Why Should Predetermined Overhead Rates Be Used

question 116

Essay

Why should predetermined overhead rates be used?

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Definitions:

Direct Method

A way to prepare the cash flow statement where actual cash flows from operating activities are reported instead of adjustments from net income.

Operating Expenses

Expenses incurred through the normal operations of a business, including salaries, rent, utilities, and marketing expenses, but excluding cost of goods sold and other non-operating expenses.

Merchandise Sold

Goods that have been sold and delivered to customers, generating revenue for the selling company.

Free Cash Flow

It refers to the amount of cash a company generates after accounting for capital expenditures, such as buildings or equipment. This cash can be used for expansion, dividends, or other purposes.