[Tux]

When you “apply” overhead to WIP, I thought these were actual expenses that were incurred.

Like in the COGM formula:

Beginning WIP

plus Direct Material used

plus Direct labor

plus Mfg OH “APPLIED”

equals

---

Total Mfg costs INCURRED

minus ending WIP

equals

---

COGM

So, “applied” is included in total costs that were actually INCURRED

But, in learning about OH variance, “applied” is used as the budgeted amount and not the actual amount.

So, I’m confused about how to think about it.

Is it actually a BUDGETED amount of OH that is used in the COGM formula ???

FAR - 86 - 2/27/14
AUD - 75 - 5/29/14
BEC - 80 - 8/31/14
REG - 89 - 2/27/15
Praise Jesus! I'm done!!

Study resources:
Becker
Wiley test bank

[mla1169]

The applied overhead originates with the budget. So say you think overhead will be $1000 and you expect to make 500 widgets. You apply $2 of overhead each time you make a widget.

At the end of the year, it turns out your actual overhead was $1100, but you've only applied $1000 ($2 x 500) then you have a $100 unfavorable variance.

Hope that helps.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[Tux]

Yes, that helps a LOT.

Thanks!

FAR - 86 - 2/27/14
AUD - 75 - 5/29/14
BEC - 80 - 8/31/14
REG - 89 - 2/27/15
Praise Jesus! I'm done!!

Study resources:
Becker
Wiley test bank

[Author]

Replies