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FAR Manufacturing 2

The document outlines the distinctions between overtime pay for direct workers and holiday pay, emphasizing that overtime is a management prerogative and not required to be paid, while holiday pay is mandated by law. It also details the components of manufacturing overhead, which includes indirect materials and labor, and differentiates between product costs and period costs in manufacturing accounting. Product costs encompass direct materials, direct labor, and factory overhead, whereas period costs consist of operating expenses unrelated to inventory production.

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24 views1 page

FAR Manufacturing 2

The document outlines the distinctions between overtime pay for direct workers and holiday pay, emphasizing that overtime is a management prerogative and not required to be paid, while holiday pay is mandated by law. It also details the components of manufacturing overhead, which includes indirect materials and labor, and differentiates between product costs and period costs in manufacturing accounting. Product costs encompass direct materials, direct labor, and factory overhead, whereas period costs consist of operating expenses unrelated to inventory production.

Uploaded by

cpacutie
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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○ Overtime of direct workers

⟶ Management prerogative
(Management Prerogative - an exclusive and special right, power or privilege granted
to business owners or management)
⟶ Not required to be paid
⟶ Paid under indirect labor
○ Direct workers worked on holidays
⟶ Under Holiday Pay Labor Law, thus, it is required to be paid.
⟶ Not management prerogative
⟶ Paid under direct labor
Manufacturing Overhead
■ Requisite of Factory Overhead or Manufacturing Overhead:
1. Materials, Labor, and other components that support the manufacturing process or any expenses
related to the factory.
* This includes the:
Indirect Materials
Indirect Labor
Depreciation Expense - Factory Bldg.
Repairs and Maintenance - Factory Bldg.
Amortization of Patents
Real Property Taxes
Factory Utilities
Tools Used
Employer’s Payroll Contributions - Factory
Factory Supplies Expense
Miscellaneous Factory Expense
2. Should not be directly attributable costs to specific products.
(not a direct labor or direct material)
(only includes indirect labor or indirect materials)
○ The FOH can be based on Applied FOH or Actual FOH.
○ Applied Factory overhead means that it is based on a rate.
○ Actual Factory overhead means that it is based on the bill given.
○ Focus on the Applied Rate on all of the FOH instead of the actual.
Product Cost vs Period Cost
■ Product Costs
→ Also known as Total Manufacturing Cost
→ These are all the costs incurred in the manufacturing (Buy-Process).
Formula:
Product Costs = Direct Materials + Direct Labor + Factory Overhead
■ Period Costs
→ Also known as Operating Expenses
→ These are the remaining operating expenses once we have taken out the product costs
→ Costs that are not tied to or related to the production of inventory.
Formula:
Period Costs = Selling Expenses + General and Administrative Expenses
(Selling Expenses - expenses that are associated with selling a product or store expenses)
(General and Administrative Expenses - office expenses)

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