Norwood Corporation uses a predetermined overhead rate of $20 per machine hour. In deriving this figure, the company's accountant used:
A) a denominator of budgeted machine hours for the current accounting period.
B) a denominator of actual machine hours for the current accounting period.
C) a denominator of actual machine hours for the previous accounting period.
D) a numerator of budgeted machine hours for the current accounting period.
E) a numerator of actual machine hours for the current accounting period.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated using a denominator of budgeted machine hours for the current accounting period, not actual machine hours. This allows for the application of overhead costs to products throughout the accounting period based on the budgeted (estimated) machine hours, providing a consistent basis for costing regardless of actual machine hours used.

Norwood Corporation Uses a Predetermined Overhead Rate of $20 Per