9 ASSIGNING OVERHEAD COSTS TO JOBS DOES NOT A ON THE BASIS OF $8,000...

3-9 Assigning overhead costs to jobs does not

A on the basis of $8,000 of direct labor cost, the

ensure a profit. The units produced may not be

company’s predetermined overhead rate must be

sold and if they are sold, they may not in fact be

75% of direct labor cost. Thus, $3,000 of over-

head should be applied to Job B at year-end:

sold at prices sufficient to cover all costs. It is a

myth that assigning costs to products or jobs en-

$4,000 direct labor cost × 75% = $3,000 applied

sures that those costs will be recovered. Costs are

overhead cost.

recovered only by selling to customers—not by