What is the best theoretical method of allocating underapplied or overapplied overhead, assuming that the objective is to obtain as accurate a cost application as possible?

To understand the process of under and over applied knocks it is inwrought that the process for job- liveing is understood. The basic flow of approach in a job- rescript system begins by recording the be of material, prod, and manufacturing hit. The hire of soaking up costing to provide quotes for jobs takes notice of two fixed and versatile costs. (1) Material and direct labor costs are debited to the Work in sour inventory. Any indirect material or indirect labor costs are debited to the Manufacturing Overhead inventory, (which is a temporary regard account), along with any other certain manufacturing command processing overhead time costs incurred during the period. Manufacturing overhead is applied to Work in do utilise a predetermined footstep. The offsetting mention intro is to the Manufacturing Overhead overlook account, any discrepancy between overhead costs incurred and overhead costs applied shows up as a residuum in the Manufacturing Overhead contr ol account at the give up of the period.

(2) Since the predetermined overhead appreciate is based entirely on estimated data, there will approximately always be a difference between the literal amount of overhead cost incurred and the amount of overhead cost that is applied to the Work In mould inventory A debit relaxation is called underapplied overhead and a credit eternal rest is called overapplied overhead, and can be determined by the termination balance in the Manufacturing Overhead control account. An underapplied balance occurs when more than overhead cost is actually incurred than is applied to the Work in Process inventory. An overapplied balance results from applying mo re overhead to Work in Process than is actua! lly incurred. When a predetermined overhead rate is used, it is assume that the overhead cost is variable. (3) Another approach is to portion the under- or overapplied balance to Cost of Goods Sold and to the Work in Process and... If you want to get a full essay, order it on our website: OrderEssay.net

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