Question

A company has 5 production cost centers. Manufacturing overhead is assigned to work-in-process inventory by the use of overhead cost rates. Which of the following best describes how the overhead cost rates should be calculated?

Select one:
a. Number of units produced divided by the total cost center overhead
b. Number of units produced multiplied by the unit overhead cost
c. Total indirect costs for the business divided by the total number of units produced
d. Overhead costs for each cost center divided by activity levels of the relevant cost center

Answer 1

Answer: D. Overhead costs for each cost center divided by activity levels of the relevant cost center

Step-by-step explanation:

The overhead rate refers to the amount

that a business spends on manufacturing a product or the provision of services to its customers.

The overhead cost rates will be calculated as the overhead costs for each cost center divided by the activity levels of relevant cost center.

Therefore, the correct option is D.