Overhead Is Normally Applied to Production Using a Predetermined Overhead

question 140

Essay

Overhead is normally applied to production using a predetermined overhead rate based on some underlying cost driver.The amount of overhead allocated to jobs will normally not be the same as the actual amount of overhead cost incurred.The difference is called the overhead variance.Required:
Name two possible treatments for the overhead variance at the end of the accounting period.What are the pros and cons of each treatment? When should each be used?

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Definitions:

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