In Calculating Product Costs,actual Direct Materials and Actual Direct Labor

question 68

Essay

In calculating product costs,actual direct materials and actual direct labor are charged to the work in process account;however,an estimated amount of overhead is charged to the account.Why is overhead accounted for differently than the other costs of production?

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Definitions:

Specific Identification

An accounting method used to track and assign costs to individual pieces of inventory, useful for unique or high-value items.

Gross Profit

The financial metric indicating the difference between revenue and the cost of goods sold before accounting for other expenses.

FIFO Method

"First In, First Out," an inventory valuation method where goods first received are the first to be sold, assuming costs of earliest goods are those expensed first.

Physical Flow

The movement of physical goods or materials within a production process or supply chain.