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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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The predetermined overhead rate equals

  1. a. actual overhead divided by actual activity level for a period.
  2. b. estimated overhead divided by estimated activity level for a period.
  3. c. actual overhead minus estimated overhead.
  4. d. actual overhead multiplied by actual activity level for a period.
  5. e. one-twelfth of estimated overhead.

To determine

Identify the formula for calculating predetermined overhead rate.

Explanation

Predetermined Overhead Rate:

The amount which is calculated at the beginning of the accounting year for a related activity by dividing the total estimated annual overhead by estimated annual activity level is known as the predetermined overhead rate.

b.

Predetermined overhead rate is calculated by dividing estimated overhead by estimated activity level for a period. Therefore, option b is the correct answer.

a.

Actual activity level for a period is not a part of the calculation of predetermined overhead rate...

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