Question

Why must a company estimate the amount of factory overhead assigned to individual jobs or job lots?

Answer 1

Ans :

A  company must estimate the amount of factory overhead assigned to individual jobs or job lots because of following reasons.

1) Generally timing of payment for factory OH is often different from the benefit derived to production. So to record the expense in particular time period , OH is estimated and assigned to job or job lost.

2) Direct Allocation of overhead would be time consuming process, so estimation is used to do the same.

3) This is also used to apply the cost evenly to the cost of item produced.

4) Lack of Accuracy for direct allocation is also the reason that company should estimate OH and assigned to job or job lots.