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New2cpafar
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Posted: 02 Mar 2011 at 20:39 \| IP Logged

Hi,

This is my first post and sorry if I duplicated the topic
,,,,but i cud not find any link on the same

Wiley has a Q on FOH and Inventory costs and I am looking
for the logic of why normal capacity and not actual amts
of goods produced

Q - When allocating costs to inventory produced for a
period, fixed overhead costs should be based upon?
a - actual amounts of goods produced during the period
b- normal capacity of production facility

answer is b ,,,,,my Q is why b and not option a

Thanks

tkphotomania
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Joined: 21 Mar 2008
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Posted: 02 Mar 2011 at 20:50 \| IP Logged

New2cpafar wrote:

You might want to look it up in BEC textbook.

The fixed manufacturing overhead is applied to output, depending on
normal capacity of production; it's not based on the actual amounts of
output.

New2cpafar
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Posted: 02 Mar 2011 at 20:52 \| IP Logged

Thanks will check it out!

Kishu
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Posted: 02 Mar 2011 at 23:46 \| IP Logged

As per my understanding Fixed overheads contains the fixed amount of expenditure for particular period (eg. Rent, Salaries (not wages)). So when you are considering a normal capacity, it means during normal circumstances Fixed overheads will be applicable to X number of units produced.

Thats why FOH are applicable to Normal capacity not to actual because Actual capacity (Units) may be deviate from normal capacity(higher or lower) due to various reasons e.g.:- inapproriate material, inexperienced workers, electicity problem, machine maintainance...and so on...

I hope this explains...

:) Good Luck

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