Overhead costs are rarely directly linked to the production of a specific product or group of products. Generally, overhead costs are only indirectly linked to production, and so they must be allocated. Understanding the relationship between overhead costs and production activities is challenging for most businesses. Consider the following:
a. Architectural design firm: designer hours, __________
b. Caterer and party consultancy firm: number of party guests, __________
c. Furniture manufacturer: direct labor hours, __________
d. Printer and copy shop: size of print or copy job, __________
e. Textbook binder: machine hours, _________
f. Automobile repair shop: technician labor hours, __________
g. Winemaker: pounds of grapes used, __________

Identify one additional potential cost driver that each of the organizations in “a” through “g” could use to allocate overhead to its products or services.

  • CreatedMarch 11, 2015
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