Beal Company Uses Direct Labor Cost as a Basis for Computing

question 42

Multiple Choice

Beal Company uses direct labor cost as a basis for computing its predetermined overhead rate.In computing the predetermined overhead rate for 2012,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.Misclassifying the direct labor will cause the numerator to be larger and the denominator to be smaller,thus overstating the rate.

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Definitions:

Market Structure

The competitive environment characterizing a market, determined by the number of firms, product differentiation, and ease of entry and exit.

Agricultural Products

Goods derived from agriculture including crops, livestock, and products directly obtained from farming activities.

Wheat

Wheat is a cereal grain grown worldwide and is a staple food ingredient used for making bread, pasta, cake, and many other food products.

Pure Competition

A market format where there are many sellers presenting the same products, and none of these sellers are able to affect the market price on their own.