The Use of a Relationship of Total Factory Overhead to Direct

question 45

Multiple Choice

The use of a relationship of total factory overhead to direct labor hours is said to be valid only within the relevant range, which means:

• A) Within a reasonable dollar amount for labor costs.
• B) Within the range of observations of the cost driver.
• C) Within the range of reasonableness as judged by the department supervisor.
• D) Within the budget allowance for overhead.

---

Definitions:

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to individual products or job orders based on a predetermined basis such as direct labor hours.

Direct Labour-Hours

The total hours of labor directly involved in the production of goods or services, often used as a basis for allocating overhead costs.

Direct Material Purchased

The raw materials acquired that are directly used in the manufacturing of a product.

Actual Overhead Cost

The real expenses incurred during production that are not directly tied to specific products, including electricity, rent, and managerial salaries.