ACC640 Week 1 Discussion Forum 2 Applied Overhead Costs

An example of over-applied overhead cost using and utilizing the allocation-rate approach is when there is an over cost of $1000; the allocation-rate approach would be to assign the $1000 to each of the direct labour hours utilized to give a total allocation of $1,500. The remaining $500 would be allocated for general and administrative costs.

An example of over-applied overhead cost using and utilizing the proration approach is when there is an over the cost of $1000; the proration approach would sum up all overhead billings that are applied against each department or company (Lambert III,.2016). The remaining overhead rates assigned against each department or company will be added and subtracted from the actual overhead costs incurred during that year. This result will be divided by the total direct labour hours used to give a proration of $750 that would be assigned to each department or company and $250 that would be assigned to the general and administrative costs.

An example of over-applied overhead cost using and utilizing the write-off approach is when there is an over the cost of $1000, the write-off approach would be to assign all remaining costs against general and administrative costs. In this case, $500 would be assigned for general and administrative costs.

References

Lambert III, S. J., Chen, K. H., & Lambert, J. C. (2016). Overhead cost pools. Internal Auditor, 53(5), 62-66.