Overhead is applied to work in process based on the predetermined rate times standard activity allowed in a standard costing system.
A standard cost is a fixed price per unit of direct materials, fixed price per direct labour hour, and fixed price per hour of overhead that is based on predicted quantities of direct materials and projected direct labour time.
Top management may find a standard cost system useful for planning and decision-making. easier and more reasonable inventory measurements. Compared to an actual cost system, a standard cost system makes inventory valuation simpler. Unit costs for batches of identical products may differ significantly under an actual cost system.
Therefore,Overhead is applied to work in process based on the predetermined rate times standard activity allowed in a standard costing system.
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