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Explain how companies assign manufacturing overhead costs to individual jobs.

Explain how companies assign manufacturing overhead costs to individual jobs.

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The goal is to allocate manufacturing overhead costs to jobs based on some common activity, such as direct labor hours, machine hours, or direct labor costs. The activity used to allocate manufacturing overhead costs to jobs is called an allocation base. Once the allocation base is selected, a predetermined overhead rate can be established. The predetermined overhead rate is calculated prior to the year in which it is used in allocating manufacturing overhead costs to jobs.

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