Answer (A) is correct . The overhead application rate is established at the beginning of each year to determine how much overhead to accumulate for each job throughout the period. The estimated annual overhead costs are divided by the annual activity level or capacity in terms of units to arrive at the desired rate.
Answer (B) is incorrect because Actual overhead is not known at the beginning of the period; the overhead rate is predetermined.
Answer (C) is incorrect because The estimated activity level is the rate’s denominator.
Answer (D) is incorrect because The actual activity level is not known until year end. Also, activity is a denominator value.
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