Chapter 19, Problem 19RQ

To determine

Manufacturing overhead allocation:

Manufacturing overhead cost is the pool of all indirect costs incurred for the production. These are the costs which are not directly traceable to the product. Manufacturing costs include indirect material indirect labor and overheads. These costs are allocated to the products using the predetermined overhead allocation rate. The formula of predetermined overhead allocation rate is as follows:

$\text{Predetermined overhead allocation rate = }\frac{\text{Estimated Manufacturing overhead Cost}}{\text{Allocation base}}$

Under/ over allocation of overhead:

The overheads are allocated using an overhead allocation rate which is calculated on the basis of estimated overhead costs and allocation bases. Hence there may be a difference in allocated overhead and actual overhead incurred. This difference gives birth to the under/ over allocation of overhead.

To indicate:

The difference between underallocated and overallocated overhead and the reason for each situation