Why Do Many Managers Desire to Use a Predetermined Overhead

question 69

Multiple Choice

Why do many managers desire to use a predetermined overhead rate instead of an actual overhead rate?

• A) Because it is impossible to ever know actual overhead costs.
• B) Because predetermined overhead rates are more accurate than actual overhead rates.
• C) Because actual overhead amounts are often not known in a timely enough manner to make decisions.
• D) Because the use of predetermined overhead rates will always result in lower product prices.

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Definitions:

Efficient Markets

These are markets where prices fully reflect all available information, making it impossible to consistently achieve higher returns than the market average.

Opportunity Cost

Overlooking possible gains from other alternatives by dedicating to one path.

Information

A collection of data that is processed, organized, and interpreted to provide value and understanding to the recipient.

Marginal Cost

The extra charge resulting from the production of one more unit of a product or service.