Normal costing overhead rates are developed at the beginning of each period based on the:
A) Actual overhead costs of the previous period
B) Actual activity level of the previous period
C) Direct labour hours at maximum capacity
D) Expected activity level of the coming period

Question

Quizplus · Accepted Answer

Normal costing overhead rates are usually calculated based on expected activity levels for the coming period, as they provide a more accurate estimate of the overhead costs to be incurred in the production process. Actual overhead costs and activity levels from the previous period may not be representative of the current period and could result in inaccurate cost predictions. Direct labour hours at maximum capacity may also not accurately reflect the actual activity levels, as not all labour hours may be fully utilized due to various factors such as machine breakdowns or employee absences. Therefore, expected activity levels of the coming period are the most appropriate basis for developing normal costing overhead rates.

Normal Costing Overhead Rates Are Developed at the Beginning of Each