Costing system job costing
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Costing system job costing
- 2. Types of Product Costing Systems Process Job-order Costing Costing A company produces many units of a single product. One unit of product is indistinguishable from other units of product. The identical nature of each unit of product enables assigning the same average cost per unit.
- 3. Types of Product Costing Systems Process Job-order Costing Costing A company produces many units of a single product. Example companies: is indistinguishable from One unit of product other units 1. Weyerhaeuser (paper manufacturing) of product. 2.The identical nature of(refining aluminum ingots)enables Reynolds Aluminum each unit of product 3.assigning the same average cost per unit. Coca-Cola (mixing and bottling beverages)
- 4. Types of Product Costing Systems Process Job-order Costing Costing Many different products are produced each period. Products are manufactured to order. The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job.
- 5. Types of Product Costing Systems Process Job-order Costing Costing Many different products are produced each period. Example companies: Products are manufactured to order. 1. Boeing (aircraft manufacturing) 2.The unique nature of each order requires tracing or Bechtel International (large scale construction) allocating costs to each job, and maintaining cost records for each job. 3. Walt Disney Studios (movie production)
- 6. Comparing Process and Job-Order Costing Job-Order Process Number of jobs worked Many Individual Single Product Cost accumulated by Job Department Average cost computed by Job Department
- 7. Quick Check Which of the following companies would be likely to use job-order costing rather than process costing? a. Scott Paper Company for Kleenex. b. Architects. c. Heinz for ketchup. d. Caterer for a wedding reception. e. Builder of commercial fishing vessels.
- 8. Quick Check Which of the following companies would be likely to use job-order costing rather than process costing? a. Scott Paper Company for Kleenex. b. Architects. c. Heinz for ketchup. d. Caterer for a wedding reception. e. Builder of commercial fishing vessels.
- 9. Direct Manufacturing Costs Charge direct material Direct Materials and direct labor costs to each job as work is Job No. 1 performed. Direct Labor Job No. 2 Manufacturing Job No. 3 Overhead
- 10. Direct Manufacturing Costs Manufacturing Overhead, Direct Materials including indirect Job No. 1 materials and Direct Labor indirect labor, are Job No. 2 allocated to jobs rather than Manufacturing Job No. 3 directly traced to Overhead each job.
- 11. Job-Order Cost Accounting PearCo Job Cost Sheet Job Number A - 143 Date Initiated 3-4-05 Date Completed Department B3 Units Completed Item Wooden cargo crate Direct Materials Direct Labor Manufacturing Overhead Req. No. Amount Ticket Hours Amount Hours Rate Amount Cost Summary Units Shipped Direct Materials Date Number Balance Direct Labor Manufacturing Overhead Total Cost Unit Product Cost
- 12. Materials Requisition Form PearCo Materials Requisition Form Requisition No. X7 - 6890 Date 3-4-05 Job No. A - 143 Department B3 Description Quantity Unit Cost Total Cost 2 x 4, 12 feet 12 $ 3.00 $ 36.00 1 x 6, 12 feet 20 4.00 80.00 $ 116.00 Authorized Will E. Delite Signature
- 13. Materials Requisition Form PearCo Materials Requisition Form Requisition No. X7 - 6890 Date 3-4-05 Job No. A - 143 Department B3 Description Quantity Unit Cost Total Cost 2 x 4, 12 feet 12 $ 3.00 $ 36.00 1 x 6, 12 feet 20 4.00 80.00 $ 116.00 Authorized Will E. Delite Signature
- 14. Job-Order Cost Accounting PearCo Job Cost Sheet Job Number A - 143 Date Initiated 3-4-05 Date Completed Department B3 Units Completed Item Wooden cargo crate Direct Materials Direct Labor Manufacturing Overhead Req. No. Amount Ticket Hours Amount Hours Rate Amount X7-6890 $ 116 Cost Summary Units Shipped Direct Materials $ 116 Date Number Balance Direct Labor Manufacturing Overhead Total Cost Unit Product Cost
- 15. Employee Time Ticket PearCo Employee Time Ticket Time Ticket No. 36 Date 3/5/2005 Employee I. M. Skilled Station 42 Starting Ending Hours Hourly Time Time Completed Rate Amount Job No. 0800 1600 8.00 $ 11.00 $ 88.00 A-143 Totals 8.00 $ 11.00 $ 88.00 A-143 Supervisor C. M. W o r k m a n
- 16. Job-Order Cost Accounting PearCo Job Cost Sheet Job Number A - 143 Date Initiated 3-4-05 Date Completed Department B3 Units Completed Item Wooden cargo crate Direct Materials Direct Labor Manufacturing Overhead Req. No. Amount Ticket Hours Amount Hours Rate Amount X7-6890 $ 116 36 8 $ 88 Cost Summary Units Shipped Direct Materials $ 116 Date Number Balance Direct Labor $ 88 Manufacturing Overhead Total Cost Unit Product Cost
- 17. Why Use an Allocation Base? Manufacturing overhead is applied to jobs that are in process. An allocation base, such as direct labor hours, direct labor dollars, or machine hours, is used to assign manufacturing overhead to individual jobs. We use an allocation base because: 2. It is impossible or difficult to trace overhead costs to particular jobs. 3. Manufacturing overhead consists of many different items ranging from the grease used in machines to production manager’s salary. 4. Many types of manufacturing overhead costs are fixed even though output fluctuates during the period.
