Why Is It Necessary to Estimate the Annual Overhead Costs

question 43

Multiple Choice

Why is it necessary to estimate the annual overhead costs and annual operating activity when calculating the predetermined overhead rate?

• A)Cost benefit analysis indicates that it is too expensive to gather actual costs.
• B)The predetermined overhead rate is only used for internal reporting, and does not need to equal the higher standards required for external reporting.
• C)In order to obtain timely information, companies cannot wait for actual costs to be determined.
• D)all of the above

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Definitions:

Fill Rate

A performance metric that measures the percentage of customer demand that is met without backorders or stockouts.

Replenishment Cycle

The process or time it takes to replenish inventory in a supply chain, from ordering to receiving goods.

Expected Shortage

The anticipated deficiency in quantity or supply of a product or resource relative to the expected demand for that product or resource.

Safety Inventory

Additional stock kept to mitigate the risk of stockouts and production halts due to fluctuations in demand and supply chain disruptions.