Cost Accounting for Manufacturing Overhead : While doing cost accounting for Manufacturing Overhead, the quantity and the cost of materials and labor used on a given order can generally be measured in a straightforward and reasonably exact manner. The remaining cost element, factory overhead, presents a more involved problem.
If a planing mill contracts to make fifty cabinet assemblies for an apartment complex, the materials used and the labor expended can be entered on the requisitions and time tickets. But how much depreciation of the factory should be charged to the fifty cabinet assemblies; how much depreciation of saws, planers and sanders; how much lubricating oil for the machines ; how much power, light, heat, insurance, taxes, machine repairs, cutting tools, idle time, night watchman’s salary, janitor’s wages, plant foreman’s salary, payroll taxes, and cost accountant’s salary; and how much for other costs necessary to productive operations ? Cost Accounting for Manufacturing Overhead is a bit tricky.
A contributing difficulty is the fact that some of the expenses — such as rent, insurance, taxes, and night watchman’s salary — are fixed regardless of the amount of production, while other expenses — such as lubricating oil, power, and cutting tools — vary with the quantity of goods manufactured.
How, then, is it possible to charge a finished job at the time it is completed with a reasonable share of factory overhead when the actual amount of these expenses is often not known until the end of the fiscal period ? Cost Accounting for Manufacturing Overhead is not so easier task as you may think of. It requires many aspects to be thought beyond imagination.
Cost accounting is a process of allocating expenses to products. The main aspect of cost accounting is to allocate all manufacturing overhead equitably on products. Manufacturing overhead means all the costs linked to manufacturing a product excepting labor (direct) and materials.