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remy2012 remy2012
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Why must manufacturing overhead be allocated? What is the predetermined overhead rate and how is it calculated?
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Managerial Accounting


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cherylelcherylel
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Because of the lack of traceability, manufacturing overhead must be divided among the different jobs or products a company produces during the year. This is called overhead application. Overhead is allocated because (1) the actual overhead may not be known at the time a job is being worked on, (2) some overhead costs are seasonal, and (3) overhead includes some fixed costs which are not related to the number of units produced. The predetermined overhead rate is a rate used to assign overhead costs to products and jobs. The rate is calculated by dividing estimated manufacturing overhead by the budgeted activity level of application base.

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remy2012 Author
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