A predetermined overhead rate is calculated as follows:
A) budgeted manufacturing overhead/budgeted amount of cost driver.
B) budgeted amount of cost driver/budgeted manufacturing overhead.
C) budgeted manufacturing overhead/budgeted amount of non-manufacturing overhead.
D) budgeted manufacturing overhead/ budgeted total expenses.

Question

Quizplus · Accepted Answer

A predetermined overhead rate is calculated by dividing budgeted manufacturing overhead costs by an estimated amount of cost driver (such as direct labor hours or machine hours). Therefore, option A is the correct formula for calculating the predetermined overhead rate. Option B is the inverse of the correct formula and is not used for calculating the predetermined overhead rate. Option C is unrelated to the calculation of the predetermined overhead rate. Option D includes all expenses, not just manufacturing overhead, which is not appropriate for calculating the predetermined overhead rate.

A Predetermined Overhead Rate Is Calculated as Follows