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Dhaka Garments Limited uses direct labour cost as a basis for computing its predetermined overhead...

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Accounting

Dhaka Garments Limited uses direct labour 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 labour cost as indirect labour. What would be the effect of this misclassification on the predetermined overhead rate? What sorts of actions could the company take to avoid this issue in the future? Explain your answers. [Maximum word limit: 150 words

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