BUS-A 202 Chapter Notes - Chapter 4: Direct Labor Cost, Cost Driver, The Need
Document Summary
Product costs include manufacturing overhead as well as direct materials and labor. Allocation: select an allocation base that is common to all of the company"s products and services. Allocation base- measure such as direct labor hours or machine hours that is used to assign overhead costs to products and services. The predetermined overhead rate is computed before the period begins. Overhead application: the process of assigning overhead cost to jobs. Overhead applied to a job = predetermined overhead rate x amount of the allocation base incurred by the job: manufacturing overhead a closer look. Normal cost system- applies overhead to jobs by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the jobs: the need for a predetermined rate. If an actual rate is computed monthly, seasonal factors in overhead costs or in the allocation base can produce fluctuations in the overhead rate: choice of an allocation base for overhead cost.
