What advantage does a normal costing system offer?

1.)Income smoothing purpose

- Applied FOH rate is an average or normalised rate used in calculation of applied FOH cost.

- Use only one surrogate as a FOH cost driver rather than FOH cost are being affected by many one-off and/ or uncontrollable factors

2.) More timely factory overhead costs information (Esp. for pricing purpose)

- Estimated (applied) FOHs can be made available before actual FOHs are available.

3.) Removal of incentive for managers to produce for inventory. If the value of inventories includes FFO (Which is fixed cost), managers can bolster operating profit by producing more units than are sold.

-->> Applied overhead cost = variable cost

4.) Providing a basis for monitoring evaluating and controlling overhead costs by means of variance analysis.

-->> Underapplied FOH = Applied FOH < Actual FOH -->> Unfavourable

-->> Overapplied FOH = Applied FOH > Actual FOH -->> Favourable