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If a company fully allocates all of its overhead costs to jobs, does this guarantee that...

If a company fully allocates all of its overhead costs to jobs, does this guarantee that a profit will be earned for the period?

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Answer #1

No, if a company fully allocates all of its overhead costs to jobs then it will not necessarily guarantee that a profit will be earned for the period. This is because in many cases and instances the units that have been produced and manufactured may not be sold. In cases in which they are sold it is quite possible that they may not be sold at that price points that is sufficient to cover its costs.

Thus saying that assigning costs to jobs/products will ensure that the costs will be recovered will be wrong. Cost allocation will not ensure and guarantee cost recovery. Cost recovery can be guaranteed only by selling to the customers.

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