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:

Inexpensive

Referring to a product, service, or item that has a low cost or price, making it affordable to a wide range of consumers.

Set-point Control

A control system method where a device adjusts its operation to maintain a process variable at a desired set-point or value.

Open Loop Control

A control system where the control action is independent of the output, lacking feedback from the process being controlled.

FLL Instruction

An instruction in PLC programming that fills a block of data with a specified value.