Magnum Company uses direct labor cost as a basis for computing its predetermined overhead rate.In computing the predetermined overhead rate for 2016,the company misclassified a portion of direct labor cost as indirect labor.The effect of this misclassification will be to:
A) understate the predetermined overhead rate.
B) overstate the predetermined overhead rate.
C) there will be no effect on the predetermined overhead rate.
D) Can't tell from the information provideD.
Misclassifying the direct labor will cause the numerator to be larger and the denominator to be smaller,thus overstating the rate.

Question

Quizplus · Accepted Answer

Misclassifying direct labor as indirect labor will increase the numerator and decrease the denominator of the predetermined overhead rate calculation, leading to an overstatement of the rate.

Magnum Company Uses Direct Labor Cost as a Basis for Computing