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An allocation base is a measure of activity that is expected to change in relation to overhead. For example, a company that makes a product that is labor-intensive would expect to incur more ...
In the direct method, you must reallocate this 10 percent overhead cost away from the IT department on a prorated basis. For example, the chocolate unit would get 25 percent of 90 percent, or 22.5 ...
As you can see, when comparing the two overhead allocation methods, the overhead applied to projects 1 and 3 vary widely. But Project 2 remains the same regardless of the method.
At least seven FERC audit reports in the past five years have taken issue with the methods of overhead allocation used by both electric utilities and natural gas companies.
SolarCity's overhead allocation problem The problem SolarCity has had over the last two years is that overhead costs like warehouse rent, safety services, and fleet expenses that get applied to an ...