Need explanation in detailed about the options

==>Why Allocate Overhead? What is the most important reason that the accuracy gained by allocating manufacturing overheads to products is important for a company's internal functioning?

GAAP and income tax reporting specify that allocating overhead costs is necessary for external reporting

Allocations are important for determining company profitability

Allocations are important for setting prices

Any other reason?

==> Why Allocate Overhead? Consider a plant that manufactures computer modems and flash drives.

The production managers are compensated based on divisional profits

If the CEO offered to set up a coffee shop on the common production premises free of charge and asked for the production managers' opinion on whether it would improve productivity of employees, what response should she expect?

How Does One Allocate Overhead?

Carefully!

Allocation requires a basis

Think about allocating overheads between flash drives and computer modems

oWhat happens if you split $3,000 overhead between the modems and flash drive groups based on number of employees?

oWhat happens if you split $3,000 overhead between the modems and flash drive groups based on divisional profits?