For example, let's assume that we have two departments in our facility which operate a variety of machines to mix a liquid chemical. Let's also assume that Dept. A's machines ran a total of 10000 hours and Dept. B's machines ran a total of 5000 hours for the month. All things being equal, you might choose machine hours as the cost driver.
If our monthly overhead costs were $150,000, how much of that should be allocated to Dept. A and Dept. B?© BrainMass Inc. brainmass.com June 3, 2020, 11:41 pm ad1c9bdddf
We first calculate the overhead rate = Total overhead/Total machine hours
Overhead rate ...
The solution explains how to allocate overhead costs.