Category 1
All other costs of manufacturing that are not direct materials or direct labor. This includes indirect materials, indirect labor, utilities, depreciation on manufacturing equipment, etc.
MOH
The REAL costs incurred for overhead after an accounting period.
Actual Overhead
Beginning WIP
+ Total Manufacturing Costs
− Ending WIP
= ********
COST OF GOODS MANUFACTURED (COGM) FORMULA
UNDERAPPLIED/OVERAPPLIED OVERHEAD FORMULA
Actual Overhead - Applied Overhead
= Under/Over applied amount
Negative: Overapplied
Positive: Underapplied
Direct Materials
Raw materials that can be traced directly to the finished product.
The overhead assigned to WIP based on a predetermined rate before an accounting period starts.
Applied Overhead
Total Manufacturing Costs Formula
Raw Materials Used
+ Direct Labor
+ MOH
= Total Manufacturing Costs
Costs that are directly related to the production of a product or service. This term is used when preparing financial statements.
Product Cost
Direct Labor
Wages of workers directly involved in the production of goods.
APPLIED MANUFACTURING OVERHEAD FORMULA
Applied Overhead = POHR × Actual Amount of the Allocation Base
Underapplied Overhead
When the actual overhead is more than the applied overhead.
Period Costs
Costs unrelated to the direct production of products or services, which includes administrative, office, and selling & distribution costs. This term is used when preparing financial statements.
Raw Materials Inventory
These are the unused materials that are yet to enter the production process.
When the actual overhead is less than the applied overhead.
Overapplied Overhead
Estimated Overhead Cost / Estimated Allocation = POHR
Predetermined Overhead Rate
Variable Costs
Costs that change based on productivity level:
Direct Materials
Direct Labor
Sales Commissions
Work in Process Inventory
These are partially completed goods that are in the process of production but are not yet finished.
Beg. Finished Goods
+ COGM
− End. Finished Goods
= ************
COST OF GOODS SOLD (COGS) FORMULA
Beg. Raw Materials
+ Purchases
- End. Raw Materials
= *************
RAW MATERIALS USED FORMULA
Costs that do NOT change based on productivity level, but may be paid monthly or yearly:
Rent
Salaries
Depreciation
Fixed Costs