Question: Emco Company uses direct labor cost as a basis for computing its predetermined overhead rate. In computing the predetermined overhead rate for last year, the

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

    1. Understate the predetermined overhead rate

    2. Overstate the predetermined overhead rate

    3. Have no effect on the predetermined overhead rate

    4. Cannot be determined from this information

    5. Overstate direct labor costs

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