adding” activities (e.g. Storage costs)
Identify the cost drivers
Costs are identified by activity, NOT by department
Cost Pools-> ABC costing uses multiple cost pools segregated by value-adding activity
Allocation Bases -> increases as well
Cost Allocation- Joint Costs
1. Relative Sales Value Method
a. Allocates joint costs based on relative sales value at split-off point
2. NRV Method
a. NRV = (sales value) – (Costs required to complete and sell)
3. Physical Measures Method
a. E.g.- % of weight for a cattle slaughter, regardless of meat cut
By-Products
• Net revenue from by-products sold reduces cost of main products sold
• NRV of by-products produced deducted from the cost of the main product produced
o Second method is superior (since INV is included along with COGS)
Service Cost Allocation
STANDARD COSTING
• Can be used with both process or job-order costing
• Can be used in service or manufacturing industries
Under/Over applied OH
• At year end, allocate by % to COGS, FG inventory, WIP inventory
Variable OH Variances (DM, DL, VOH)
1. Spending Variance
2. Efficiency Variance
• (1) + (2) = “Budget Variance”
Fixed OH Variances
1. Spending Variance
2. Volume Variance
• (1) + (2) = “Total Fixed Overhead Variance”