Predetermined overhead rates in traditional costing are often based on:

A. multiple bases for job order costing and direct labor cost for process costing

B. multiple bases for both job order costing and process costing

C. machine hours for job order costing and direct labor cost for process costing

D. direct labor cost for job order costing and machine hours for process costing.

Question

Business

Derrick Lang

13 August, 01:57

Predetermined overhead rates in traditional costing are often based on:

A. multiple bases for job order costing and direct labor cost for process costing

B. multiple bases for both job order costing and process costing

C. machine hours for job order costing and direct labor cost for process costing

D. direct labor cost for job order costing and machine hours for process costing.

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Answers (1)

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Malia Morrison · Answer 1

Answer: D. direct labor cost for job order costing and machine hours for process costing.

Explanation: Predetermined overhead rate is used to apply manufacturing overhead to products or job orders and is usually computed at the beginning of each period by dividing the estimated manufacturing overhead cost by an allocation base (also known as activity base or activity driver).

The predetermined overhead rate is set at the beginning of the year and is calculated as the estimated (budgeted) overhead costs for the year divided by the estimated (budgeted) level of activity for the year. This activity base is often direct labor hours, direct labor costs, or machine hours.