Product Costs = Direct Materials + Direct Labor + Overhead Period Costs = Other costs of the business, e.g. sales and general and administrative costs Prime Costs = Direct Labor + Direct Materials Conversion Costs = Direct Labor + Overhead Overhead Calculations: There are several ways to allocate overhead to individual jobs. Since you will not know the actual overhead costs until the end of your fiscal year you need some means of allocating it along the way. There are traditional methods which are usually simple and sometimes are not the most accurate but are simple to calculate. Traditional approach all the overhead costs are totaled and divided by some activity base such as direct labor hours, machine hours or units of production. Another approach is for overhead to be for example a percentage of direct labor costs. Once you have that rate to find the overhead you would multiply the rate times thatjobs direct labor hours or whatever the driver was determined to be. Examples: What is the product cost forJob 45 which consists of 500 units and total manufacturing costs of direct materials $4,200, direct labor $7,400, and overhead of $2,800? What are the prime costs and conversion costs? Total costs = (4200 + 7400 + 2800)/500 = 28.80 Prime Costs = (4200 + 7400)]500 = 23.20 Conversion costs = (7400 + 2800)]500 = 20.40 Compute the overhead rate per service request for the maintenance department if estimated overhead costs are $19,290 and the number of estimated service requests is 3,500. Overhead = 19,290/3500 = 5.51 per service request Problems for Manufacturing Accounting: Calculate everything per unit 1. What is the product cost for Job 34 which consists of 300 units and total manufacturing costs of direct materials $4,200, direct labor $7,500, and overhead of $3,000? What are the prime costs and conversion costs? What is the product cost for Job 43 which consists of 500 units and total manufacturing costs of direct materials $5,200, direct labor $6,000, and overhead of $3,500? What are the total costs, prime costs and conversion costs? What is the product cost for Job 23 which consists of 400 units and total manufacturing costs of direct materials $3,200, direct labor $6,400, and overhead of $2,800? What are the total costs, prime costs and conversion costs? Overhead-Any costs of the factory that would have to be included as part of the cost of any units made. This includes things like indirect materials, indirect labor, utilities, depreciation on factory equipment, or any costs of the factory itself. 4. 5. Compute the overhead rate per service request for the maintenance department if estimated overhead costs are $18,290 and the number of estimated service requests is 3,100. Compute the overhead rate per direct labor hour if the estimated overhead costs are $23,320 and the number of estimated labor hours is 4,200. Compute the overhead rate per engineering hour if the estimated overhead costs are $54,250 and the number of engineering hours is 10,200
