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Assignment On Need Of Overhead Rate To Management

   

Added on  2019-09-30

3 Pages1091 Words440 Views
1Why do companies use predetermined overhead rates rather than actual manufacturing overhead costs to apply overhead to jobs?The company’s uses predetermined overhead rates rather than actual manufacturing overhead costs to apply overhead to jobs due to following reasons;1)Management needs the overhead rate before the year ends and the management applies the predetermined overhead rate to the jobs to know how well they are performing.2)Second reason for using the predetermined overhead rate is to take into consideration all the abnormal factors such as seasonal which are related to a job.2- What is under applied overhead and over applied overhead? What disposition is made of these amounts at the end of the period?The difference between overhead incurred and overhead absorbed for a given period is known asunder applied overhead or over applied overhead. If the overhead absorbed is less than overhead incurred it is known as under absorption of overhead. Whereas if the overhead absorption is more than overhead incurred it is known as overhead incurred. These amounts are treated as period cost adjustments. The costs are adjusted periodically in the statement of inventory with closing inventory.3- What is meant by the term break-even point?Breakeven point may be defined as a point at which company incurs no profit no loss. It may be calculated by the formula:- Breakeven point in units = Fixed cost/ contribution margin per unit Breakeven point in dollars = Fixed cost/ contribution margin ratioIt helps the company to determine the point at which company is operating its business at par. Beyond this point company will incur loss in carrying its operational activity. Thus it is the safety point for the company beyond which the company is at risk.

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