This document discusses factory overhead cost accounting, emphasizing the role of cost accounting in capturing production costs for better management decisions. It outlines various classifications of costs, detailing components of factory overhead, including expenses related to manufacturing and maintenance. Additionally, it explains the concepts of factory overhead variance, including under and overapplied overhead, and the factors leading to variances in budget and capacity.

2. COSTING FOR FACTORY
OVERHEAD
Cost Accounting
Presented By:
Fahad Farooq
Osama Waheed
Hamza Iltaf
Huzaifa Ijaz Minhas
Presented to: Ma’am Shumaila

3. Cost Accounting:
• Cost accounting is a form of managerial accounting that aims to
capture a company's total cost of production .
• It assess the variable costs of each step of production as well as fixed
costs.
• Cost accounting is used internally by management in order to make
fully informed business decisions.
• Cost accounting is not required to adhere to set standards and can be
flexible to meet the needs of management.

6. Cost Classification:
Cost
Classification
Direct Material Direct Labor Factory Overhead
Administrative
expense
Marketing & selling
Expense

8. Factory Overhead:
• Factory overhead is the costs incurred during the manufacturing process, not
including the costs of direct labor and direct materials.
• Factory expenses (e.g., rent, rates, insurance, water, heat, and electricity).
• Factory maintenance (e.g., cleaning, servicing, repairs, oiling, and greasing).
• Depreciation of factory plant and machinery and buildings.
• Consumable stores and all forms of indirect material.
• Wages and salaries (other than direct labor) of persons engaged in the factory.

11. Factory Overhead Variance:
• Difference between Actual FOH incurred and Applied FOH during the year.
• Under applied FOH is regarded as unfavorable sign.
Actual FOH > Estimated FOH = Unfavorable
• Overapplied FOH is regarded as favorable sign.
Actual FOH < Estimated FOH = Favorable

12. Total Factory overhead Variance:
Actual FOH variance
• Fixed FOH + Variable FOH
450,000 + 680,000
=1,130,000
Absorbed FOH variance
• Actual Capacity Attained * Absorption rate
220,000 * 1,005,000/200,000
= > 220,000 * 5.25
= 1,155,000
Actual DLH * Estimated Fixed FOH +Estimated Variable FOH
Estimated Direct Labor Hour

13. Causes of Variance:
Capacity Variance
Absorbed FOH - Capacity Attained FOH
•
Actual Capacity Attained * Absorption rate Actual Fixed FOH + (Capacity Attained * Variable rate)
Estimated Fixed FOH +Estimated Variable FOH
Estimated Direct Labor Hour
Actual DLH *
Estimated Variable FOH
Estimated Direct Labor Hour

14. Causes of Variance
Budget Variance
Actual factory Overhead - Capacity attained FOH
1,130,000 1,110,000

15. Thank you