Question

Wilkerson Company overhead rate formula involves calculating the overhead rate based on:

A) Direct labor costs
B) Production volume
C) Fixed expenses
D) Variable expenses

Answer 1

Wilkerson Company calculates its overhead rate based on production volume, thus the correct option is B.

Step-by-step explanation:

Wilkerson Company calculates its overhead rate based on production volume. This means that the overhead costs are allocated to products or services based on the level of production. The formula for calculating the overhead rate is as follows:

`\[ \text{Overhead Rate} = \frac{\text{Total Overhead Costs}}{\text{Total Production Volume}} \]`

In this formula, the total overhead costs are divided by the total production volume to determine the overhead rate per unit of production. This approach is common in manufacturing companies where overhead costs, such as factory rent, utilities, and maintenance, are associated with the level of production.

By using production volume as the basis for calculating the overhead rate, Wilkerson can more accurately allocate overhead costs to products based on their actual contribution to the total production output. This method provides a more realistic reflection of how overhead costs are incurred in relation to the quantity of goods produced.

In summary, Wilkerson's overhead rate is determined by dividing total overhead costs by production volume, allowing for a more precise distribution of overhead expenses among different products based on their respective levels of production, thus the correct option is B.