When the predetermined overhead rate is based on direct labor-hours, the amount of overhead applied to a job is proportional to the amount of actual direct labor-hours incurred on the job.

Question

Quizplus · Accepted Answer

This statement is true. The predetermined overhead rate is calculated by dividing estimated total overhead costs by estimated total direct labor-hours. Therefore, when overhead is applied to a job, the amount is directly proportional to the actual direct labor-hours incurred on that job.

When the Predetermined Overhead Rate Is Based on Direct Labor-Hours