Learning Unit 6 - Overhead allocation

Question 1

What are the two basic techniques in in overhead cost allocation?

Answer 1

1. Volume and value based techniques
2. Activity-based overhead allocation techniques

Question 2

What is a volume-based overhead allocation system?

Answer 2

Refers to any method of allocating overhead costs that is based on some measure related to production or service volumes. Also known as “traditional” overhead allocation system.

Question 3

What is the value based overhead allocation system?

Answer 3

Overheads are allocated in proportion to the selling prices of products.