- 18. Manufacturing Overhead Application The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the period begins. Estimated total manufacturing overhead cost for the coming period POHR = Estimated total units in the allocation base for the coming period Ideally, the allocation base is a cost driver that causes overhead.
- 19. The Need for a POHR 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.
- 20. Application of Manufacturing Overhead Based on estimates, and determined before the period begins. Overhead applied = POHR × Actual activity Actual amount of the allocation based upon the actual level of activity.
- 21. Overhead Application Rate Estimated total manufacturing overhead cost for the coming period POHR = Estimated total units in the allocation base for the coming period $640,000 POHR = 160,000 direct labor hours (DLH) POHR = $4.00 per DLH For each direct labor hour worked on a particular job, $4.00 of factory overhead will be applied to that job.
- 22. Job-Order Cost Accounting PearCo Job Cost Sheet Job Number A - 143 Date Initiated 3-4-05 Date Completed 3-5-05 Department B3 Units Completed 2 Item Wooden cargo crate Direct Materials Direct Labor Manufacturing Overhead Req. No. Amount Ticket Hours Amount Hours Rate Amount X7-6890 $ 116 36 8 $ 88 8 $ 4 $ 32 Cost Summary Units Shipped Direct Materials $ 116 Date Number Balance Direct Labor $ 88 Manufacturing Overhead $ 32 Total Cost Unit Product Cost
- 23. Job-Order Cost Accounting PearCo Job Cost Sheet Job Number A - 143 Date Initiated 3-4-05 Date Completed 3-5-05 Department B3 Units Completed 2 Item Wooden cargo crate Direct Materials Direct Labor Manufacturing Overhead Req. No. Amount Ticket Hours Amount Hours Rate Amount X7-6890 $ 116 36 8 $ 88 8 $ 4 $ 32 Cost Summary Units Shipped Direct Materials $ 116 Date Number Balance Direct Labor $ 88 Manufacturing Overhead $ 32 Total Cost $ 236 Unit Product Cost $ 118
- 24. Interpreting the Average Unit Cost The average unit cost should not be interpreted as the costs that would actually be incurred if an additional unit were produced. Fixed overhead would not change if another unit were produced, so the incremental cost of another unit may be somewhat less than $118.
- 25. Quick Check Job WR53 at NW Fab, Inc. required $200 of direct materials and 10 direct labor hours at $15 per hour. Estimated total overhead for the year was $760,000 and estimated direct labor hours were 20,000. What would be recorded as the cost of job WR53? a. $200. b. $350. c. $380. d. $730.
- 26. Quick Check Job WR53 at NW Fab, Inc. required $200 of direct materials and 10 direct labor hours at $15 per hour. Estimated total overhead for the year was $760,000 and estimated direct labor hours were 20,000. What would be recorded as the cost of job WR53? a. $200. b. $350. c. $380. d. $730.
- 27. Job-Order Costing Document Flow Summary Let’s summarize the document flow in a job-order costing system.
- 28. Job-Order Costing Document Flow Summary A sales order is the A production basis of issuing a order initiates production order. work on a job.
