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Name two reasons why overhead might be underapplied in a given year and how this might...

Name two reasons why overhead might be underapplied in a given year and how this might be able to be prevented? What is a predetermined overhead rate and how is it computed?

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Answer #1

overheads may be underapplied due to the following reasons;-

1. Company may be unable to properly estimate the amount of Overheads that would be incurred in the coming year.

2. Or initially the overheads allocated to a particular job was quite low but as and when the work proceeded forward the overheads actually applied becomes high and they were not properly monitored & controlled.

Predetermined Overheads Rate means the rate computed at the time of preparation of budget by dividing the estimted overheads by the appropriate basis(machinr hours,Labour Hrs Etc.)

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