Factory Overhead in Accounting vs Costing

Factory overhead is the costs incurred during the manufacturing process, not including the costs of direct labor and direct materials. Factory overhead is normally aggregated into cost pools and allocated to units produced during the period under costing factory OH are added to prime cost in cost sheet to arrive at Factory Cost. As per AS 2 under accounting - The costs of conversion of inventories include costs directly related to the units of production, such as direct labour, direct material and direct expenses. They also include a systematic allocation of fixed factory OH (based on normal capacity) and variable production / factory overheads (based on actual use of facility) that are incurred in converting materials into finished goods.

Sudha Reddy

CA Final

★ 20K+

27-Sep-21 10:12