If the allocation base in the predetermined overhead rate does not drive overhead costs, it will nevertheless provide reasonably accurate unit product costs because of the averaging process.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is used to allocate overhead costs based on an allocation base that should reflect the use of overhead resources. If the allocation base does not drive overhead costs, it will not accurately reflect the consumption of overhead resources by different products, leading to inaccurate product costing despite the averaging process.

If the Allocation Base in the Predetermined Overhead Rate Does