Question

Which of the following statements is incorrect?

A) Two cost drivers often used in practice​ are: direct labor hours and machine hours.

B) The Work in Process inventory account is increased when manufacturing overhead is applied to production.

C) The predetermined overhead rate is multiplied by the budgeted cost driver level to determine the application of overhead to a particular job.

D) The formula to arrive at the predetermined overhead rate is budgeted total manufacturing overhead divided by budgeted activity level of the cost driver.

E) The calculation of the predetermined overhead rate is made at the beginning of the period under a normal costing system.

Answer 1

C) The predetermined overhead rate is multiplied by the budgeted cost driver level to determine the application of overhead to a particular job.

Step-by-step explanation:

The predetermined overhead rate is used to compute the application of overheads on actual basis, that is overhead rate is multiplied with actual hours and not the budgeted one, as for the budget the budgeted hours are taken.

The most common cost drivers are labor hours and machine hours.

As generally, work in process only includes direct material and labor, if production overheads will also be applied then it will increase the work in process cost.

Predetermined overheads rate is based on budgeted total cost and budgeted activity level.

The predetermined rate is always calculated in the beginning as it is the initial step for cost allocation.