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Dillon Products produces a range of machined components according to client requirements. The business employs a joborder pricing system and bases overhead costs on machine hours when applying them to works. The firm was expected to work 240,000 machine hours and pay manufacturing overhead expenses of $4,800,000 at the start of the year.
The business worked on a significant order for 16,000 specially produced machined components over the whole month of January. At the start of January, the business had nothing ongoing. [See final answer in attachement]
What is manufacturing overhead cost?
- Manufacturing overhead costs are all expenses spent during the manufacture of goods, except direct labor and direct material costs. Fixed manufacturing overhead costs and variable manufacturing overhead costs are additional categories for manufacturing overhead costs.
- Manufacturing overheads are often referred to as factory overheads and indirect production costs. Since it is challenging to connect these costs directly to each product, they are indirect. To account for this, manufacturing overhead expenses are added to product costs using a pre-set overhead absorption rate.
- The manufacturing overhead expenses per base unit of activity are represented by the overhead absorption rate (also called cost driver).
- Labor costs, labor hours, and machine hours are common cost factors. Because they are capitalized as part of the cost of inventories rather than being expensed in the period in which they are incurred, manufacturing overhead expenses are product costs (inventoriable costs).
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