A predetermined overhead rate times the amount of activity basis equals the overhead cost assigned to the product.

Question

Quizplus · Accepted Answer

This statement is true in the context of traditional costing systems where predetermined overhead rates are used to allocate overhead costs to products based on a chosen activity measure (e.g., direct labor hours, machine hours, etc.). The resulting overhead cost is then added to the direct materials and direct labor costs to determine the total cost of a product.

A Predetermined Overhead Rate Times the Amount of Activity Basis