Important Techniques of Factory Overhead Costing

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Factory Overhead Absorption Methods/Methods for FOH Application

(1). Direct Material Cost Basis

Direct Material Cost Basis = (Estimated FOH for the period / Estimated D.M. Cost) x 100

(2). D.L. Cost Basis

D.L. Hours Basis = (Estimated FOH for the period / Estimated D.L. Cost) x 100

(3). D.L. Hours Basis

(Estimated FOH for the period / Estimated D.L. Hours) = Per D.L. hour

(4). Machine Hours Basis

(Estimated FOH for the period / Estimated machine hours) = Per machine hours

(5). Prime Cost Basis

= (Estimated FOH for the period / Estimated Prime Cost) x 100

(6). Conversion Cost Basis

= (Estimated FOH for the period / Estimated Conversion Cost) x 100

Also Check:  Apportionment of overhead expenses

(7). Units of Production Basis

= (Estimated FOH for the period / Estimated No. of Units) x 100

Factory Overhead Variance Formulas

(1). FOH Applied Rate/Burden Rate

= Estimated FOH for Normal Volume / Normal Volume

(2). Applied FOH for capacity attained/Actual capacity

= Capacity attained x FOH Applied rate

(3). Variable Cost Rate/V.C.R.

= Estimated variable cost for normal volume / Normal volume

(4). Variable Cost for Capacity Attained

= Capacity attained x Variable cost rate

(5). Spending variance/Budget/Expense variance

= Actual FOH – Budgeted Allowance

(6). Capacity Variance/Volume Variance/Idle Capacity Variance

= Applied FOH for capacity attained – Budgeted allowance

(7). Budgeted Allowance

= Fixed cost + Variable Cost for capacity attained

(8). Capacity Attained/Actual Capacity/Actual Output

= Applied FOH for Capacity Attained / FOH Applied Rate

(9). Normal Volume/Standard Activity Level

= Fixed Cost / Fixed Cost Rate

(10). Over Applied/Under Applied FOH

= Actual FOH – Applied FOH for actual output

(11). Variable Cost Rate (For Low & High Point Method)

= Difference in Budgeted FOH / Difference in activity level

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