Question

Factory overhead rates LO P3 At the beginning of the year, a company estimates the following manufacturing costs for the next period: direct labor, $488,000; direct materials, $212,000; and factory overhead, $132,000. Required: 1. Compute its predetermined overhead rate as a percent of direct labor. 2. Compute its overhead cost as a percent of direct materials.

Answer 1

1.- 25.205%

2.- 58.019%

Step-by-step explanation:

The goal of the rate is to distribute the manufacturing overhead over a cost driver.

`(CostOf Manufacturing Overhead)/(Cost Driver)= $Overhead Rate`

So the amount in the dividend remains the same, and the divisor will cahnge according to the driver we are asked for:

1.- Compute its predetermined overhead rate as a percent of direct labor.

`(132,000)/(488,000)= 0.25205 = 25.205%`

2.- Compute its overhead cost as a percent of direct materials.

`(132,000)/(212,000) = 0.58019 = 58.019%`