From the course: Accounting Foundations: Managerial Accounting

Unlock the full course today

Join today to access over 22,600 courses taught by industry experts or purchase this course individually.

Analyzing overhead

Analyzing overhead

From the course: Accounting Foundations: Managerial Accounting

Start my 1-month free trial

Analyzing overhead

“

- Okay, so the next step is to analyze individual overhead costs in terms of the cost activities we just identified. for Lilly Ice Cream Company, recall that the total overhead cost is 1.74 million created by four different activities. The components of the overhead costs and the four activities are shown here. Implementation of the ABC system now requires that each of the overhead costs be analyzed to determine what fraction of those costs is caused or driven by each one of the four overhead cost activities. Consider the first item on the list. Electricity costs $200,000. The use of electricity is a good example of a unit level overhead activity because the more units that are produced, the higher the electricity costs. In terms of Lilly's analysis, the electricity cost is part of the cost of operating the ice cream production process. Accordingly, the $200,000 in electricity cost is included as part of the cost of…

Contents