QUESTION 2 Why is a predetermined overhead rate calculated and used to apply man
ID: 2413009 • Letter: Q
Question
QUESTION 2 Why is a predetermined overhead rate calculated and used to apply manufacturing overhead to a job, instead of using the actual cost of manufacturing overhead? O Actual overhead costs are difficult to calculate. O Managerial accountants like to develop new and more complicated methods for determining costs Predetermined overhead rates allow the firm to price products at higher amounts O if actual costs are used the manufacturing overhead assigned would not be known until the end of the year and most jobs would have been completed and shipped to the customer QUESTION3 which of the following wouid not be an appropriate allocation baze for calculating the predetermined overhead rate? Direct labor cost in a factory which produces custom made furniture built exclusively by factory personnel Direct labor hours for a factory which is totally automated. Flight hours for airline transportation Number of beds occupied in a hospitalExplanation / Answer
Answer 2-d. If actual costs are used, the manufacturing overhead assigned would not be known until the end of the year and most jobs would have been completed and shipped to the customers. The predetemined overehad cost is calculated by: Predetmined Overhead Rate = Estimated Manufacturing Overhead Cost / Estimated total units in the allocation base If actual overhead cost is used, we have to wait till the year end and then we van billed the customers for getting the payment which is not acceptable. Answer 3 - b. Direct Labor hours for a factory which is totally automated. In this case allocation base may be used is machine hours or power consumption.