Final answer:
The best denominator to be used in calculating the budgeted MOH rate is a cost driver that has a strong correlation with the actual manufacturing overhead (MOH) costs. Examples of cost drivers include machine hours and direct labor hours. The choice of the best denominator depends on the specific circumstances and the nature of the business operations.
Step-by-step explanation:
The best denominator to be used in calculating the budgeted MOH rate is a cost driver that has a strong correlation with the actual manufacturing overhead (MOH) costs. A cost driver is a factor that causes or influences the incurrence of costs, and it varies with the level of production or activity. By selecting a cost driver that closely reflects the underlying activities that drive MOH costs, the budgeted MOH rate can be more accurately determined.
For example, if the main cost driver for MOH costs in a manufacturing company is machine hours, then machine hours would be the best denominator to use in calculating the budgeted MOH rate. If the company's MOH costs are primarily driven by direct labor hours, then direct labor hours would be the best denominator.
The choice of the best denominator depends on the specific circumstances of the business and the nature of its operations. It is important to analyze the activities and cost drivers that have the most significant impact on MOH costs to make an informed decision.