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Overhead allocation

Q1.
"The more the better!" Was a comment made by the CEO of a major company when asked about allocation of sales, general, and administrative costs to products. Do you agree? Explain.

Q2.
Suppose a company uses machine hours as a cost-allocation base for factory overhead. How does the company compute a budgeted overhead application rate? How does it compute the amounts of factory overhead applied to a particular job? Explain.

Solution Preview

Q1.

The overhead should be allocated to the products manufactured on some rational basis .Overhead can be allocated on the basis of the direct labor hours incurred for producing the product or on the basis of machine hours taken for producing the product or on the basis of direct wages incurred for producing the product. This is traditional method of allocating the overhead. In case of activity based costing, costs are traced ...

Solution Summary

The solution contains the answers for two questions : 1. opinion with respect to under, over and judicial allocation of overhead and 2. computation of overhead allocation rate and allocation of overhead to job

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