Final answer:
Managers prefer to use a predetermined overhead rate instead of an actual overhead rate because it allows for better planning and budgeting. The predetermined rate is calculated based on estimates and historical data, providing a more predictable and stable figure to work with.
Step-by-step explanation:
Many managers prefer to use a predetermined overhead rate instead of an actual overhead rate because it allows for better planning and budgeting. The predetermined rate is calculated based on estimates and historical data, which gives managers a more predictable and stable figure to work with. By using a predetermined rate, managers can allocate costs to products or services without having to wait for actual costs to be determined.
Furthermore, using an actual overhead rate requires detailed tracking and monitoring of all overhead costs, which can be time-consuming and costly. It also leaves no room for error or unexpected changes in costs. On the other hand, a predetermined rate simplifies the process and provides a standardized approach to allocating overhead costs.
However, it is important to note that the predetermined overhead rate may not always reflect the actual costs incurred. Variations between the predetermined rate and the actual rate can occur due to changes in production levels or unforeseen circumstances.