St. James, Inc., presently uses traditional costing methods, applying $800,000 of overhead to effects Beta and Zeta based on direct labor hours. The overhead cost allocated to Beta by using traditional costing practices would be $240,000.
Overhead allocation is the apportionment of indirect costs to produced interests. It is required under the regulations of various accounting frameworks. In many institutions, the part of overhead to be allocated is substantially greater than the direct cost of goods, so the overhead allocation method can be of some significance.
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