Volume-based allocation

A volume-based allocation is an allocation of factory overhead costs based on a unit of activity, rather than a cost. Examples of such allocation bases are:

  • Amount of square footage used

  • Number of labor hours used

  • Number of machine hours used

  • Number of units produced

An improved level of allocation accuracy can be achieved when several overhead cost pools are created, with the costs in each one being assigned using the most relevant basis of allocation.

Related Courses

Accounting for Inventory 
Activity-Based Costing
Cost Accounting Fundamentals