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The Essentials of Finance and Accounting for Nonfinancial Managers, 3rd Edition by Edward Fields

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CHAPTER EIGHT

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Overhead Allocations

Corporations are required by generally accepted accounting principles to allocate (mathematically distribute or apportion) their overhead expenses to individual profit centers when they prepare their information for the Internal Revenue Service (absorption accounting in LIFO/FIFO calculations), the Securities and Exchange Commission, and certain industry-specific regulatory authorities. There are numerous criteria that may be used for this calculation, including revenue, direct cost, units produced, direct labor dollars or hours, and square footage consumed.

It is often presumed, incorrectly, that the methodology ...

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