Question

If annual overhead costs are expected to be $958000 and direct labor costs are expected to be $1000000, then if the activity base is direct labor costs:

A. $1.04 is the predetermined overhead rate.
B. a predetermined overhead rate cannot be determined.
C. for every dollar of manufacturing overhead, 1.04 cents of direct labor will be assigned.
D. for every dollar of direct labor, 95.8 cents of manufacturing overhead will be assigned.

Answer 1

Predetermined manufacturing overhead rate= $0.958 per direct labor dollar

The correct answer is D.

Step-by-step explanation:

Giving the following information:

Estimated overhead costs= $958,000

Estimated direct labor costs= $1,000,000

To calculate the predetermined manufacturing overhead rate we need to use the following formula:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= 958,000 / 1,000,000

Predetermined manufacturing overhead rate= $0.958 per direct labor dollar