- 29. Job-Order Costing Document Flow Summary Direct Job Cost materials Sheets Materials used may be either Materials direct or indirect. Requisition Manufacturing Indirect Overhead materials Account
- 30. Job-Order Costing Document Flow Summary An employee’s Direct Job Cost time may be either Labor Sheets direct or indirect. Employee Time Ticket Manufacturing Indirect Overhead Labor Account
- 31. Job-Order Costing Document Flow Summary Employee Indirect Time Ticket Labor Other Manufacturing Applied Job Cost Actual OH Overhead Overhead Sheets Charges Account Materials Indirect Requisition Material
- 32. Defining Under- and Overapplied Overhead The difference between the overhead cost applied to Work in Process and the actual overhead costs of a period is termed either underapplied or overapplied overhead. Underapplied overhead exists when the amount of overhead Overapplied overhead exists applied to jobs during the when the amount of overhead period using the applied to jobs during the predetermined overhead rate period using the is less than the total amount of predetermined overhead rate overhead actually incurred is greater than the total during the period. amount of overhead actually incurred during the period.
- 33. Overhead Application Example PearCo’s actual overhead for the year was $650,000 with a total of 170,000 direct labor hours worked on jobs. How much total overhead was applied to PearCo’s jobs during the year? Use PearCo’s predetermined overhead rate of $4.00 per direct labor hour. Overhead Applied During the Period Applied Overhead = POHR × Actual Direct Labor Hours Applied Overhead = $4.00 per DLH × 170,000 DLH = $680,000
- 34. Overhead Application Example PearCo’s actual overhead for the year was $650,000 with a total of 170,000 direct labor hours worked on jobs. PearCo has overapplied Howoverhead for the year was applied to much total overhead PearCo’s jobs during the year? Use PearCo’s by $30,000. What will predetermined do? PearCo overhead rate of $4.00 per direct labor hour. Overhead Applied During the Period Applied Overhead = POHR × Actual Direct Labor Hours Applied Overhead = $4.00 per DLH × 170,000 DLH = $680,000
- 35. Quick Check Tiger, Inc. had actual manufacturing overhead costs of $1,210,000 and a predetermined overhead rate of $4.00 per machine hour. Tiger, Inc. worked 290,000 machine hours during the period. Tiger’s manufacturing overhead is a. $50,000 overapplied. b. $50,000 underapplied. c. $60,000 overapplied. d. $60,000 underapplied.
- 36. Quick Check Tiger, Inc. had actual manufacturing overhead costs of $1,210,000 and a predetermined overhead rate of $4.00 per machine hour. Tiger, Inc. worked 290,000 machine hours during the period. Tiger’s manufacturing overhead is Overhead Applied $4.00 per hour × 290,000 hours a. $50,000 overapplied. = $1,160,000 b. $50,000 underapplied. Underapplied Overhead $1,210,000 - $1,160,000 c. $60,000 overapplied. = $50,000 d. $60,000 underapplied.
- 37. Disposition of Under- or Overapplied Overhead PearCo’s Method $30,000 $30,000 may be may be allocated closed directly to to these accounts. cost of goods sold. OR Work in Finished Process Goods Cost of Cost of Goods Sold Goods Sold
- 38. Disposition of Under- or Overapplied Overhead PearCo’s Cost PearCo’s of Goods Sold Mfg. Overhead Unadjusted Actual Overhead Balance overhead applied costs to jobs $30,000 $650,000 $680,000 Adjusted $30,000 $30,000 Balance overapplied
- 39. Allocating Under- or Overapplied Overhead Between Accounts Assume the overhead applied in ending Work in Process Inventory, ending Finished Goods Inventory, and Cost of Goods Sold is shown below:
- 40. Allocating Under- or Overapplied Overhead Between Accounts We would complete the following allocation of $30,000 overapplied overhead: Percent of Allocation of Amount Total $30,000 Work in process $ 68,000 10% $ 3,000 Finished Goods 204,000 30% 9,000 Cost of Goods Sold 408,000 60% 18,000 Total $ 680,000 100% $ 30,000
- 41. Allocating Under- or Overapplied Overhead Between Accounts Percent of Allocation of Amount Total $30,000 Work in process $ 68,000 10% $ 3,000 Finished Goods 204,000 30% 9,000 Cost of Goods Sold 408,000 60% 18,000 Total $ 680,000 100% $ 30,000
- 42. Overapplied and Underapplied Manufacturing Overhead - Summary PearCo’s Method Alternative 1 Alternative 2 If Manufacturing Close to Cost Overhead is . . . of Goods Sold Allocation UNDERAPPLIED INCREASE INCREASE Cost of Goods Sold Work in Process (Applied OH is less Finished Goods than actual OH) Cost of Goods Sold OVERAPPLIED DECREASE DECREASE Cost of Goods Sold Work in Process (Applied OH is greater Finished Goods than actual OH) Cost of Goods Sold
- 43. Quick Check What effect will the overapplied overhead have on PearCo’s net operating income? a. Net operating income will increase. b. Net operating income will be unaffected. c. Net operating income will decrease.
