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Preparation of Statement of Profit and Loss

When is used ...

Question

When _________ is used on the basis of budgeted overheads and the rate is applied to the actual base, the actual overhead expenses may be different from the charged overheads.

A

A predetermined rate

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B

Actual rate method of absorption

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C

Both A and B

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D

None of the above

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Solution

The correct option is C A predetermined rate
A predetermined rate of overhead is calculated by dividing the estimated overhead cost by the estimated number of hours. It refers to the estimation hence actual overheads may be different from the charged overheads.

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