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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