Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 5

Describe the predetermined overhead rate. What is the role of the predetermined overhead rate in product costing?

Step 1 of 2

Cost accounting system

It is a system designed to report the cost of products and services. Material, labor and overhead costs are allocated to determine unit costs. Cost accounting system comprises of various types of formats, forms, procedures, reports and records. This can be maintained independently and can be part of formal accounting system also.

Cost accounting systems are used by both manufacturing and service firms to find the unit costing of their products or service. There are two types of cost accounting systems like job order costing system used for personalized products or services and process costing system used for large size of identical products. Some companies may use combination of job order costing and process costing system to fit its needs.