The predetermined overhead application rate is computed as
A) budgeted overhead cost divided by budgeted activity.
B) total labor cost divided by total machine hours.
C) budgeted activity divided by budgeted overhead cost.
D) total machine hours divided by total labor cost.

Question

Quizplus · Accepted Answer

The predetermined overhead application rate is calculated by dividing the budgeted overhead cost by the estimated amount of activity that will be incurred during the period. This results in a per-unit rate that can be applied to actual inputs (such as labor or machine hours) to determine actual overhead costs for the period. Choice A is the only option that correctly calculates the predetermined overhead application rate.

The Predetermined Overhead Application Rate Is Computed as