What is the correct formula for calculating the departmental overhead rate?

The correct formula for calculating the departmental overhead rate is based on dividing the total estimated departmental overhead cost pool by the total estimated amount of the departmental allocation base. This approach ensures that the overhead costs are allocated to products or services based on a systematic and rational basis, allowing for more accurate costing.

When estimating the overhead costs, it is crucial to have a clear understanding of what these costs encompass. The departmental overhead cost pool includes all the indirect costs associated with a specific department, such as utilities, rent, and salaries of support staff for that department. The allocation base might include measures like machine hours, labor hours, or number of units produced, depending on the nature of the department's activities.

This method allows businesses to allocate overhead costs fairly and effectively, making it easier for them to determine the total cost of goods sold or services rendered. As a result, it enhances decision-making regarding pricing, budgeting, and financial analysis.

The other options do not appropriately reflect the principles of overhead rate calculation. For instance, options that focus on actual costs or number of departments rather than estimated overhead and allocation bases do not provide a correct basis for the overhead rate and can lead to inaccurate financial reporting. This systematic approach is pivotal for managerial accounting, where accurate cost allocation