5 Why is manufacturing overhead applied to jobs and into Wor

5. Why is manufacturing overhead applied to jobs (and into Work in Process)? Why aren\'t actual costs assigned?

Solution

Manufacturing overhead application to jobs done by multiplying predetermined overhead rate with amount of allocation base incurred by the job. Predetermined OH rate is calculated by dividing estimated manufacturing overhead cost with estimated total units in allocation base.

Above calculated manufacturing overheads are applied to jobs instead on actual costs since actual costs will not be able to know before the end of the year. since we are unable to find actual overheads before the end of the year we are applying manufacturing overheads at predetermined overhead rate.