Production overhead is any cost incurred in order to create a product. This usually includes: rent, utilities, equipment, maintenance and labor. Sometimes raw materials and scrap are also classified as overhead.
Production overhead are overhead items necessary to produce your product or service, such as the square footage necessary to house your production equipment and area. Non-production overhead will include items not directly related to production, such as advertising & garbage collection, for example.
You take estimated overhead divided by the estimated level of production activity. It is used to assign overhead to production.
Factory overheads are incurred only and only due to production of the goods. That is why the factory overhead cost is applied to production.
Combined overhead variance = fixed overhead variance + variable overhead varianceFixed Overhead :which remains fixed and donot change upto certain level of productionVariable Overhead: which keep changing with the change in production units.
Fixed overhead budgeted variance is the difference between estimated budgeted cost and actual fixed overhead cost of production.
The absorbed overhead is part of the production cost of the cost units and therefore it is debited to the work-in-progress control account together with the direct materials, direct labour and any direct expenses incurred, to give the total production cost for the period. The credit entry is the production overhead control account which will have been debited with the actual overhead incuured. Any balance on the production overhead control account is the transfer to the income statement as under or over-absorbed overhead.
actual foh is the overhead expenses actually incurred on production while applied foh is budgeted overhead expenses for budgeted production.
Primary distribution overhead cost is also called Departmentalization of overheads. It involves apportionment and allocation of overhead costs in the service and production departments.
the Work in Process account
An overhead is a cost that is not directly related to the production of a specific good or service but that is indirectly related to the production of several goods or services. For example, the cost of maintaining an office or factory - lighting, heating etc.
Predetermined overhead rate is calculated according to the normal production capacity of the plant.
The Actual overhead is calculated throughout the Production cycle for indirect cost associated to the production and the overhead costs applied is based on the fixed rate assigned against the machine or labour hours to be calculated for the difference b/w two are called under or over applied.