Overhead allocation formulas

In the job costing process, overhead must be applied (added to) the direct costs of the specific job by a method determined to be appropriate for the company. The major reason for doing all the work of defining and allocating overhead is to assure company management that all work bid and completed is anchored on accurate product cost. 1.3 It is of equal importance to a company that all overhead costs be covered (absorbed) in its pricing/fee structure as it is that every overhead item be charged to the corresponding department or service accurately. 1.4 The purpose of this procedure is to present, explain and detail several acceptable forms for identifying and allocating overhead expenses in a company to achieve accurate product cost and assure its coverage in the estimate or proposal process.