Which of the following mathematical equations is used to calculate a predetermined overhead rate?
A) Predetermined Overhead Rate = Estimated Annual Manufacturing Cost / Estimated Quarterly Activity Level
B) Predetermined Overhead Rate = Actual Annual Cost of Goods Sold / Estimated Semi-annual Labor Hours
C) Predetermined Overhead Rate = Estimated Annual Overhead / Actual Annual Activity Level
D) Predetermined Overhead Rate = Actual Annual Overhead / Actual Annual Activity Level
E) Predetermined Overhead Rate = Estimated Annual Overhead / Estimated Annual Activity Level

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated by dividing the estimated annual overhead by the estimated annual activity level. This is referred to as the estimated predetermined overhead rate since it is based on estimates rather than actual results. Option A refers to estimated annual manufacturing cost rather than the annual overhead, and estimated quarterly activity level rather than annual activity level. Option B refers to actual annual cost of goods sold rather than annual overhead, and estimated semi-annual labor hours rather than annual activity level. Option C refers to the actual annual overhead and actual annual activity level, which would result in an actual predetermined overhead rate rather than an estimated one.

Which of the Following Mathematical Equations Is Used to Calculate