Question

Green bay cheese company estimates its overhead to be $375,000. it expects to have 125,000 direct labor hours costing $1,500,000 in labor and utilizing 15,000 machine hours. calculate the predetermined overhead rate using:

a. direct labor hours
b. direct labor dollars
c. machine hours

Answer 1

To calculate the predetermined overhead rate, you divide the estimated overhead costs by the respective activity base: direct labor hours, direct labor dollars, or machine hours. The rates are $3 per labor hour, $0.25 per labor dollar, and $25 per machine hour.

Step-by-step explanation:

The student is asking how to calculate the predetermined overhead rate for Green Bay Cheese Company based on different activity bases. The predetermined overhead rate is calculated by dividing the estimated overhead by the selected activity base.

1. Using direct labor hours: Overhead Rate = Total Estimated Overhead / Total Direct Labor Hours = $375,000 / 125,000 hours = $3 per labor hour.
2. Using direct labor dollars: Overhead Rate = Total Estimated Overhead / Total Direct Labor Dollars = $375,000 / $1,500,000 = $0.25 per labor dollar.
3. Using machine hours: Overhead Rate = Total Estimated Overhead / Total Machine Hours = $375,000 / 15,000 hours = $25 per machine hour.

These rates help businesses allocate overhead costs more accurately to products or services based on the amount of direct labor hours, labor dollars, or machine hours they consume.