Question

EB1.

LO 6.1Green 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:

Direct labor hours
Direct labor dollars
Machine hours

Answer 1

To calculate the predetermined overhead rate, divide the estimated overhead by the estimated activity base. In this case, we can calculate the rate using direct labor hours, direct labor dollars, and machine hours.

Step-by-step explanation:

To calculate the predetermined overhead rate, we divide the estimated overhead by the estimated activity base. In this case, we have three activity bases: direct labor hours, direct labor dollars, and machine hours.

First, we calculate the predetermined overhead rate using direct labor hours:

Predetermined overhead rate = Estimated Overhead / Estimated Direct Labor Hours

Predetermined overhead rate = $375,000 / 125,000 hours = $3 per hour

Next, we calculate the predetermined overhead rate using direct labor dollars:

Predetermined overhead rate = Estimated Overhead / Estimated Direct Labor Dollars

Predetermined overhead rate = $375,000 / $1,500,000 = $0.25 per dollar

Finally, we calculate the predetermined overhead rate using machine hours:

Predetermined overhead rate = Estimated Overhead / Estimated Machine Hours

Predetermined overhead rate = $375,000 / 15,000 hours = $25 per hour

Answer 2

$3 per Direct labor hour

0.25

$25 per machine hour

Step-by-step explanation:

Predetermined overhead rate

Using Direct labor hours:

= Overhead ÷ Direct labor hours

= $375,000 ÷ 125,000

= $3 per Direct labor hour

Using Direct labor dollars:

= Overhead ÷ Direct labor cost

= $375,000 ÷ $1,500,000

= 0.25

Using Machine hours:

= Overhead ÷ Machine hours

= $375,000 ÷ 15,000

= $25 per machine hour