The standard overhead rate is computed separately for:

• A. Depreciation and amortization
• B. Direct materials and direct labor
• C. Variable and fixed overhead costs
• D. Selling and administrative expenses

Answer: (C)

Verified step by step guidance

1. Understand the concept of overhead costs: Overhead costs are indirect costs that cannot be directly traced to a specific product or service. These are categorized into variable overhead costs (which change with production levels) and fixed overhead costs (which remain constant regardless of production levels).
2. Recognize the purpose of the standard overhead rate: The standard overhead rate is used to allocate overhead costs to products or services based on a predetermined rate, ensuring accurate cost accounting and budgeting.
3. Identify the components of the standard overhead rate: The rate is computed separately for variable overhead costs (e.g., utilities, indirect materials) and fixed overhead costs (e.g., depreciation, rent). These components are essential for understanding the total overhead allocation.
4. Calculate the standard overhead rate: To compute the rate, divide the total estimated overhead costs (variable and fixed) by the estimated activity level (e.g., machine hours, labor hours). The formula is: $\frac{\mathrm{Total} \mathrm{Estimated} \mathrm{Overhead}}{\mathrm{Estimated} \mathrm{Activity} \mathrm{Level}}$
5. Apply the standard overhead rate: Once calculated, use the rate to allocate overhead costs to products or services based on the actual activity level incurred during production.