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:______________.
1. understate the predetermined overhead rate.
2. overstate the predetermined overhead rate.
3. there will be no effect on the predetermined overhead rate.
4. Can't tell from the information provided.

Explanation:Misclassification happens when a participant is placed into the wrong population subgroup or category because of some kind of observational or measurement error. When this happens, the true link between exposure and outcome is distorted.

Although care can be taken to minimize the impact of these errors, they are largely unaviodable because human error is innate to any study involving people.

Differential classification error happens when the errors depend on other variables. Non-differential classification error is when the error does not depend on the values of other variables.