Question

Cranston Company estimates the following overhead costs for the coming year:Equipment depreciation $160,000Equipment maintenance 60,000Supervisory salaries 40,000Factory rent 100,000Total $360,000Cranston is also budgeting $600,000 in direct labor costs and 15,000 machine hours for the coming year.Required:a. Calculate the predetermined overhead rate using direct labor costs as the allocation base. Round your answer to the nearest cent.$ per direct labor dollarb. Calculate the predetermined overhead rate using machine hours as the allocation base.$ per machine hour

Answer 1

Answer:

$   0.60 per labor cost

$ 24.00 per machine hours

Explanation:

expected overhead cosT:

depreicaiotn 160,000

maintenance  60,000

supervisory    40,000

rent               100,000

Total overhead cost: 360,000

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

The predetermined overhead rate is division of the expected overhead cost over a cost driver

a) being labor cost: 600,000

overhead rate: 360,000 / 600,000 = $0.6 per labor cost

b) being machine hours

overhead rate: 360,000 / 15,000 = $ 24 per machine hours