Question

Marquis Company estimates that annual manufacturing overhead costs will be $894,600. Estimated annual operating activity bases are direct labor cost $497,000, direct labor hours 49,700, and machine hours 99,400. Compute the predetermined overhead rate for each activity base.

Answer 1

Overhead rate per direct labor cost: 180%

Overhead rate per direct labor hour: 18

Overhead rate per machine hour: 9

Procedure:

Overhead rate per direct labor cost

= 894600 ÷ 497000

= 1.8

= 1.8 × 100

= 180%

Overhead rate per direct labor hour

= 894600 ÷ 49700

= 18

Overhead rate per machine hour

= 894600 ÷ 99400

= 9

Divide each operating activity cost by manufacturing overhead cost

What is overhead rate?

The overhead rate is a cost that is incurred during the manufacturing of a product or service. Overhead costs are expenses that are not directly related to production, such as corporate office costs. An overhead rate is applied to the direct costs associated with production to allocate overhead costs by spreading or allocating overhead costs based on specific measures.

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