goals and objectives to review normal costing procedures to review the
GOALS AND OBJECTIVES
✓ To review Normal Costing procedures
✓ To review the reasons for using Normal Costing, its benefits and drawbacks
manufactures custom widgets and uses a normal costing system. The following information is available
for the most recent year, 2016:
Direct labor hours
Number of units
The company has chosen direct labor hours as the overhead cost driver. Although 15,000 direct labor hours
were budgeted (expected) for the year, the factory has the capacity of 25,000 direct labor hours under perfect
operating conditions. Under normal conditions, however, a practical capacity of only 20,000 direct labor hours
and 167,000 machine hours can be attained. The company has chosen to use the practical capacity as
their denominator activity rate for normalizing overhead./n2. WHY does overhead need to be allocated?
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