Question

The following information has been gathered for the Harrell Manufacturing Company for its fiscal year ending December 31: Actual manufacturing overhead costs $ 226,500 Actual direct labor hours 56,300 Actual direct labor costs $ 459,000 Estimated manufacturing overhead costs $ 209,510 Estimated direct labor $ 448,000 Estimated direct labor hours 57,400 What is the predetermined manufacturing overhead rate, assuming direct labor cost is used as the activity base?

Answer 1

Answer:

Overhead rate: 0.46765625

Explanation:

$\frac{Cost\: Of \:Manufacturing \:Overhead}{Cost \:Driver}= Overhead \:Rate$

$\frac{209,510}{448,000}= 0.46765625 \: Overhead \:Rate$

This means for every dollar of direct lbor, a cost of 0.4675 dollars is generate in factory overhead.

The question ask for predetermined manufacturing overhead, all the actual data is irrelevant.

Notice: The overhead rate is done by distributing the overhead cost over a cost driver.

Generally these cost driver are related to direct labour or machine hours.