The essence of manufacturing overhead is to capture all manufacturing costs other than direct materials and direct labor and then assign, apply or allocate these overhead costs to products in an organized and evenhanded way. When teaching Cost Accounting, direct materials and direct labor present few problems – but a good grasp on the essence of overhead can be elusive. Perhaps the best illustration of overhead at work is found in accounting for normal rework common to all jobs, whereby manufacturing overhead can be both a debit and a credit in a single journal entry.
This paper first presents an overview of manufacturing overhead, followed by a discussion of all types of rework: normal rework for a specific job, abnormal rework, and normal rework common to all jobs. A normal rework common to all jobs detailed example is also presented to show the purpose of manufacturing overhead and the efficiency with which this purpose is accomplished.
This article is from the Accounting Instructors’ Report, an electronic journal that provides teaching tips and insights to those who teach accounting and other business courses.
Rebecca Kaenzig, Ph.D., Appalachian State University
Lynn Comer Jones, Ph.D., CPA, Valdosta State University
William B. Pollard, Ph.D., Appalachian State University