What does capitalize mean? Definition of Capitalize In accounting, the word capitalize means to record an expenditure as an asset. The cost of this asset is then allocated to expense over its useful life. (If the...
What does capitalize mean? Definition of Capitalize In accounting, the word capitalize means to record an expenditure as an asset. The cost of this asset is then allocated to expense over its useful life. (If the...
. Traditionally they have been allocated on machine hours or labor hours. manufacturing overhead (or) factory overhead (or) burden This term indicates a manufacturer’s product costs other than direct materials and...
A technique for allocating costs to a product, service, customer, etc. The premise is that activities cause an organization to incur costs. Once the costs of the activities have been identified and each activity’s...
Also referred to as SG&A. For a manufacturer these are expenses outside of the manufacturing function. (However, interest expense and other nonoperating expenses are not included; they are reported separately.)...
An account used in combination with another account. For example, the account Allowance for Doubtful Accounts is used with Accounts Receivable in order to present the net amount of the accounts receivable. The account...
A cost or expense that is not directly traceable to a department, product, activity, customer, etc. As a result indirect costs and expenses are often allocated to the department, product, etc. For example, a...
, Products X & Y cause very little overhead cost in relation to the main, complicated, lower volume products.) If management responds to the high allocated overhead costs for Products X & Y by seeking price...
.) and the other costs of the manufacturing facility (depreciation, property tax, maintenance, heat, and insurance) are indirect product costs since these costs must be allocated to the product. These indirect product...
variance accounts. For external financial reporting, the variances must be allocated to the inventories and the cost of goods sold. Definition of GAAP GAAP is the acronym for the phrase generally accepted accounting...
payment of $450,000 in order to acquire a building, the land on which the building sits, and also some equipment. The lump sum payment means that the total cost of $450,000 has to be allocated among three general ledger...
are then allocated by the activity that is causing the costs in each cost pool. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career Perform...
Our Explanation of Activity Based Costing illustrates how manufacturing overhead costs for a product will differ when costs are allocated using only the number of machine hours, as opposed to being allocated using the...
Our Explanation of Manufacturing Overhead gives you examples of what is included in manufacturing overhead. You will learn that these are indirect product costs and therefore are allocated to the products in order to...
department is part of the factory overhead costs that must be assigned to the products. (Instead of being assigned we could say that manufacturing overhead must be allocated or applied to products by using an overhead...
What are the accounting entries for a fully depreciated car? Definition of a Fully Depreciated Car A fully depreciated car is one where the car’s historical cost has already been allocated to expense (except for the...
for its selling and general administration will be an expense for the period indicated by the meter reading dates. However, the utility bill for the direct and indirect manufacturing operations is part of its...
What is a depreciable asset? Definition of Depreciable Asset A depreciable asset has the following characteristics: A tangible asset (other than land) Has a useful life of more than a year Is used in the business The...
service department is responsible for its costs. Hence, the service departments are separate cost centers. The costs incurred by the service departments are considered to be indirect manufacturing costs that ultimately...
What is apportionment? An apportionment is an allocation based on some proportions. I associate the term apportionment with a corporation’s taxable income that was earned in many states within the U.S. In that...
using the asset. Since it is difficult to precisely match a productive asset’s cost to a company’s revenues, the asset’s cost is usually allocated to the years in which the asset is used. In other words,...
, direct labor, and manufacturing overhead. Since manufacturing overhead is an indirect cost, it is usually assigned or allocated through an overhead rate or burden rate. Two examples of an overhead or burden rate are 1)...
Our Explanation of Activity Based Costing illustrates how manufacturing overhead costs for a product will differ when costs are allocated using only the number of machine hours, as opposed to being allocated using the...
Our Explanation of Nonmanufacturing Overhead provides examples of a manufacturer's expenses which are not considered to be costs of a product for financial reporting. However, they are operating expenses that will have...
longer than the asset’s useful life. physical life This estimate of how long a plant asset could last is likely longer than the asset’s useful life. Mark as wrong Mark as right depreciation expense This is the...
the Purchase Price Variance Before a company’s financial statements are issued, the balance in the Materials Purchase Price Variance account must be reclassified or allocated to the following: raw materials inventory,...
than a product’s manufacturing or production costs (including fixed manufacturing overhead). These accountants use full cost to mean the manufacturing cost plus an allocated portion of the company’s selling,...
What is a predetermined overhead rate? Definition of Predetermined Overhead Rate A predetermined overhead rate is often an annual rate used to assign or allocate indirect manufacturing costs to the goods it produces....
and general management, are expenses of the accounting period and are not applied or assigned to products.) Actual overhead are the manufacturing costs other than direct materials and direct labor. Since the overhead...
are not allocated to the products, the company must have its selling prices and sales revenues sufficiently large to cover both the product costs and the period expenses to have a positive amount of net income. Join PRO...
classified into three groups: Raw materials used in the product Direct labor used to make the product Manufacturing overhead incurred to make the product Since the manufacturing overhead costs are indirect costs, they...
to be recorded as Manufacturing Overhead. Manufacturing Overhead is allocated to the products manufactured and will be part of the products’ cost. If the products are in Inventory, those products’ costs are assets....
comply with the cost principle and the matching principle. Therefore, significant variances must be reviewed and properly assigned or allocated to the cost of goods sold and/or inventories. AccountingCoach PRO...
(such as years). Instead, the depreciation is expressed and calculated based on the asset’s usage. Under the units-of-activity method of depreciation, the asset’s cost (less any salvage value) is allocated to the...
. (There are likely to be several accounts or sub-accounts in order keep track of the manufacturing supplies by category.) When the manufacturing supplies are used they will become part of the manufacturing overhead,...
sheet account that is reported under the heading of Property, Plant and Equipment. The asset’s cost (except for the cost of land) will then be allocated to depreciation expense over the useful life of the asset. The...
by reading our Nonmanufacturing Overhead (Explanation). 1. Selling expenses should be allocated to the cost of goods sold for external financial reporting. True Wrong. False Right! 2. According to U.S. accounting...
to as a contra-liability account. Examples of Contra-Liability Accounts Some contra-liability accounts include: Discount on Bonds Payable Bond Issue Costs Discount on Notes Payable The debit balances in the above...
Transportation-in or Freight-in. (If goods are purchased with terms of FOB destination, the buyer will not have a separate transportation-in cost, because the seller is responsible for the costs of getting the goods to...
administrative functions. This depreciation will be reported on the manufacturer’s income statement in the section containing its SG&A expenses. Depreciation of equipment and building used in the manufacturing of...
produced. This is a challenging task because there may be no direct relationship. For example, the property taxes and insurance on the manufacturing buildings are based on the assets’ value and not on the number of...
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