Business Definition for: applied cost
applied cost
one that has been assigned to a product, department, or activity. An applied cost does not have to be based on actual costs incurred. Factory overhead applied to a product is an example of an applied cost. To apply overhead, a predetermined overhead rate is developed; it is based on budgeted overhead and budgeted volume of activity.
See also
predetermined overhead rate
Related Terms:
rate, based on budgeted factory overhead cost and budgeted activity, that is established before a period begins.
| Predetermined Overhead Rate = |
Budgeted Yearly Total Factory Overhead Costs
Budgeted Yearly Activity (direct labor-hours, etc.) |
Budgeted activity units used in the denominator of the formula, more often called the denominator level, are measured in direct labor-hours, machine-hours, direct labor costs, or production units.
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