Magnum Company Uses Direct Labor Cost as a Basis for Computing

Multiple Choice

Magnum Company uses direct labor cost as a basis for computing its predetermined overhead rate. In computing the predetermined overhead rate for 2020, the company misclassified a portion of direct labor cost as indirect labor. The effect of this misclassification will be to:

A) understate the predetermined overhead rate.
B) overstate the predetermined overhead rate.
C) there will be no effect on the predetermined overhead rate.
D) Can't tell from the information provided.