What is the difference between a cost center and a profit center? Definition of Cost Center A cost center is a subunit of a company that is responsible only for its costs. A few examples of cost centers are: Production...
What is the difference between a cost center and a profit center? Definition of Cost Center A cost center is a subunit of a company that is responsible only for its costs. A few examples of cost centers are: Production...
What is meant by overabsorbed? Overabsorbed is usually used in the context of a manufacturer’s production overhead costs. Since manufacturing overhead costs are not directly traceable to products, they need to be...
What do overabsorbed and underabsorbed mean? Definition of Overabsorbed and Underabsorbed In cost accounting, overabsorbed and underabsorbed pertain to a manufacturer’s manufacturing overhead costs. The manufacturing...
What is the meaning of fixed overhead absorbed? Definition of Fixed Overhead Absorbed Fixed overhead absorbed refers to a manufacturer’s fixed indirect manufacturing/production costs. Since these costs are...
Our Explanation of Standard Costing uses an easy-to-relate to example for illustrating a manufacturer's standard costs and variances. Also provided is a chart which indicates each variance, what it tells you, and where...
What are the advantages of departmentalizing manufacturing overhead costs? The departmentalizing of manufacturing overhead costs allows for better planning and control if the head of each department is held responsible...
Our Explanation of Standard Costing uses an easy-to-relate to example for illustrating a manufacturer's standard costs and variances. Also provided is a chart which indicates each variance, what it tells you, and where...
Can absorption costing cause an increase in net income? Definition of Absorption Costing Absorption costing is a cost accounting method (required by US GAAP) in which a manufacturer must assign fixed manufacturing...
What is a plant-wide overhead rate? Definition of Plant-wide Overhead Rate A plant-wide overhead rate is often a single rate per hour or a percentage of some cost that is used to allocate or assign a company’s...
What is the death spiral? Definition of Death Spiral In cost accounting and managerial accounting, the term death spiral refers to the repeated elimination of a manufacturer’s products which will result in spreading...
Is the rental cost of a building considered overhead? Definition of Rent as Overhead The rental cost of a building used in manufacturing is part of manufacturing overhead. Manufacturing overhead is assigned or allocated...
A variance arising in a standard costing system that indicates the difference between the standard amount of variable manufacturing overhead for the good units produced (standard hours times standard rate) and the...
A variance arising in a standard costing system that indicates the difference between the standard amount of fixed manufacturing overhead for the good units produced (standard hours times standard rate) and the budgeted...
A variance arising in a standard costing system that indicates the difference between the actual variable manufacturing costs incurred and the expected variable manufacturing overhead costs based on some activity such as...
A variance arising in a standard costing system that indicates the difference between the actual amount of fixed manufacturing overhead incurred and the budgeted amount of fixed manufacturing overhead. To learn more, see...
Why use normal costing instead of actual costing? Definition of Normal Costing For a manufacturer, normal costing means assigning the following costs to the actual goods produced each month: Actual direct materials...
The repeated elimination of products without a corresponding decrease in overhead costs. As a result the amount of overhead allocated to each unit of product increases. If selling prices are increased to cover the higher...
of fixed manufacturing overhead costs The amount of the fixed manufacturing overhead costs that were assigned to (or absorbed by) the company’s good output Example of Production Volume Variance Assume that a...
What is the difference between normal costing and standard costing? Definition of Normal Costing Normal costing for manufactured products consists of following: Actual cost of materials Actual cost of direct labor...
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...
Often a U-shaped arrangement of the various machines involved in manufacturing a product. This layout eliminates the need to move the item being manufactured from one area or department of the factory to another. In...
Accounts that have some restrictions. For example, an investment account and a cash account might be restricted for the construction of a new factory. The restrictions mean that these accounts be reported as a long-term...
How do you determine the fixed portion of overhead cost? I suggest that the first step in determining the fixed portion of a mixed cost (a cost that is partially fixed and partially variable) is to graph the data. Label...
The allocation of manufacturing overhead (indirect manufacturing costs) to products on the basis of a volume metric such as direct labor hours or production machine hours. As manufacturing becomes more sophisticated the...
What is the traditional method used in cost accounting? Definition of Traditional Method in Cost Accounting The traditional method of cost accounting refers to the allocation of manufacturing overhead costs to the...
The actual cost of direct materials, the actual cost of direct labor, and manufacturing overhead applied by using a predetermined annual overhead rate.
See variable manufacturing overhead spending variance and fixed manufacturing overhead budget variance. To learn more, see Explanation of Standard Costing.
A term used in cost accounting to arrive at the cost per unit. The term is associated with the units that are not completed at the end of an accounting period. For example, if 500 units are completed as far as materials,...
A method of costing manufactured items that differs from normal costing and standard costing. Under actual costing each accounting period’s actual manufacturing overhead costs and each accounting period’s...
What does an unfavorable volume variance indicate? An unfavorable volume variance indicates that the amount of fixed manufacturing overhead costs applied (or assigned) to the manufacturer’s output was less than the...
the following costs: direct materials direct labor variable manufacturing overhead fixed manufacturing overhead Absorption costing is required for external financial reporting and for income tax reporting. Another...
the wages and fringe benefits of the direct labor employees and the cost of the temporary staff that are working directly on the manufacturer’s products. The direct labor cost is classified as the following: A product...
of labor and a standard cost per hour of labor Manufacturing overhead: a budget for the fixed overhead, the standard variable overhead rate, and the standard quantity for applying a fixed and variable overhead rates In...
Is the depreciation of delivery trucks a period cost or is it manufacturing overhead? The depreciation on the trucks used to deliver products to customers is a period cost. The depreciation on delivery trucks will be...
. In relationship to the machine hours used to apply manufacturing overhead to products, which of the following is likely to be a fixed manufacturing cost? Select... Electricity for production machinery Manufacturing...
year). For the next nine accounting years the depreciation expense will be $30,000 and then $15,000 in the final accounting year. If the machine is used by a manufacturer, the depreciation, electricity, and maintenance...
Featured Review
"I am very appreciative of AccountingCoach.com. I believe that Harold Averkamp, CPA, MBA, deserves to receive a special award for his philanthropic dedication to educating people about accounting. I try to spread the word as much as possible because this website is truly a wonderful opportunity to learn bookkeeping and accounting. And it is FREE. Plus you get the opportunity for lots of material for a very small amount of money. And there are great videos & quizzes, too. I am grateful that I have had the opportunity to study at AccountingCoach.com. Whenever I am talking with just about anyone I refer them to AccountingCoach.com. Honestly, this is the best website to learn a valuable skill with the added plus of no debt in the process, using the least amount of money, zero gasoline, zero transportation time/energy, no frustration and having the finest teacher one could hope to be learning from, i.e., Mr. Harold Averkamp, CPA, MBA." - Carol S.
Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials
Read all 2,645 reviews
For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.
We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping: