Introduction to Manufacturing OverheadIn the world of manufacturing—as competition becomes more intense and customers demand more services—it is important that management not only control its overhead but also understand how it is assigned to products and ultimately reported on the company's financial statements. We view overhead as two types of costs and define them as follows: Show
For a further discussion of nonmanufacturing costs, see Nonmanufacturing Overhead Costs. Manufacturing Overhead CostsOn financial statements, each product must include the costs of the following:
According to generally accepted accounting principles (GAAP), manufacturing overhead must be included in the cost of Work in Process Inventory and Finished Goods Inventory on a manufacturer's balance sheet, as well as in the Cost of Goods Sold on its income statement. As their names indicate, direct material and direct labor costs are directly traceable to the products being manufactured. Manufacturing overhead, however, consists of indirect factory-related costs and as such must be divided up and allocated to each unit produced. For example, the property tax on a factory building is part of manufacturing overhead. Although the property tax covers an entire year and appears as one large amount on just one tax bill, GAAP requires that a portion of this amount be allocated or assigned to each product manufactured during that year. Some of the costs that would typically be included in manufacturing overhead include:
Note that all of the items in the list above pertain to the manufacturing function of the business. Since the costs and expenses relating to a company's administrative, selling, and financing functions are not considered to be part of manufacturing overhead, they are not reported as part of the final product cost on financial statements. Rather, nonmanufacturing expenses are reported separately (as SG&A and interest expense) on the income statement during the accounting period in which they are incurred. Which of the following items would be included on the capital expenditures?Capital expenditures are long-term investments, meaning the assets purchased have a useful life of one year or more. Types of capital expenditures can include purchases of property, equipment, land, computers, furniture, and software.
Which of the following are financial budgets?Answer and Explanation: The answer is b. cash budget. A financial budget is a budget that is related to the company's balance sheet, which includes the cash budget.
Which of the following is true of budgets when they are administered thoughtfully quizlet?Which of the following is true of budgets when they are administered thoughtfully? They promote coordination within the subunits of a company.
Which of the following is a component of operating budgets quizlet?The three components of the operating budget are the sales budget; inventory, purchases and cost of goods sold budget; and the cash budget.
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