- 44. Quick Check What effect will the overapplied overhead have on PearCo’s net operating income? a. Net operating income will increase. b. Net operating income will be unaffected. c. Net operating income will decrease.
- 45. Multiple Predetermined Overhead Rates To this point we have assumed that there is a single predetermined overhead rate called a plantwide overhead rate. Large companies often use May be more complex but . . . multiple predetermined overhead rates. May be more accurate because it reflects differences across departments.
Editor's Notes
- 3- A process cost system is best used by companies that produce many units of a single product and when one unit of output is indistinguishable from any other unit of output. Because the units of output are identical, the company will probably use an average cost system to determine product cost.
- 3- An example of a company that may consider a process cost system is Weyerhaeuser, a manufacturer of paper products. When we think of paper manufacturing, we generally think about continuous production of a single roll of paper that may eventually be cut into sizes needed by customers. Other companies that would benefit from process costing are Reynolds Aluminum and Coca-Cola. Certainly the desire of all three of these companies is to make each unit of output consistent with the quality standards established. Coca-Cola bottled in California should taste identical to the same product bottled in New York City.
- 3- A company would use a job order costing system when many different products are produced each period. The products are usually manufactured to customers’ specifications and are unique in nature.
- 3- Companies that may benefit from using job order cost systems include Boeing, Bechtel International, and Walt Disney Studios. Bechtel is perhaps the largest international construction company. The company works on huge projects that are unique to customer needs.
- 3- This table presents an overview of the differences between a job-order and process costing system. Notice that costs are accumulated by the job in a job-order system and by department in the process system. If you think of building a house, you can see how easy it is to accumulate costs for a particular house even though you may be building more than one house at a time. If you think of mixing Coca-Cola, costs would naturally be accumulated by the department working on the current batch.
- 3- See if you can identify those types of companies that would benefit from the use of a job-order cost system. There may be more than one company in the list.
- 3- How did you do? The paper and ketchup manufacturers would probably use a process costing system rather than a job-order system.
- 3- In a job-order costing system, direct materials and direct labor are both assigned to individual jobs on which the materials were used and the labor incurred.
- 3- Manufacturing overhead includes indirect materials and indirect labor as well as other manufacturing costs like the power used to run the machinery in the factory. Manufacturing overhead cannot be traced directly to specific jobs. Rather, it is allocated to jobs on the basis of a predetermined rate.
- 3- The job cost sheet is used by the accounting department to track the direct and indirect costs associated with a give job. We will look at a job cost sheet used by a hypothetical company called PearCo. PearCo has a job that calls for the construction of wooden cargo crates. You can see the separate sections for direct materials, direct labor, and manufacturing overhead. In addition, we have a section to summarize total costs of the job. A job number uniquely identifies each job. Direct material, direct labor and manufacturing overhead costs are accumulated for each job. The job cost sheet is a subsidiary ledger to the Work in Process account.
- 3- Here is the materials requisition form completed for job A dash 143. The requisition is number X7 dash 6890. The worker has requested twelve two by fours, twelve feet long, and twenty one by sixes, twelve feet long. The unit cost of the lumber is shown in the unit cost column. The quantity requested is multiplied by the unit cost to arrive at the total cost for materials. The person in charge of the store room will issue the lumber once the materials requisition form has been properly authorized.
