You are a manager in one department of the XYZ Manufacturing Company. You have been invited to a meeting by the general manager to discuss how spending in your department and the other departments could impact the company's profitability. In particular, the general manager is going to be discussing the concept of manufacturing overhead, how it is such an important part of setting prices, and how to determine the firm's profitability.
In order to properly set selling prices, you need to know the cost of certain products that you make. Setting prices is done at the beginning of each year. While it is easy to know labor and material content, it is harder to know how much overhead should be assigned to each unit of output
• In your own words:
o describe what manufacturing overhead is
o describe how it is different than direct labor and direct materials
o give at least 3 examples of typical manufacturing overhead
• What exactly is the predetermined overhead rate, and why is it important?
Compute under- or over-applied overhead cost and prepare the journal entry to close the balance in Manufacturing Overhead to the appropriate accounts and understand how to record the flow of materials, labor, and overhead through a process costing system.