Why Must Manufacturing Overhead Be Allocated,what Is the Predetermined Overhead

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The Answer is Accumulating direct materials and direct labor costs for a particular job is fairly easy.This is not true for manufacturing overhead.Because of the lack of traceability,manufacturing overhead must be divided among the different jobs or products a company makes during the year.Dividing or allocating overhead to various jobs is called overhead application.Overhead is allocated because 1 the actual overhead may not be known at the time a job is being worked on,2 some overhead costs are seasonal,and 3 overhead includes some fixed costs which are not related to the number of units produced.The predetermined overhead rate is based on an application base and the budgeted manufacturing overhead costs.The rate is calculated by dividing estimated manufacturing overhead by budgeted activity level of application base.

Why Must Manufacturing Overhead Be Allocated,what Is the Predetermined Overhead

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