- 3- Here is the materials requisition form completed for job A dash 143. The requisition is number X7 dash 6890. The worker has requested twelve two by fours, twelve feet long, and twenty one by sixes, twelve feet long. The unit cost of the lumber is shown in the unit cost column. The quantity requested is multiplied by the unit cost to arrive at the total cost for materials. The person in charge of the store room will issue the lumber once the materials requisition form has been properly authorized.
- 3- Once the materials have been issued by the store room, they are charged to the job cost sheet for job number A dash 143. We have a proper reference for the requisition number and the total amount. If we need to look at the details of the one hundred sixteen dollar cost, we can ask to see materials requisition form X7-6890. The direct materials were posted to the summary section of the job cost sheet.
- 3- Here is the time ticket for an employee who worked eight hours on job A dash 143. The employee’s hourly pay rate is eleven dollars, so the total labor cost charged to the job will be eighty-eight dollars. The time ticket, number thirty six, serves as the major source document for labor costs charged to this job. Let’s look at the labor posting to the job cost sheet.
- 3- On the job cost sheet we can see that time ticket number thirty-six posted eight hours to job A dash 143. The total amount of direct labor cost is eighty-eight dollars. This amount is also posted to the summary section of the job cost sheet.
- 3- Part I Manufacturing overhead is applied to all jobs that are in process. We apply overhead using a base we believe causes overhead costs to be incurred. Some companies allocate manufacturing overhead using direct labor hours or machine hours. Part II We must allocate overhead costs to jobs for a variety of reasons. First, it is difficult, if not impossible, to actually trace overhead costs to a particular job. The cost of grease for machinery to manufacture our product is part of our manufacturing costs. It would be impossible to accurately trace the amount of grease consumed to manufacture one unit of output. Manufacturing overhead also includes a number of different costs and it would be very difficult to gather all of them together in time to charge them to a particular job. A job may be complete and sold before we can determine the actual overhead costs incurred. Finally, many types of overhead are fixed in nature even though output fluctuates during the period.
- 3- To facilitate the allocation of manufacturing overhead to each job, we calculate a predetermined overhead rate before the period begins. The rate is calculated by dividing the total estimated manufacturing overhead for the coming period by the estimated total units of the allocation base. If our allocation base is machine hours, we would estimate the total number of machine hours used in production in the coming period. Ideally, the allocation base should be a cost driver , that is, it causes overhead to be incurred.
- 3- Predetermined overhead rates that rely upon estimated data are often used because (1) actual overhead costs for the period are not known until the end of the period, thus inhibiting the ability to estimate job costs during the period; (2) Actual overhead costs can fluctuate seasonally, thus misleading decision makers; (3) it simplifies record keeping.
- 3- We calculate the predetermined overhead rate before the period begins. As we work on a particular job, we apply overhead by multiplying the predetermined rate times the actual level of activity. If overhead is applied on the basis of machine hours, we would apply overhead by multiplying the predetermined rate times the actual number of machine hours used on a particular job.
- 3- Part I Here is our equation for calculating the predetermined manufacturing overhead rate. Part II PearCo’s predetermined overhead rate is four dollars per direct labor hour. Part III So, at PearCo each job will be charged four dollars of overhead for each one hour of direct labor worked. Let’s see how this works.
- 3- Our predetermined overhead rate is four dollars per direct labor hour, so we will apply thirty-two dollars of overhead to job number A dash 143. The computation is shown in the manufacturing overhead section of the job cost sheet and in the summary section. On job A dash 143 we completed two wooden cargo crates at a total cost of two hundred thirty-six dollars. The total cost includes direct materials, direct labor, and manufacturing overhead. For this particular job the average cost of each crate is one hundred eighteen dollars. We calculated the average by dividing the total cost of two hundred thirty six dollars by the two crates produced.
- 3- The total direct material, direct labor, and manufacturing overhead costs assigned to Job A-143 is two hundred thirty six dollars. Since this particular job included two units of production, the average cost per unit is one hundred eighteen dollars.
- 3- We cannot say that the average cost per crate in the future will be one hundred and eighteen dollars. If a third crate were to be produced, we would not add any additional fixed overhead cost, so the incremental cost of an additional unit may be somewhat less than one hundred eighteen dollars.
- 3- This problem may take a while to solve, but it will be well worth your time to work it carefully.
- 3- This problem may take a while to solve, but it will be well worth your time to work it carefully.
- 3- Now let’s look at the document flow in a job-order cost system.
