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Why do companies use a predetermined overhead rate rather than actual overhead costs to apply overhead to jobs? The main reason is that the managers would like to  · Transcript. 1. Hilton • Maher • Selto 2. 17 Flexible Budgets, Overhead Cost Management, and Activity-Based Budgeting McGraw-Hill/Irwin A pre-determined overhead rate is the rate used to apply manufacturing overhead to work-in-process inventory. The pre-determined overhead rate is calculated before Notice that this information includes an estimate of the level of activity for each cost driver, which is needed to calculate a predetermined rate for each activity Applying overhead to work in process In the second instalment of Student Notes (‘Cost Concepts, Categories and Flows’) I mentioned that manufacturing overhead Product Costs Using the Plantwide Allocation Approach at SailRite. Question: Assume SailRite uses one plantwide rate to allocate overhead based on direct labor hours. Step 2. Determine the amount of cost driver used in each unit of a product. Under the traditional method of overhead cost allocation, the business allocates the Using the Calculations. In using departmental and manufacturing overhead rates to determine product costs, indirect costs necessary for normal business operation Chapter 5 129 Answer: A. Overhead Cost Pool Predetermined Overhead Rate Level of Cost Driver Cost Machine setups $1,500 per setup 5 setups $ 7,500 Material … CHAPTER 5 Activity-Based Costing and Cost Management Systems ANSWERS TO REVIEW QUESTIONS 5-1 In a traditional, volume-based product-costing system, only …