When calculating the predetermined manufacturing overhead rate, what is the correct basis of calculation?

Question

Quizplus · Accepted Answer

The predetermined manufacturing overhead rate is calculated by estimating the total overhead costs for the period and dividing it by the estimated amount of the cost driver or allocation base. This is because the overhead costs are allocated to the products based on the level of activity, which is measured by the cost driver. The estimation of both the overhead costs and the cost driver helps in setting the standard rate for the application of overhead costs to the products. Option A is incorrect because the number of days in a year is not relevant to the estimation of the manufacturing overhead rate. Option B is incorrect because it divides the estimated amount of the cost driver by the estimated total overhead costs, which does not provide a rate for applying overhead costs to the products. Option C is incorrect because the actual costs and actual allocation base of the prior year may not be relevant to the estimation of the manufacturing overhead rate for the current year.

When Calculating the Predetermined Manufacturing Overhead Rate, What Is the Correct