Abstract:
The objectives of this research are to know whether the company allocates the factory overhead properly, identify any weakness in the process of factory overhead cost allocating, and propose recomendation to overcome the weaknesses.
This research is conducted in PT Graha Cemerlang Paper Utama. It is qualitative research with types of evidence (audit) approach. Collecting and assessing data are done through literature review and field research. In order to get primary data, the researcher collects and evaluates data through types of evidence which are observation, inquiry the client and documentation approaches.
The company uses machine hours as the base to allocate factory overhead. The company thinks that the use of machine hours as the base to allocate all of factory overhead is proper and has no problem with the accuracy of allocation to each product. Meanwhile, not all of the factory overhead can be allocated by machine hours. The use of machine hours as the base to allocate factory overhead result in napkin product in is underpplied and carrier product is underapplied.
The company has to able to identify the cost driver used to allocate each factory overhead. Not all of the factory overhead can be allocated based on machine hours. The cost driver that has correlation with land rent expense, building depreciation, depreciation used for production and logistic labor expense is unit produced. Therefore the company has to change the cost driver into unit produced for the factory overhead that stated previously. After determine the proper cost driver for each factory overhead, then the company have to recalculate the production cost to get the accurate and proper production cost for each product.
