Bodgers Ltd, a business that provides a market research service, operates a job costing system. Towards the end of each financial year, the overhead recovery rate (the rate at which indirect cost will be absorbed by jobs) is established for the forthcoming year.

Required:

(a) Why does the business bother to predetermine the recovery rate in the way outlined?

(b) What steps will be involved in predetermining the rate?

(c) What problems might arise with using a predetermined rate?

AppendixLO1