Direct material cost basis = (Estimated FOH for the period / Estimated D.M. cost) x 100 D.L. Hours Basis = (Estimated FOH for the period / Estimated D.L. Cost) x 100 (Estimated FOH for the period / Estimated D.L. hours) = Per D.L. hour (Estimated FOH for the period / Estimated machine hours) = Per machine hours = (Estimated FOH for the period / Estimated prime cost) x 100 = (Estimated FOH for the period / Estimated conversion cost) x 100 = (Estimated FOH for the period / Estimated No. of units) x 100 = Estimated FOH for normal volume / Normal volume = Capacity attained x FOH applied rate = Estimated variable cost for normal volume / Normal volume = Capacity attained x Variable cost rate = Actual FOH - Budgeted allowance = Applied FOH for capacity attained - Budgeted allowance = Fixed cost + Variable cost for capacity attained = Applied FOH for capacity attained / FOH applied rate = Fixed cost / Fixed cost rate = Actual FOH - Applied FOH for actual output = Difference in budgeted FOH / Difference in activity levelFactory Overhead Absorption Methods/Methods for FOH Application
1. Direct Material Cost Basis
2. D.L. Cost Basis
3. D.L. Hours Basis
4. Machine Hours Basis
5. Prime Cost Basis
6. Conversion Cost Basis
7. Units of Production Basis
Factory Overhead Variance Formulas
1. FOH Applied Rate/Burden Rate
2. Applied FOH for Capacity Attained/Actual Capacity
3. Variable Cost Rate/V.C.R.
4. Variable Cost for Capacity Attained
5. Spending variance/Budget/Expense variance
6. Capacity Variance/Volume Variance/Idle Capacity Variance
7. Budgeted Allowance
8. Capacity Attained/Actual Capacity/Actual Output
9. Normal Volume/Standard Activity Level
10. Over Applied/Under Applied FOH
11. Variable Cost Rate (For Low & High Point Method)
Important Techniques of Factory Overhead Costing FAQs
Factory overhead costs are the indirect costs of producing goods and services in a factory. These costs include items like rent, insurance, utilities, and wages for supervisors and support staff. Factory overhead costs are usually classified as either fixed or variable.
Factory overhead costs can have a significant impact on a company's bottom line, so it is important to track these costs carefully. By understanding where these costs are coming from, companies can make informed decisions about how to reduce them.
The direct Material Cost basis is a method of calculating factory overhead costs by dividing estimated factory overhead costs by estimated direct Material Costs. This method is most commonly used when the factory overhead costs are variable in nature.
The total manufacturing expense basis is a method of calculating factory overhead costs by dividing estimated factory overhead costs by total manufacturing expenses. This method is most commonly used when the factory overhead costs are mixed in nature.
The conversion cost basis is a method of calculating factory overhead costs by dividing estimated factory overhead costs by estimated conversion cost. This method is most commonly used when the factory overhead costs are fixed in nature.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
