Which of the following statement(s)is/are correct? I.A predetermined overhead rate is used to assign estimated overhead costs to work in process inventory.
II)The predetermined overhead rate is calculated by dividing estimated overhead cost by the estimated volume or level of activity.
III)The most common means of allocating overhead costs is to calculate a predetermined overhead rate at the end of the period.
A) I
B) I and III
C) II
D) I and II

Question

Quizplus · Accepted Answer

Statement I is true, as a predetermined overhead rate is used to allocate estimated overhead costs to work in process inventory based on a predetermined allocation basis. Statement II is also true, as overhead rate is calculated by dividing estimated overhead cost by the estimated level of activity such as direct labor hours, direct material cost, or machine hours. However, statement III is false, as the predetermined overhead rate is calculated before the period begins, based on the estimated overhead cost and activity level for the upcoming period.

Which of the Following Statement(s)is/are Correct? I