what effect would the changein predetermined overhead rate have on the company's inventory valuE
The change in the predetermined overhead rate can have an effect on the company's inventory value. Predetermined overhead rate is used to allocate overhead costs to products or inventory. It is typically calculated as a percentage of a particular cost driver, such as direct labor hours or machine hours.
When the predetermined overhead rate is increased, it means that more overhead costs will be allocated to each unit of product or inventory. As a result, the inventory value will increase because more costs are being assigned to it.
On the other hand, if the predetermined overhead rate is decreased, fewer overhead costs will be allocated to each unit of product or inventory. This will result in a decrease in the inventory value because fewer costs are being assigned to it.
It is important to note that any change in the predetermined overhead rate should be done with careful consideration and analysis. The impact on the inventory value should be properly evaluated to ensure accurate and meaningful financial reporting.