Applied Overhead is the amount of indirect costs that are allocated to a specific job, product, or department based on a predetermined rate or allocation method. This allocation is used to assign a portion of the total overhead costs to the specific cost object in order to determine the total cost of production or operation. Applied Overhead is typically calculated using a predetermined overhead rate, which is based on estimated overhead costs and a measure of activity, such as direct labor hours or machine hours.
Applied overhead refers to the indirect costs incurred by a business that are allocated to its products or services. These costs include expenses such as rent, utilities, and depreciation of equipment. The allocation of overhead is typically based on a predetermined rate, such as a percentage of direct labor costs or machine hours. The purpose of applying overhead is to accurately determine the total cost of producing a product or providing a service, which is necessary for pricing decisions and financial reporting. However, the method of allocating overhead can vary and may be subject to scrutiny by regulatory bodies or auditors.
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This glossary post was last updated: 29th March 2024.
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