The overhead absorption rate is determined by using:
A) estimated costs.
B) marginal costs.
C) average costs.
D) historical costs.

Question

Quizplus · Accepted Answer

The overhead absorption rate is determined by using estimated costs. This involves estimating the overhead costs that will be incurred during a period and dividing it by an estimated level of activity such as labor hours, machine hours or units produced. Using historical costs might not be appropriate as they do not take into account changes in the cost structure or the level of activity. Marginal costs and average costs are not used in determining the overhead absorption rate.

The Overhead Absorption Rate Is Determined by Using