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    Allocating overhead costs

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    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?

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    Solution Preview

    We first calculate the overhead rate = Total overhead/Total machine hours
    Overhead rate ...

    Solution Summary

    The solution explains how to allocate overhead costs.