Q2RQ - Horngren'S Financial And Managerial Accounting

Question

How is the predetermined overhead allocation rate used to allocate overhead?

Step-by-Step Solution

Answer

Estimated overhead costs are distributed among goods and services using the specified overhead rate.

Step 1: Meaning of Overhead Cost

Indirect material, indirect labor, and other operational expenditures are referred to as "overhead costs" because they are a part of the company's regular day-to-day operations but cannot be completely attributed to any one item, service, or cost center.

Step 2: Allocation of overhead by predetermined overhead allocation rate

By multiplying the rate by the total amount of the allocation base utilized by the product or service, the predefined overhead rate is utilized to relegate expected overhead costs to merchandise and services.