Allocation of overhead, business and finance homework help

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Business Finance

Description

My question is the following:

Comment on the allocation of general overhead ($269,559 in Exhibit 3) to the four sections (that is, Customer Pays, Internal, Warranty Work, Extended Work) of the service department. What measure should be used to evaluate profitability of the four sections?

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Explanation & Answer

General Overhead and profitability



All businesses have regular expenses that are not directly related to producing goods or services. These indirect expenses are termed "overhead" costs. Most businesses calculate overhead cost on a monthly basis. Typically, overhead cost is expressed as a Customer Pays, Internal, Warranty Work, Extended Work. Keeping the proportion of overhead cost low gives a business a competitive advantage, either by increasing the profit margin or by allowi...


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