Question

The predetermined overhead rate is based on the relationship between _____.

(A) estimated annual costs and expected annual activity
(B) estimated annual costs and actual activity
(C) actual monthly costs and actual annual activity
(D) estimated monthly costs and actual monthly activity

Answer 1

(A) estimated annual costs and expected annual activity

Step-by-step explanation:

The formula to compute the predetermined overhead rate is shown below:

Predetermined overhead rate = (Total estimated manufacturing overhead) ÷ (estimated direct labor-hours or estimated machine hours)

It is always calculated on the estimated amount and estimated annual activity i.e direct labor hours or machine hours

So the correct option is a.