In a process costing system, factory overhead costs are allocated to production departments by using a predetermined overhead allocation rate.

Question

Quizplus · Accepted Answer

In a process costing system, factory overhead costs are allocated to production departments using a predetermined overhead allocation rate. This rate is determined by dividing the estimated overhead costs for the period by the estimated activity level, such as direct labor hours or machine hours. This rate is then applied to the products produced in each department based on the actual activity level achieved. This method ensures that factory overhead costs are allocated to products based on the resources they consume and provides a more accurate reflection of the true cost of production.

In a Process Costing System, Factory Overhead Costs Are Allocated