In a normal costing system, the overhead allocation rate is calculated as
A) Estimated overhead cost / estimated quantity of allocation base
B) Estimated overhead cost / actual quantity of allocation base
C) Actual overhead cost / actual quantity of allocation base
D) Actual overhead cost / estimated quantity of allocation base

Question

Quizplus · Accepted Answer

In a normal costing system, the overhead allocation rate is calculated based on the estimated overhead cost and the estimated quantity of the allocation base. This is because normal costing applies overhead using predetermined rates based on estimated costs and activity levels. Therefore, the allocation rate needs to be calculated based on these estimates to ensure that overhead costs are allocated accurately to the products or services being produced.

In a Normal Costing System, the Overhead Allocation Rate Is