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In: Accounting
What does it mean to assign overhead costs? There are several options for assigning overhead costs,...
What does it mean to assign overhead costs? There are several options for assigning overhead costs, what are the common allocation bases? What others could be used? Which is the best?
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Expert Solution
Overhead costs are stated as those product costs which are not capable of being directly traced to any specific cost unit.As these are product costs these need to be charged on some basis to cost units.The process under which the overhead cost is charged to cost units is called as assigning of overhead costs.
Overhead costs need to be assigned simultaneously with production as cost ascertainment cannot wait till period's end to arrive at actual product costs and overhead costs.
Thus,overhead costs are assigned using predetermined basis.
As the overhead costs are assigned on predetermined basis by using a predetermined overhead rate.The predetermined overhead rate is calculated as:
Pre-determined overhead rate=Estimated overheads/Estimated base units
The commonly used allocation bases are:
- Direct labor hours
- Direct labor cost
- Machine hours
- Direct material cost
Other bases that can be included are:
- Production units
- Direct material units
The best base to be chosen depends on a given situation.The base chosen should allow for fair charging of cost to cost units.The allocation base is stated to be the best when the changes in allocation base corresponds roughly to the actual cost.
ABC is recommended for assigning the overhead costs. Under it the total overhead costs is divided into cost pools and each of the cost pool makes use of a base that is appropriate to it.Under ABC multiple rates are there so it would help in better allocation of costs.
ekkarill92 answered 2 years agoRelated Solutions
What does it mean to assign overhead costs? There are several options for assigning overhead costs,...
What does it mean to assign overhead costs?
There are several options for assigning overhead costs, what are
the common allocation bases?
What others could be used?
Which is the best?
2. Assigning Overhead to individual jobs – a. Predetermined Overhead rate is used to assign overhead...
2. Assigning Overhead to individual jobs – a. Predetermined
Overhead rate is used to assign overhead costs to individual jobs
in a manner which approximates their relative usage of overhead
items based on estimated data that is established before the period
begins. b. But by definition, overhead cannot be directly traced to
individual jobs. Predetermined Overhead Rate = Estimated Total
Factory Overhead Costs Estimated Activity Base Predetermined
Overhead Rate Example: • Assume total manufacturing overhead is
estimated to be $...
Wedd Corporation uses activity-based costing to assign overhead costs to products. Overhead costs have already been...
Wedd Corporation uses activity-based costing to assign overhead
costs to products. Overhead costs have already been allocated to
the company's three activity cost pools as follows: Processing,
$46,700; Supervising, $33,600; and Other, $24,200. Processing costs
are assigned to products using machine-hours (MHs) and Supervising
costs are assigned to products using the number of batches. The
costs in the Other activity cost pool are not assigned to products.
Activity data appear below:
MHs (Processing)
Batches (Supervising)
Product O6
18,400
1,250
Product...
Umanzor Corporation uses activity-based costing to assign overhead costs to products. Overhead costs have already been...
Umanzor Corporation uses activity-based costing to assign
overhead costs to products. Overhead costs have already been
allocated to the company's three activity cost pools as follows:
Processing, $50,500; Supervising, $28,600; and Other, $24,700.
Processing costs are assigned to products using machine-hours (MHs)
and Supervising costs are assigned to products using the number of
batches. The costs in the Other activity cost pool are not assigned
to products. Activity data appear below:
MHs
(Processing)
Batches
(supervising)
Product S5
10,900
1,420
Product...
3. Explain how companies assign manufacturing overhead costs to individual jobs.
3. Explain how companies assign manufacturing overhead costs to
individual jobs.
Assign overhead using traditional costing and ABC. (LO 1, 2), AN EcoFabrics has budgeted overhead costs...
Assign overhead using traditional costing and ABC. (LO 1, 2), AN
EcoFabrics has budgeted overhead costs of $945,000. It has assigned
overhead on a plantwide basis to its two products (wool and cotton)
using direct labor hours which are estimated to be 450,000 for the
current year. The company has decided to experiment with
activity-based costing and has created two activity cost pools and
related activity cost drivers. These two cost pools are cutting
(cost driver is machine hours) and...
Assigning manufacturing overhead cost to activity pools is referred to as first-stage allocation because costs are...
Assigning manufacturing overhead cost to activity pools is
referred to as first-stage allocation because costs are assigned
first to the activity pools before being assigned to
a.
cost objects.
b.
activity objects.
c.
activity drivers.
d.
cost drivers.
Omer Limited produces and sells electronic sound equipment. The
company has production capacity of 20,000 units and currently
production schedule is for 18,000 units. Each unit has a selling
price of $25, variable product cost of $15, and variable selling
cost of...
Hakara Company has been using direct labor costs as the basis for assigning overhead to its...
Hakara Company has been using direct labor costs as the basis
for assigning overhead to its many products. Under this allocation
system product A has been assigned overhead of $24.08 per unit
while product B has been assigned $11.37 per unit. Management feels
that an ABC system will provide a more accurate allocation of the
overhead costs and has collected the following cost pool and cost
driver information:
Cost Pools
Activity Costs
Cost
Driver
Driver
Consumption
Machine setup
$ 396,000...
Hakara Company has been using direct labor costs as the basis for assigning overhead to its...
Hakara Company has been using direct labor costs as the basis
for assigning overhead to its many products. Under this allocation
system product A has been assigned overhead of $31.58 per unit
while product B has been assigned $8.69 per unit. Management feels
that an ABC system will provide a more accurate allocation of the
overhead costs and has collected the following cost pool and cost
driver information:
Cost Pools
Activity Costs
Cost Driver
Driver Consumption
Machine setup
$
198,000...
Hakara Company has been using direct labor costs as the basis for assigning overhead to its...
Hakara Company has been using direct labor costs as the basis
for assigning overhead to its many products. Under this allocation
system product A has been assigned overhead of $24.82 per unit
while product B has been assigned $13.58 per unit. Management feels
that an ABC system will provide a more accurate allocation of the
overhead costs and has collected the following cost pool and cost
driver information:
Cost Pools
Activity Costs
Cost Driver
Driver Consumption
Machine setup
158,000
Setup...
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