Emco Company uses direct labor cost as a basis for computing its predetermined overhead rate. In computing the predetermined overhead rate for last year, the company misclassified a portion of direct labor cost as indirect labor. The effect of this misclassification will be to:
A)understate the predetermined overhead rate.
B)overstate the predetermined overhead rate.
C)have no effect on the predetermined overhead rate.
D)cannot be determined from the information given.

Question

Quizplus · Accepted Answer

The misclassification of direct labor cost as indirect labor will result in a higher denominator in the calculation of the predetermined overhead rate, which will lead to a lower overhead rate.

Emco Company Uses Direct Labor Cost as a Basis for Computing