Question

Overhead allocation is the process of spreading overhead (indirect costs) back to certain jobs, products or cost centers.

Answer 1

Answer:

Overhead allocation is the process of spreading overhead (indirect costs) back to certain jobs, products or cost centers.

Find and describe an example of a company that uses at least three product lines.

Not all companies manufacture products that require the same amount of overhead, and in those cases, the calculations aren’t quite as simple.  For example, a coffee company plans to make two products, Product J and Product K. It plans to pay $1,600 in direct labor to its workers. Product J requires 120 hours of that direct labor, while Product K requires 40 hours. The company also expects to pay $200 for rent, $150 for maintenance, and $50 for coffee.

How would you define the overhead accounts,

Overhead accounts allocate overhead costs to products by multiplying the predetermined overhead rate for each activity, by the level of cost driver activity used by the product.

What method would you choose to use to allocate these accounts back to the job, product, or cost center?

1. Add up total overhead.

2. Compute the overhead allocation rate by dividing total overhead by the number of direct labor hours.

3. Apply overhead by multiplying the overhead allocation rate by the number of direct labor hours needed to make each product.

Explanation:

The indirect costs or fixed expenses of operating a business, in other words, the costs not directly related to the manufacture of a product or delivery of a service, range from rent to administrative costs to marketing costs. Overhead refers to all non-labor expenses required to operate your business.

Manufacturing overhead includes every cost that a factory makes, besides their direct costs. Overhead allocation costs is the apportionment of indirect costs to produced goods, inventory, work-in-process and finished goods.