Question

The cost accountant for River Rock Beverage Co. estimated that total factory overhead cost for the Blending Department for the coming fiscal year beginning February 1 would be $160,000, and total direct labor costs would be $100,000. During February, the actual direct labor cost totaled $13,500, and factory overhead cost incurred totaled $21,950.What is the predetermined factory overhead rate based on direct labor cost?

Answer 1

The predetermined factory overhead rate is calculated by dividing the estimated total factory overhead cost by the estimated total direct labor cost, resulting in a rate of $1.60 per dollar of direct labor cost.

Step-by-step explanation:

The question asks how to compute the predetermined factory overhead rate based on direct labor cost for River Rock Beverage Co.'s Blending Department. To find this rate, divide the estimated total factory overhead cost by the estimated total direct labor cost. Given the numbers $160,000 for the overhead cost and $100,000 for labor cost, the predetermined overhead rate can be calculated as:

Predetermined overhead rate = Estimated total factory overhead cost / Estimated total direct labor cost = $160,000 / $100,000 = $1.60 per dollar of direct labor cost.

This rate is used to apply overhead costs to products based on the amount of direct labor used. For example, with an actual direct labor cost of $13,500 in February, the applied factory overhead would be 1.60 x $13,500 = $21,600. This amount could then be compared with the actual overhead incurred to analyze variances.

Answer 2

$21,950

Step-by-step explanation:

Factory overhead is fixed cost, which is not dependent on level of production volume while direct labour cost moves with the level of product unit manufactured during a period. Althought actual direct labor cost is lower than forecasted one, predetermined factory overhead for February should be same as actual amount, which is $21,950.