Category Archives for Overhead Allocation

Activity-Based Costing

In previous posts, we discussed plantwide overhead rates and departmental overhead rates to allocate overhead costs to cost objects. Another method for applying overhead is activity-based costing (ABC). Activity-based

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Calculating and Applying Department Overhead Rates

Sometimes a single predetermined overhead rate causes costs to be misallocated. Imagine you are renting an apartment with three friends. The rent is $600 per month, cable is $150 per month, and groceries

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Allocating overhead variances to work-in-progress, finished goods, and cost of goods sold

When overhead is overapplied or underapplied, there are two different ways to allocated the variance. In the previous post, we allocated all of the variance to cost of goods sold. However, that is not

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Applied Overhead Versus Actual Overhead

In the previous post, we discussed using the predetermined overhead rate to apply overhead to jobs. This applied overhead is an approximation. What about actual spending for overhead costs? Let’s

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Job Costing and Overhead Allocation

We have previously discussed cost objects and assigning costs to cost objects. One object that is used frequently by job costing. Job costing is a cost allocation method used by companies that make custom

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