Why is it important that we allocate overhead costs to products? What might we use this...

Why is it important that we allocate overhead costs to products? What might we use this information for? How do you think a company chooses an overhead allocation method? While not mandatory for credit, I highly encourage you to read your classmates thoughts and comment on their reflections. You may be able to help each other! I will be reading your discussions and commenting both on the board itself and on the grading screen.'

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Over heads allocation is the process of allocation of indirect costs to different department or projects. Over heads comprises of indirect labour and expenses. Overhead allocation is so important because these have direct implications on the financial statements of the organization and pricing of products will be done on the basis of cost incurred for producing the particular product. So accurate overhead allocation is important

There are different types of methods for allocating overheads. Eq. Plant wise, department wise, activity based etc

If the products are produced from a single plant plant wise allocation shall be used, if the product has to undergo different department to produce, then department wise allocation of overheads shall be used. If the product production is more complex abc or activity based allocation of costing shall be used...

In each department or process there will be one cost driver on the basis of which total cost shall be apportioned to each product's.. some eg of cost drivers are labour hours, machine hours, rent, square footage etc

ekkarill92 answered 1 year ago

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