1. Since manufacturing overhead is mostly fixed, the cost per unit in-
creases as the level of production decreases. This apparent problem can
be “solved” using predetermined overhead rates, which should be based
on expected activity for the entire year. Many students will use units of
product in computing the predetermined overhead rate, as follows:
Estimated total manufacturing overhead cost
Predetermined = overhead rate Estimated total amount of the allocation base
$960,000
= = $4.80 per unit.
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