ECONOMICS

Detailed explanation-1: -Actual manufacturing overhead costs should be charged to the WIP inventory account as they are incurred. A good system of internal control requires that the job order cost sheet be destroyed as soon as the job is complete. L Finished goods inventory is charged for the costs of jobs completed during a period.

Detailed explanation-2: -According to GAAP (generally accepted accounting principles), manufacturing overhead should be included in the cost of finished goods in inventory and work in progress inventory on a manufacturer’s balance sheet and in the cost of goods income statement.

Detailed explanation-3: -Actual manufacturing overhead costs are the indirect manufacturing costs incurred periodically throughout the year in the production process. Manufacturing overhead applied are the overhead costs added or applied to each job during the production process.

Detailed explanation-4: -Actual overhead costs always enter the Work-in-Process account. The raw materials account is an inventory account located on the income statement.

Detailed explanation-5: -This is the rate applied to each dollar of direct labor spent on work in progress. For example, if a product took 2 hours to make, the amount of overhead applied to work in progress would be $36 (2 hours x $12 = $24 x 150 percent = $36 labor overhead).