Multiple Choice
Which of the following statements regarding gross profit is FALSE?
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4. Merchandising Operations
Net Sales
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When calculating the departmental overhead rate, which of the following formulas is typically used?
A
Estimated total overhead costs divided by total number of departments
B
Estimated departmental overhead costs divided by estimated departmental activity base
C
Total sales revenue divided by total overhead costs
D
Actual overhead costs divided by actual direct labor hours
Verified step by step guidance1
Understand the concept of departmental overhead rate: It is used to allocate overhead costs to products or services based on the activity level within a specific department.
Identify the correct formula for calculating the departmental overhead rate: The formula is 'Estimated departmental overhead costs divided by estimated departmental activity base'.
Break down the components of the formula: 'Estimated departmental overhead costs' refers to the projected overhead expenses for a specific department, and 'Estimated departmental activity base' refers to the expected level of activity (e.g., machine hours, labor hours) in that department.
Compare the given options: Evaluate each option to determine which aligns with the correct formula. For example, 'Total sales revenue divided by total overhead costs' does not relate to departmental overhead rate calculation.
Apply the formula to a hypothetical example: If a department has estimated overhead costs of $50,000 and an estimated activity base of 10,000 machine hours, the departmental overhead rate would be calculated as $50,000 ÷ 10,000 machine hours.
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