Chapter 2, Problem 7.5GAP

To determine

Concept introduction:

Predetermined overhead allocation:

Manufacturing overhead cost is the pool of all indirect costs incurred for the production. These are the costs which are not directly traceable to the product. Manufacturing overhead costs include indirect material indirect labor and other overheads. These costs are allocated to the products using the predetermined overhead allocation rate. The formula of predetermined overhead allocation rate is as follows:

$\text{Predetermined overhead allocation rate = }\frac{\text{Estimated Manufacturing overhead Cost}}{\text{Allocation base}}$

To indicate:

A company decides the overhead allocation basis