The higher the denominator activity level used to compute the predetermined overhead rate,the higher the predetermined overhead rate.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated by dividing the estimated total manufacturing overhead costs by the estimated level of total units in the base (activity level). A higher denominator (activity level) actually results in a lower predetermined overhead rate, as the overhead costs are spread over more units.

The Higher the Denominator Activity Level Used to Compute the Predetermined