Question

The difference between actual factory overhead and absorbed factory overhead will be usually at the minimum level, provided pre- determined overhead rate is based । on Maximum capacity (b) Direct labour hours Machine hours (d) Normal capacity​

Answer 1

Absorption

The difference between actual factory overhead and absorbed factory overhead will be usually at the minimum level, provided pre- determined overhead rate is based Absorption.

• The predetermined overhead rate, which is based on the anticipated amount of overhead and the anticipated quantum or value of the base, enables the absorption of overheads during the period for which they have been computed.
• The manufacturing overhead cost divided by the activity driver yields the preset overhead rate. For instance, if machine hours were the activity driver, you would divide overhead costs by the anticipated number of machine hours. Here are the first three steps in calculating the preset overhead rate.
• For a certain reporting period, the expected cost of manufacturing overhead is applied to cost items using an allocation rate called a predefined overhead rate. At the beginning of the accounting period, a predetermined overhead rate is determined by dividing the predicted manufacturing overhead by the anticipated activity base. To make it easier to calculate a product's standard cost, the predetermined overhead rate is then applied to production. The amount of indirect costs attributed to cost objects is known as overhead absorption.
• Expenses that cannot be immediately linked to a particular activity or product are known as indirect costs. Cost objects include things like products, product lines, clients, retail outlets, and distribution methods for which costs are calculated.

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