Richmond Corporation, located outside Vancouver, uses a predetermined overhead rate of $20 per machine hour. In deriving this figure, the company's accountant used:

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated by estimating the total estimated overhead costs for the period and dividing it by the estimated total machine hours for the period. Therefore, the denominator should reflect the budgeted (estimated) machine hours for the current accounting period, which is choice A. The numerator is the total estimated overhead costs.

Richmond Corporation, Located Outside Vancouver, Uses a Predetermined Overhead Rate