Question

At the beginning of the accounting period, Nutrition Incorporated estimated that total fixed overhead cost would be $50,600 and that sales volume would be 10,000 units. At the end of the accounting period, actual fixed overhead cost amounted to $56,100 and actual sales volume was 11,000 units. Nutrition uses a predetermined overhead rate and a cost plus pricing model to establish its sales price.

Based on this information the predetermined overhead rate is:

a) $5.61. b) $5.06. c) $4.60. d) $5.10.

Answer 1

d) $5.10.

Step-by-step explanation:

The computation of the predetermined overhead rate is shown below:

Predetermined overhead rate = Actual fixed overhead cost ÷ actual sales volume

= $56,100 ÷ 11,000 units

= $5.10

Since the predetermined overhead cost use the sale price so we considered only the actual fixed overhead cost and the actual sales volume

And, by applying the above formula we can get the predetermined overhead rate