Whoever is responsible for the control of the denominator activity in the predetermined overhead rate should also be responsible for the variable overhead efficiency variance.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated by dividing the estimated total overhead costs by the estimated allocation base. The allocation base is usually a measure of machine hours, direct labor hours, or direct labor costs. The person responsible for controlling the allocation base, which is the denominator in the predetermined overhead rate formula, should also be held responsible for the variable overhead efficiency variance. This is because the efficiency variance measures the difference between actual and expected usage of the allocation base, and therefore, the control of the denominator activity and the variable overhead efficiency variance are closely related.

Whoever Is Responsible for the Control of the Denominator Activity