- 3- The entire accounting process begins when a sales order is received from a customer. Once the sales order is received, a production order is drafted to initiate work on a job.
- 3- From the production order, we are able to determine the direct and indirect materials we will need to requisition from the store room. We now know that the materials requisition form is a critical source document in the preparation of the job cost sheet. Direct material costs are charged to specific jobs. Indirect material costs are included in manufacturing overhead.
- 3- As employees work on the job covered by the production order, time tickets are prepared for recording both direct and indirect labor costs. Direct labor costs are charged to specific jobs. Indirect labor costs are included in manufacturing overhead.
- 3- Indirect materials and indirect labor are parts of manufacturing overhead. Other overhead costs are charged to the manufacturing overhead account as incurred. As we have seen, overhead is applied to the job cost sheet.
- 3- When we apply overhead on the basis of a predetermined overhead rate, there is always the chance that the amount of overhead applied will be different from the amount of overhead actually incurred during the period. When there is a difference we refer to the amount as either underapplied overhead or overapplied overhead.
- 3- Part I Let’s assume that PearCo incurred actual overhead of six hundred fifty thousand dollars during the period and worked a total of one hundred seventy thousand direct labor hours. PearCo applies overhead at the rate of four dollars per direct labor hour worked. How much overhead did PearCo apply to jobs during the period? Part II PearCo would have applied six hundred eighty thousand dollars of overhead during the period. That is four dollars per direct labor hour times the one hundred seventy thousand direct labor hours actually worked. Can you see our problem?
- 3- The difference between the overhead cost applied to Work in Process and the actual overhead costs of a period is termed either underapplied or overapplied overhead. PearCo incurred actual overhead of six hundred fifty thousand dollars and applied six hundred and eighty thousand dollars, so the company overapplied thirty thousand dollars of overhead for the year. How do we dispose of this overapplied overhead?
- 3- In this question we ask you to calculate the overapplied or underapplied overhead. Be careful with your intermediate computations.
- 3- In this question we ask you to calculate the overapplied or underapplied overhead. Be careful with your intermediate computations.
- 3- There are two way to dispose of over- or underapplied overhead. The more complex approach is to allocate a portion of the over- or underapplied overhead to work in process inventory, finished goods inventory, and cost of goods sold. The allocation would be based on the relative dollar value in each of the three accounts involved. An easier way to deal with the problem, and the way PearCo uses, is to adjust cost of goods sold for the entire amount of the over- or underapplied overhead.
- 3- Part I We know that PearCo applied six hundred eighty thousand dollars of overhead but incurred only six hundred fifty thousand dollars of actual overhead. The manufacturing overhead account has a thirty thousand dollar credit balance, representing the overapplied overhead during the year. PearCo chooses to adjust cost of goods sold for the entire amount. Part II The adjustment necessary at the end of the year is to debit the manufacturing overhead account for thirty thousand dollars and credit, or reduce, cost of goods sold by the same amount.
- 3- We may elect to allocate the over- or underapplied overhead to ending Work in Process Inventory, ending Finished Goods Inventory, and Cost of Goods Sold. Let’s assume that at the end of the period PearCo had the following overhead costs in each of the accounts shown.
- 3- We will complete the following allocation of the thirty thousand dollars of overapplied overhead. We will reduce ending Work in Process Inventory by three thousand dollars, and the other accounts by the amounts shown.
- 3- The journal entry to record the allocation is to debit Manufacturing Overhead for thirty thousand dollars, credit Work in Process Inventory for three thousand dollars, credit Finished Goods Inventory for nine thousand dollars, and credit Cost of Goods Sold for eighteen thousand dollars.
- 3- We have provided a good study aid for dealing with overapplied or underapplied overhead. We have shown the impact of both the allocation approach to the solution to the problem and the direct adjustment to cost of goods sold approach. It is a good idea to review this chart before your next exam.
- 3- Give this question some thought before deciding on your answer.
- 3- How did you do?
- 3- Part I We have assumed that the company has used one single predetermined overhead rate for the entire factory. Part II Many large companies use multiple predetermined overhead rates. Part III Using multiple overhead rates can cause more complexity. Part IV But when a company uses multiple rates it promotes accuracy in the allocation process because it gives formal recognition to differences across departments in how overhead costs are incurred.