The advantage of using a predetermined overhead application rate is that:
A)Units produced are charged with a "normal" amount of manufacturing overhead regardless of whether they are produced in a high-volume month or a low-volume month.
B)Overhead costs will be limited to the predetermined amount.
C)Entries need not be made to record actual overhead costs incurred.
D)The unit cost of production will be lower than it would be if actual overhead costs were assigned to units produced.

Question

Quizplus · Accepted Answer

Using a predetermined overhead application rate ensures that units produced are charged with a "normal" amount of manufacturing overhead regardless of whether they are produced in a high-volume month or a low-volume month. This provides consistency in the cost of producing units and allows for easier budgeting and cost estimation. Option B is not entirely correct as actual overhead costs may exceed the predetermined amount. Option C is incorrect as entries must still be made to record actual overhead costs incurred, but they will be reconciled against the predetermined rate. Option D is also incorrect as the unit cost of production will not necessarily be lower than if actual overhead costs were assigned to units produced.

The Advantage of Using a Predetermined Overhead Application Rate Is