Intermediate

(a) Explain why predetermined overhead absorp¬ tion rates are preferred to overhead absorption rates calculated from factual information after the end of a financial period.

(b) The production overhead absorption rates of factories X and Y are calculated using similar methods. However, the rate used by factory X is lower than that used by factory Y. Both factories produce the same type of product. You are required to discuss whether or not this can be taken to be a sign that factory X is more efficient than factory Y.