What is Predetermined Cost

Predetermined cost means that estimation which is made by a manufacturing company in advance; it is done even before the production of a product starts. The calculation for predetermined cost is done on the basis of various variables affecting the production like raw material, labor, factory expense and so on.  The idea behind its calculation is to have a better understanding about the budget which will be needed to produce a product and also once production is complete to see whether the company has done better or worse than what it was budgeted and if any variance is found reasons for it are found and corrective action is taken so that same mistake is not repeated once again.

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