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The company's predetermined overhead rate is 6.625 if mccormack company estimates that 16,000 direct labor and 106,000 machine hours will be worked during the year.
What does Direct labor mean?
The labor cost associated with the production of goods or services is referred to as direct labor. Wages paid to skilled and unskilled workers directly involved in the production of goods or services are referred to as wages. Production line employees, assembly line operators, machinists, and other laborers performing specific tasks to produce a product or service are examples of these workers.
The predetermined overhead rate is calculated by dividing the estimated overhead costs by the estimated direct labor hours.
In this case, the predetermined overhead rate is calculated as follows:
Predetermined Overhead Rate = (Estimated Overhead Costs) / (Estimated Direct Labor Hours)
Predetermined Overhead Rate = (106,000) / (16,000) = 6.625
Predetermined Overhead Rate = $6.625 per direct labor hour
Therefore, the company's predetermined overhead rate is 6.625.
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