When calculating an estimated fixed production cost overhead allocation rate, accountants choose the
A) Allocation base to use as the denominator
B) Allocation base to use as the numerator
C) Allocation base to use as the rate
D) Allocation base that minimises total fixed production overhead

Question

Quizplus · Accepted Answer

The allocation base is used as the denominator to calculate the allocation rate. This is because the allocation rate represents the amount of fixed overhead cost to be allocated to each unit of the allocation base. Using the wrong allocation base could result in inaccurate allocation of costs, which can negatively impact decision making. Therefore, it is important to choose the appropriate allocation base.

When Calculating an Estimated Fixed Production Cost Overhead Allocation Rate