(Appendix 11A)The higher the denominator activity level used to compute the predetermined overhead rate, the lower the predetermined overhead rate.

Question

Quizplus · Accepted Answer

This statement is true. The predetermined overhead rate is calculated by dividing the estimated total manufacturing overhead costs by an estimated activity level, such as machine-hours or labor-hours. Therefore, as the activity level (denominator) increases, the predetermined overhead rate (numerator) decreases.

(Appendix 11A)The Higher the Denominator Activity Level Used to Compute