Manufacturing overhead, Whip Fredrick & Saunders Fabrication, Inc. uses a job or

Question

Manufacturing overhead, Whip

Fredrick & Saunders Fabrication, Inc. uses a job order system. At the beginning of May, F & S had two jobs in process with the following Prime Costs: Job #731 (DM = $1,860 and DL = $2,770), and Job #732 (DM = $4.920 and DL = $6.875). Manufacturing Overhead is applied per the POR rate of 200% of Direct Material dollars. The POR rate is for the entire year. MO is applied at the end of each month to all production. Job #732 was started in April and finished during May. Job #733 was started and is finished during May. Job #734 was started and is not finished during May. Job #731 was started in April and will be finished in early June. What is F & S's ending WIP balance and cost of goods manufactured for May? Costs incurred during May for Production

Explanation / Answer

Manufacturing overheads are those indirect costs associated with producing a good or service. For example, heating, lighting, rent and electricity are not physically part of the finished product but without them, the production would not be possible. It is therefore necessary to include them in the final pricing of the product for sale to ensure you can pay your bills etc. When you "charge" these "overheads" or indirect costs to final price, the cost is then said to be "absorbed" by the product. Therefore, the rates at which to charge them is called, "the absorption rates!"

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