The allocation of manufacturing overhead (indirect manufacturing costs) to products on the basis of a volume metric such as direct labor hours or production machine hours. As manufacturing becomes more sophisticated the manufacturing overhead costs usually increase while the direct labor hours or production machine hours decrease. Hence, the direct labor or machine hours are unlikely to be the root cause of the manufacturing overhead.
Activity based costing (ABC) has developed as a technique to overcome the shortcomings of traditional costing.
Featured Review
"I became a bookkeeper at my work. Prior to this, I had little experience so I knew I had to get some sort of education. I came across AccountingCoach and signed up. The material is easy to learn, and the format is great. I really like the repetition, because that's exactly what I need. I like the testing at the end which helps to ensure that you grasp what you've studied. If it wasn't for what I learned at AccountingCoach, I would have been more lost and confused. I became a PRO member because I wanted all the benefits I could get, and it was a great choice. It really helped me, and I couldn't have gone into this job without the knowledge I gained from AccountingCoach. Thank you!" - Brenda
Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials
Read all 2,645 reviewsWe now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping: