COST ACCOUNTING
MANUFACTURING OVERHEAD
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It is the rate used to apply manufacturing overhead to work-in-process inventory
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It is calculated before the production begins.
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It is calculated based on either direct labour cost, direct material cost, direct labour hours, machine hours or production units.
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It always fluctuates from time to time.
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Detailed explanation-1: -A predetermined overhead rate is calculated at the start of the accounting period by dividing the estimated manufacturing overhead by the estimated activity base. The predetermined overhead rate is then applied to production to facilitate determining a standard cost for a product.
Detailed explanation-2: -Some overhead costs change with the amount of output produced, while others don’t. This creates three types of overhead cost based on behavior: Fixed overhead costs: These costs don’t fluctuate based on the manufacturing output. Variable overhead costs: These costs are dependent on the output.
Detailed explanation-3: -Which of the following is only true in a multiple predetermined overhead rate system? Each production department may have its own predetermined overhead rate.
Detailed explanation-4: -A predetermined overhead rate is an allocation rate that is used to apply the estimated cost of manufacturing overhead to cost objects for a specific reporting period.