In Calculating Its Predetermined Overhead Rate, a Firm Incorrectly Called

question 53

Multiple Choice

In calculating its predetermined overhead rate, a firm incorrectly called some items of indirect labour 'direct labour'. Since the firm uses direct labour costs as the basis for application of overhead costs, the effect of this error is to

• A) underestimate the overhead rate.
• B) overestimate the overhead rate.
• C) underestimate direct labour costs.
• D) underestimate the denominator used for allocating overhead.

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Definitions:

Hypocenter

The point within the Earth where an earthquake originates, also known as the focus of the earthquake.

Normal Fault

A type of fault where the hanging wall moves downward relative to the footwall due to extensional forces, common in divergent plate boundaries.

Fault Scarp

A steep slope or cliff formed directly by movement along a fault line, indicative of tectonic activity.

Earthquake

The shaking of the surface of the Earth resulting from a sudden release of energy in the Earth's lithosphere that creates seismic waves.