The standard predetermined overhead rate used in setting the standard overhead cost is determined by dividing
A) budgeted overhead costs by an expected standard activity index.
B) actual overhead costs by an expected standard activity index.
C) budgeted overhead costs by actual activity.
D) actual overhead costs by actual activity.

Question

Quizplus · Accepted Answer

The standard predetermined overhead rate is calculated by dividing budgeted overhead costs by an expected standard activity index. This is because the standard overhead rate is based on estimates of what overhead costs will be, assuming a certain level of activity (the activity index). By dividing the budgeted overhead costs by the expected standard activity index, we can determine how much overhead cost should be allocated to each unit of activity.

The Standard Predetermined Overhead Rate Used in Setting the Standard