Question

How is the VOH and FOH pre-determined overhead rates used as the standard price in standard costing determined?

Answer 1

Answer:

Predetermined overhead rate is used to apply manufacturing overhead to products or job order and is usually computed at the begining of each period by dividing the estimated manufacturing overhead cost by an allocation base (also known as base or activity Driver). The predetermined overhead rate is then applied to production to facilitate determining standard cost for a product.

Standard costing system is a tool for planning budgets, managing and controlling costs, and evaluating cost management performance. A standard costing system involves estimating the required cost of a production process. Standard costing involves the setting of predetermined cost eliminites in order to provide a basis for comaparison with actual. Standard cost is universally accepted as an effective tool for cost control in industries.