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For an evaluation system to work well,the employees must:
Denominator Level
The activity level chosen to compute the predetermined overhead rate, reflecting expected or actual activity.
Machine-Hours
A measurement of the amount of time machines are run during production, often used as a basis for allocating manufacturing overhead.
Fixed Overhead Budget
A fixed overhead budget outlines the expected costs of fixed overheads, such as salaries and rent, that are not influenced by changes in production volume.
Volume Variance
The difference between the planned volume of output and the actual volume of output, which affects costs.
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