Question

When calculating an allocation rate for estimated fixed production overhead cost, accountants, working with other managers,...

When calculating an allocation rate for estimated fixed production overhead cost, accountants, working with other managers, choose the

A.

Allocation base that minimizes total fixed production overhead
B.

Allocation base to use as the rate
C.

Allocation base to use as the numerator
D.

Allocation base to use as the denominator
Business   Accounting   
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Answer #1

Correct answer-----(D) Allocation base to use as the denominator

.

Here is an example to show how a overhead rate is calculated

A

Budgeted overheads

$        9,97,500.00

B

Expected labor hours

                     70,000

C=A/B

Overhead rate per labor hour

$                    14.25

Over here Labor hours is allocation base

Overhead rate is used to allocate cost of fixed overheads to jobs because its not possible to allocate actual overheads since overhead cost are generally fixed cost or such as depreciation, rent, factory insurance etc.

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