Question

3) Which of the following is a step in *developing budgeted variable overhead rates*?

A) identifying the fixed costs associated with direct manufacturing labor
B) estimating the budgeted denominator level based on expected utilization of available capacity
C) selecting the cost-allocation base to use in allocating machine-handling costs
D) choosing the appropriate level of capacity or investment

Answer 1

Developing budgeted variable overhead rates involves identifying the cost-allocation base, estimating the budgeted denominator level, and calculating the budgeted variable overhead rate. The correct option is B.

Step-by-step explanation:

Developing budgeted variable overhead rates involves several steps:

1. Identifying the cost-allocation base to use in allocating variable overhead costs.
2. Estimating the budgeted denominator level based on expected utilization of available capacity.
3. Calculating the budgeted variable overhead rate by dividing the budgeted variable overhead costs by the budgeted denominator level.

For example, if the cost-allocation base is machine hours, the company would estimate the expected machine hours to be used and determine the budgeted variable overhead costs. Then, they would divide the budgeted variable overhead costs by the estimated machine hours to calculate the budgeted variable overhead rate. The correct option is B.