Question

Why is assigning manufacturing overhead to a product complicated?

Answer 1

Assigning manufacturing overhead to a product is complicated due to indirect costs, multiple cost drivers, and various overhead allocation methods.

Step-by-step explanation:

Assigning manufacturing overhead to a product can be complicated due to various factors:

1. Indirect costs: Manufacturing overhead includes indirect costs such as factory rent, utilities, supervisors' salaries, and maintenance expenses. These costs are not directly traceable to a specific product and need to be allocated based on allocation methods.
2. Multiple cost drivers: Different products may have different cost drivers, such as machine hours, direct labor hours, or material usage. Determining a suitable cost driver for each product requires careful analysis.
3. Overhead allocation methods: There are several methods, such as activity-based costing, traditional costing, and direct costing. Each method has its own advantages and disadvantages, and choosing the most appropriate method can be challenging.

Overall, assigning manufacturing overhead to a product involves complex calculations and decisions to ensure accurate cost allocation.