If Annual Overhead Costs Are Expected to Be $800,000 and Direct

question 168

Multiple Choice

If annual overhead costs are expected to be $800,000 and direct labor costs are expected to be $1,000,000, then if the activity base is direct labor costs:

• A) $1.25 is the predetermined overhead rate.
• B) for every dollar of manufacturing overhead, 80 cents of direct labor will be assigned.
• C) for every dollar of direct labor, 80 cents of manufacturing overhead will be assigned.
• D) a predetermined overhead rate cannot be determined.

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Definitions:

Activity Rate

The predetermined overhead rate used to allocate overhead costs based on specific activities or cost drivers.

Activity-Based Costing

A costing method that assigns overhead and indirect costs to related products and services based on the activities that consume resources.

Direct Labor-Hours

The total hours worked by employees directly involved in the manufacturing process or providing a service.

Production Orders

Instructions or commands to start the manufacture of a certain quantity of a product within a specified timeframe.