Question

Odonnel Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on direct labor-hours. The company based its predetermined overhead rate for the current year on total fixed manufacturing overhead cost of $36,000, variable manufacturing overhead of $2.80 per direct labor-hour, and 10,000 direct labor-hours. The predetermined overhead rate is closest to:(A) $9.20 per direct labor-hour (B) $2.80 per direct labor-hour (C) $6.40 per direct labor-hour (D) $3.60 per direct labor-hour

Answer 1

Answer:

Predetermined rate = Budgeted fixed manufacturing overhead

                                         Budgeted direct labour hours

                                 =     $36,000

                                      10,000 hours

                                 = $3.60 per direct labour hour

Explanation:

Predetermined rate is the ratio of budgeted fixed manufacturing overhead to budgeted direct labour hours. Thus, the division of budgeted fixed manufacturing overhead by budgeted direct labour hours gives the predetermined rate.