Question

Logan Products computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 28,000 direct labor-hours would be required for the period's estimated level of production. The company also estimated $593,000 of fixed manufacturing overhead expenses for the coming period and variable manufacturing overhead of $3.00 per direct labor-hour. Logan's actual manufacturing overhead for the year was $733,264 and its actual total direct labor was 28,500 hours. Required: Compute the company's predetermined overhead rate for the year. (Round your answer to 2 decimal places.)

Answer 1

Predetermined rate = $24.178

Step-by-step explanation:

Company's predetermined rate for overhead = Variable + Fixed

Variable provided = $3 per hour

Fixed = $593,000/28,000 hours = $21.1786

Now for actual output fixed expenses will remain fixed = $593,000

Variable = $733,264 - $593,000 = $140,264

Variable overhead rate per hour = $140,264/28,500 = $4.9215

thus predetermined rate = ($3 X 28,000) + $593,000

= $84,000 + $593,000 = $677,000/28,000 hours (predetermined)

= $24.178

Actual = $733,264/28,500 = $25.728

Final Answer

Predetermined rate = $24.178