In a service firm, overhead is generally assigned to services on an activity measure such as:

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In a service firm, the overhead costs are allocated or assigned to services based on an activity measure that reflects the usage of resources for delivering those services. Since most of the resources in a service firm are related to the time spent on rendering services rather than machines or supplies, the most appropriate activity measure to allocate overhead costs is billable hours. Billable hours refer to the number of hours spent working on projects or tasks that can be charged to clients or customers. Therefore, allocating overhead costs based on billable hours provides a more accurate reflection of the resources consumed by each service and helps in calculating the cost of each service more accurately.

In a Service Firm, Overhead Is Generally Assigned to Services