Manufacturing Overhead
Definition: Indirect production costs
Scope:ModerateDifficulty:Moderate
Indirect production costs
Common Journal Entries
| Account | Debit | Credit |
|---|---|---|
| 1. Record actual overhead costs | ||
| Factory: depreciation $4,000, utilities $3,000, supplies $2,500. | ||
| Manufacturing OverheadLiability− | $9,500 | |
| Accumulated DepreciationContra Asset+ | $4,000 | |
| Utilities PayableLiability+ | $3,000 | |
| SuppliesAsset− | $2,500 | |
| Actual overhead accumulated in control account. | ||
| 2. Apply overhead to WIP | ||
| Apply $10,000 using predetermined rate. | ||
| Work-in-Process InventoryAsset+ | $10,000 | |
| Manufacturing OverheadLiability+ | $10,000 | |
| Overhead absorbed into product cost. | ||
| 3. Close over-applied overhead | ||
| Applied $10,000 vs. actual $9,500 = $500 over-applied. | ||
| Manufacturing OverheadLiability− | $500 | |
| Cost of Goods SoldExpense− | $500 | |
| Over-applied overhead reduces COGS. | ||
T-AccountsA visual representation of a ledger account shaped like the letter T. Left side shows debits, right side shows credits.
Manufacturing OverheadManufacturing OverheadLiabilityAn obligation the business owes to others. Normal balance: credit. Credits increase, debits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$9,500.00
$500.00
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$10,000.00
Normal bal. ▶
$0.00
Accumulated DepreciationAccumulated DepreciationLiabilityAn obligation the business owes to others. Normal balance: credit. Credits increase, debits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$4,000.00
Normal bal. ▶
$4,000.00
Utilities PayableUtilities PayableLiabilityAn obligation the business owes to others. Normal balance: credit. Credits increase, debits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$3,000.00
Normal bal. ▶
$3,000.00
SuppliesSuppliesAssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$2,500.00
$2,500.00
Work-in-Process InventoryWork-in-Process InventoryAssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$10,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$10,000.00
Cost of Goods SoldExpense account — the direct cost of merchandise sold to customers. Debits increase the balance. Only recorded at the time of sale under the perpetual method.ExpenseA cost incurred in the process of earning revenue. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$500.00
$500.00
DurationN/A
External Links
- Overhead (business) — Wikipedia