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?

Expert Solution

The cost for producing the finished goods require various indirect costs apart from direct materials and direct labor. The process of allocating such indirect costs is called overhead allocation. It is the apportionment of indirect costs to produced goods. The company incurs manufacturing overhead other than direct costs. Hence, these need to be allocated using the inventory that are classified as work in process or finished goods.

The most common allocation bases are direct labor hours, direct labor costs, and machine hours

The other allocation bases that can be used are number of machine setups, number of batches, plantwide overhead rate, square footage, electricity consumption, etc

It differs in terms of requirement of the company. In case of service based companies, direct labor hour allocation base is the best while in case of manufacturing companies, direct machine hours is the best.

ekkarill92 answered 1 year ago

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.

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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What does it mean to assign overhead costs? There are several options for assigning overhead costs,...

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What does it mean to assign overhead costs? There are several options for assigning overhead costs,...

2. Assigning Overhead to individual jobs – a. Predetermined Overhead rate is used to assign overhead...

Wedd 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...

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...

Assigning manufacturing overhead cost to activity pools is referred to as first-stage allocation because costs are...

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...

Hakara Company has been using direct labor costs as the basis for assigning overhead to its...