In a manufacturing company, overhead allocations are made for three reasons: (1) to determine the full cost of a product; (2) to encourage efficient resource usage; and (3) to compare alternative courses of action for management purposes. 1. Why must overhead be considered a product cost under generally accepted accounting principles?
In a manufacturing company, overhead allocations are made for three reasons:
(1) to determine the full cost of a product;
(2) to encourage efficient resource usage; and
(3) to compare alternative courses of action for management purposes.
1. Why must overhead be considered a product cost under generally accepted accounting principles?
2. Ayam Company makes plastic dog carriers. The manufacturing process is highly automated and the machine time needed to make any size crate is approximately the same. Ayam’s management decides to begin producing plastic lawn furniture and, to do so, two additional pieces of automated equipment are acquired. Annual
Should the new overhead cost be allocated over all products manufactured by Ayam? Explain.
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