Discuss the reason for (1) allocating overhead to the cost of production jobs, and (2) applying overhead using a predetermined rate instead of an actual overhead rate.
What will be an ideal response?
(1) Overhead costs usually bear no direct relationship to individual jobs or products, but must be incurred for the production process to take place. Therefore, it is crucial that overhead be allocated to products in order to have a complete picture of manufacturing costs.
(2) Actual overhead is not known until after the end of the accounting period. The cost of jobs would not be available in a timely fashion if actual overhead costs were used.
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Indicate whether the statement is true or false
What are the phases involved in the development of a new product?
What will be an ideal response?