How can the use of a predetermined overhead rate prevent timing problems in determining the costs of products?
What will be an ideal response?
Answers will vary
Some overhead costs (such as property taxes) are paid at one time during the year. Other overhead costs may occur at an even rate during the year, even though production does not occur at an even rate. In either case, if the costs were assigned to products when the costs occur, products made at different times during the year would have substantially different costs. Use of a predetermined overhead rate applies the expected or estimated amount of overhead to products throughout the year, preventing much of the fluctuation in reported costs.
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Signed statements:
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