An allocation base, such as direct labor-hours, direct labor dollars, or machine-hours, is used to assign manufacturing overhead to products. Allocation bases are used because:

a. It is impossible or difficult to trace these costs to particular jobs (i. e., manufacturing overhead is an indirect cost).

b. Manufacturing overhead consists of many different items ranging from the grease used in machines to the production manager's salary.

c. Many types of manufacturing overhead costs are fixed even though output may fluctuate during the year

Question

Denzel Ramirez

Business

20 January, 03:17

An allocation base, such as direct labor-hours, direct labor dollars, or machine-hours, is used to assign manufacturing overhead to products. Allocation bases are used because:

a. It is impossible or difficult to trace these costs to particular jobs (i. e., manufacturing overhead is an indirect cost).

b. Manufacturing overhead consists of many different items ranging from the grease used in machines to the production manager's salary.

c. Many types of manufacturing overhead costs are fixed even though output may fluctuate during the year

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Answers (1)

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Spencer Hurley · Answer 1

a. It is impossible or difficult to trace these costs to particular jobs (i. e., manufacturing overhead is an indirect cost)

Explanation:

The difficulties exist because there is no clear method of measurement to count these particular expenses. Allocation base is used as some sort of prediction of for the cost.

Let's take a look at machine-hours as an example.

The cost of machine-hours supposed to be based on the deterioration of the machine after being used to produce the goods. But you can't really know how much a machine deteriorate after you use it. In order to count this, companys will allocate numbers of goods its produces and allocate it to the calculation of the deterioration. (for example, the company can assume that the machine will siffer $1,000 worth of damage everytime it produced 10,000 goods)