The Advantage of Using a Predetermined Overhead Application Rate Is

question 17

Multiple Choice

The advantage of using a predetermined overhead application rate is that:

• A)Units produced are charged with a "normal" amount of manufacturing overhead regardless of whether they are produced in a high-volume month or a low-volume month.
• B)Overhead costs will be limited to the predetermined amount.
• C)Entries need not be made to record actual overhead costs incurred.
• D)The unit cost of production will be lower than it would be if actual overhead costs were assigned to units produced.

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Definitions:

Intangible Asset

An asset that lacks physical substance but is still identifiable and provides economic value to the business, such as patents or trademarks.

Amortization

The process of spreading the cost of intangible assets over their useful life, or gradually paying off debt through a series of fixed payments.

Research Costs

Expenses associated with activities undertaken to discover new knowledge, develop new products or processes, without assurance of commercial success.

Expensed

Costs that are charged against income in the period they are incurred, rather than being capitalized and amortized over time.