In activity-based costing,the predetermined overhead allocation rate can be computed by ________.
A) dividing the total estimated overhead costs by the total estimated quantity of the overhead allocation base
B) multiplying the actual quantity of the allocation based used by the allocated manufacturing overhead cost
C) dividing the total estimated overhead costs by the total estimated direct labor costs
D) dividing each product's total manufacturing cost by the associated number of units

Question

Quizplus · Accepted Answer

The predetermined overhead allocation rate is calculated by dividing the total estimated overhead costs by the total estimated quantity of the overhead allocation base. This rate is then used to allocate overhead costs to specific products or jobs. Choice B is incorrect because it describes a calculation of actual overhead allocation, rather than the predetermined rate. Choice C is incorrect because it uses direct labor costs as the allocation base, rather than a more appropriate measure of activity. Choice D is incorrect because it does not take into account the total overhead costs, which are a significant portion of the overall manufacturing cost.

In Activity-Based Costing,the Predetermined Overhead Allocation Rate Can Be Computed