Asked by andisha nesbitt on Apr 25, 2024
Verified
If the allocation base in the predetermined overhead rate does not drive overhead costs, it will nevertheless provide reasonably accurate unit product costs because of the averaging process.
Allocation Base
A measure or statistic used to distribute indirect costs to different cost objects, such as departments or products.
Overhead Costs
Expenses related to the day-to-day running of a business that cannot be directly attributed to creating a product or service, such as rent, utilities, and insurance.
Averaging Process
A method used in manufacturing or cost calculation where inputs or expenses over a period are averaged to determine a standard cost or value.
- Distinguishing between actual and applied overhead costs and the significance of the predetermined overhead rate formula.
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Learning Objectives
- Distinguishing between actual and applied overhead costs and the significance of the predetermined overhead rate formula.
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