A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours.The company's choice of the denominator level of activity has no effect on the fixed portion of the predetermined overhead rate.

Question

Quizplus · Accepted Answer

The denominator level of activity directly affects the fixed portion of the predetermined overhead rate because the total estimated fixed overhead costs are divided by the selected level of activity (denominator) to calculate the rate. A change in the denominator level will alter the rate at which fixed overheads are applied to products.

A Company Has a Standard Cost System in Which Fixed