Question

At the beginning of a year, a company predicts total direct materials costs of $910,000 and total overhead costs of $1,250,000. If the company uses direct materials costs as its activity base to apply overhead, what is the predetermined overhead rate it should use during the year

Answer 1

Estimated manufacturing overhead rate= $1.374 per direct material cost dollar

Step-by-step explanation:

Giving the following information:

A company predicts total direct materials costs of $910,000 and total overhead costs of $1,250,000.

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

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

Estimated manufacturing overhead rate= 1,250,000/910,000

Estimated manufacturing overhead rate= $1.374 per direct material cost dollar