Question

Q1: How and when General FOH are recorded and allocated in departments.

Q2: Which documents are used in recording the Actual FOH? Explain them all briefly.

Answer 1

Solution:

Q1. The factory overhead account tracks actual overhead cost incurred. Recall that manufacturing overhead costs include all production costs othr than direct labour and direct materials. The actual manufacturing overhead costs incurred in a period are recorded as debits in the manufacturing account. Manufacturing overhead ( also refered to as factory overhead , factory burden, and manufacturing support costs) refers to indirect factory - related costs that are incurred when a product is manufactured. Along with costs such as direct material and direct labour , the cost of manufacturing overhead must be allocated to each unit produced so that inventory and cost of goods sold are valued and reported according to Generally Accepted Accounting Principles(GAAP).

Q2. Source documents for the different items of overhead expenses are

1. Stores Requisitions:

Indirect materials eg: brushes, brooms, soap, oil, grease,waste cloth etc. drawn fom stores are obtained by the stores requisitions which show standing order numbers. These numbers and the departments using such materials are posted to the debit of production overhead account and credited to stores ledger control account.

2. Wages Analysis Sheet:

Indirect wages (such as wages of sweepers, fringe benefits of workers etc.) payable are booked against each standing order number and for each department on the basis of time cards or job cards . Wages Analysis Sheet is prepared periodically from the cards and from this sheet indirect wages are debited to production overhead account and credited to the wages control account.

3. Invoice or Purchase Vouchers:

Payments to outside parties for the stores and other services is made on the basis of vouchers or invoices which are entered in the purchase journal maintained for the purpose of cash payment. At the end of the period the total of the purchase journal is debited to the production overhead account, corresponding credit being given to the general ledger adjustment account.

4. Cash Book:

Where transactions occur more frequently for petty expenses, cash book is thoroughly scrutinised and indirect expenses are properly collected against standing order number of each department. These expenses thus collected from cash book are debited to any of the account suitable i.e., (a) store ledger control account, (b) wages control account , (c) general ledger adjustment account.

5. Journal Entries :

Number of items pertaining to overhead expenses for which journal entries are formed for various transactions/ adjustments etc. in cost ledger are collected from journal book.

6. Subsidiary Records :

There are many items of overheads which do not result in cuurent cash outlay and need some adjustment or relate to accrued expenses; for example , depreciation , accrued insurance , notional rent, interest on capital etc. Such items are recorded periodically in subsidiary records like plant register and all such records will help accumulation of production overhead which are reported information/ records of various reports of the organisation.