Question

In developing a predetermined factory overhead application rate for use in a traditional process costing system, which of the following could be used in the numerator and denominator? Numerator Denominator
A Actual factory overhead Actual machine hours
B Actual factory overhead Estimated machine hours
C Estimated factory overhead Actual machine hours
D Estimated factory overhead Estimated machine hours

Answer 1

Answer: Option (d) is correct.

Explanation:

The predetermined overhead is largely based on the estimations rather than actual costs. It is determined by dividing the total estimated factory overhead cost by the total number of estimated machine hours. It gives a way to the firms for measuring their factory overhead costs that are going high or low for a specific production run.