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Product and Service Costing 3- Financial Accounting Product costs are used to value inventory and to compute cost of goods sold. Managerial Accounting and Cost Management Product costs are used for planning, control, directing, and management decision making. Our focus changes from financial statement costs to operations
Overhead is applied to jobs using a predetermined overhead rate (POHR) based on estimates made at the beginning of the accounting period.
3- Overhead applied = POHR × Actual activity Based on estimates , and determined before the period begins Actual amount of the allocation base, such as direct labor hours, incurred during the period 1 2 Manufacturing Overhead Costs POHR = Budgeted manufacturing overhead cost Budgeted amount of cost driver (or activity base)
3- Actual direct material and direct labor combined with actual overhead. Actual direct material and direct labor combined with predetermined overhead. Using a predetermined rate makes it possible to estimate total job costs sooner. Actual overhead for the period is not known until the end of the period. Actual and Normal Costing