Magnum Company Uses Direct Labor Cost as a Basis for Computing

question 94

Multiple Choice

Magnum Company uses direct labor cost as a basis for computing its predetermined overhead rate. In computing the predetermined overhead rate for 2020, 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) there will be no effect on the predetermined overhead rate.
• D) Can't tell from the information provided.

---

Definitions:

Breaking Routines

The process of changing habitual actions or patterns to encourage innovation or adaptability.

Resistance Change

Opposition or pushback by individuals or groups within an organization against changes that are perceived as harmful or unnecessary.

Coercion

The act of compelling someone to act in a certain way by force or threat.

Force Field Analysis

A decision-making technique that analyzes the forces for and against a change to identify if the change is viable.