Question 2

Colour Sofa provides upholstery services in Bandar Kijang. It uses a job order costing system to accept orders from the customers. The manufacturing overhead cost is absorbed based on direct labour hour. The budgeted manufacturing overhead cost for the month of May 2022 is RM53.500. Management expects a total of 10,700 direct labour hours will be used.

A) Discuss why companies use budgeted overhead costs rather than actual costs to compute predetermined overhead rate.