Q14RQ. - Horngren'S Financial And Managerial Accounting

Question

Question: How is manufacturing overhead allocated to jobs?

Step-by-Step Solution

Answer

Answer:

Manufacturing overhead is allocated to jobs based on a predetermined overhead allocation rate. The rate should be based on the allocation base i.e. labor hour, machine hour etc.

Step 1: Manufacturing overheads

Manufacturing overhead means the total expanse incurred by an organization while manufacturing the product. It includes only the indirect cost incurred like insurance, factory supplies, indirect labor, indirect material, etc.

Step 2: Allocation of the manufacturing overheads

The manufacturing overhead is allocated to the product on the bases of the overhead allocation rate which is determined by the company before the beginning of the reporting period. The allocation rate is based on the total machine hours or labor hours.