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Explain the process of applying manufacturing overhead. What happens when there is a balance in that...

Explain the process of applying manufacturing overhead. What happens when there is a balance in that account at the end of the year? What types of costs are included in the manufacturing overhead account?

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Answer #1

The process of applying manufacturing overhead begins with choosing an appropriate allocation base such as direct labor hours or machine hours. First a predetermined overhead rate is derived by dividing the estimated overhead by the allocation base. Then, the manufacturing overhead is applied by multiplying the predetermined overhead rate by the actual quantity of the allocation base.

If the manufacturing overhead has a balance at the year end it is closed to the cost of goods sold account.

The types of costs included in manufacturing overhead are indirect labor, depreciation, factory overhead , property taxes etc.

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