The higher the denominator activity level used to compute the predetermined overhead rate, the higher the predetermined overhead rate.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated by dividing the estimated total manufacturing overhead costs by the estimated total amount of the allocation base (denominator activity level). Therefore, if the denominator activity level increases, the predetermined overhead rate decreases, assuming the estimated total manufacturing overhead costs remain constant.

The Higher the Denominator Activity Level Used to Compute the Predetermined