Overhead allocation

Question 1

What are direct costs?

Answer 1

Costs that can be directly traced to a unit of production

Question 2

What are indirect costs?

Answer 2

Costs which can not be directly traced to a unit of production or cost object are instead assigned to a cost object through cost allocation

Question 3

What are prime costs made up of?

Answer 3

Direct labor + Direct materials

Question 4

What are conversion costs made up of?

Answer 4

Direct labour + Manufacturing overhead

Question 5

Examples of non manufacturing costs?

Answer 5

Selling and Admin costs

Question 6

What is manufacturing overhead?

Answer 6

Indirect costs that a firm incurs during the production process which can’t be directly traced to a unit of production

Question 7

What are the negatives of manufacturing overhead?

Answer 7

Can’t be traced easily
Hard to assign the correct share of the overhead
Cost allocation is not an easy process.

Question 8

What is the two-stage allocation process?

Answer 8

Where separate departmental overheads used for each department