If the estimated cost driver level is overstated, the
A) predetermined overhead rate will be understated.
B) predetermined overhead rate will be overstated.
C) product cost will be overstated.
D) cost pool will be understated.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated by dividing the estimated overhead cost by the estimated cost driver level. If the estimated cost driver level is overstated, the predetermined overhead rate will be calculated based on a higher cost driver level, resulting in a lower rate. This will lead to an understated overhead rate, and ultimately an understated product cost.

If the Estimated Cost Driver Level Is Overstated, the