3-4 A predetermined overhead rate is used to
activity often fluctuates. The result would be high
apply overhead to jobs. It is computed before a
overhead rates in periods with low activity and
period begins by dividing the period’s estimated
low overhead rates in periods with high activity.
total manufacturing overhead by the period’s es-
For these reasons, most companies use prede-
timated total amount in the allocation base.
Thereafter, overhead is applied to jobs by multi-
termined overhead rates to apply overhead cost
to jobs.
plying the predetermined overhead rate by the
actual amount of the allocation base that is in-
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