Question

what is OH(Overhead) Application and why is it important?

Answer 1

Overhead application is important because overhead directly impacts the business.

It also impacts the companies balance sheet and income statement.

Overhead Application is the assignment of factory overhead costs to units produced in a reporting period.

Overhead Application is conducted in order to capitalize certain overhead costs into inventory.

Accounting system required to allocate the cost to the goods produce and assign to those costs in a reasonable manner.

Allocating overhead helps to make decisions in company especially pricing.

If company base the product pricing only on direct costs, company can cut in its profits.

If company incorporates indirect costs into pricing, the company increase the pricing to cover them effectively without effect the company profits.

It also helps to cut the costs for the company.

It improves the efficiency of their products to reduce the overhead costs.