Q. 17-24RQ
Question
How is the predetermined overhead allocation rate used by service companies?
Step-by-Step Solution
Verified Answer
The service companies use the predetermined overhead allocation rate for allocating the indirect costs to individual jobs by applying it to the actual working hours.
1Overheads
Overhead is defined as the total of indirect expenses. It is the expenses which are not convinently identified for any particulars revenue unit.
2Use of predetermined overhead allocation rate in service companies
The predetermined allocation rate is used by the service company to know the actual overhead expense incurred by the company. It is applied to the actual unit base to compute the actual overhead expense.
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