WORKING PAPERS F/ FUND ACCOUNTING
WORKING PAPERS F/ FUND ACCOUNTING
22nd Edition
ISBN: 9781308868394
Author: Wild
Publisher: MCG CUSTOM
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Chapter C, Problem 1DQ
To determine

Concept Introduction:

Direct and Indirect Costs:

Manufacturing costs can be divided into two types; Direct costs and Indirect costs. Direct costs are easily traceable with the product like direct material and direct labor and indirect costs are not traceable easily like indirect material indirect labor and overheads.

Manufacturing overhead costs:

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.

To discuss:

The reason behind allocation of overhead costs instead of tracing these costs like direct material and direct labor costs.

Expert Solution & Answer
Check Mark

Answer to Problem 1DQ

Solution:

The reason behind allocation of overhead costs instead of tracing these costs like direct material and direct labor costs is that the overhead costs cannot be directly traced to the product.

Explanation of Solution

Manufacturing costs can be divided into two types; Direct costs and Indirect costs. Direct costs are easily traceable with the product like direct material and direct labor and indirect costs are not traceable easily like indirect material indirect labor and overheads.

Hence, the reason behind allocation of overhead costs instead of tracing these costs like direct material and direct labor costs is that the overhead costs cannot be directly traced to the product.

Conclusion

Hence, the overhead costs cannot be directly traced to the product.

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