Question

A company estimates the following manufacturing costs for the next period: direct labor, $536,000; direct materials, $211,000; and factory overhead, $119,000.

Required:
1. Compute its predetermined overhead rate as a percent of direct labor.
2. Compute its overhead cost as a percent of direct materials.

Answer 1

(1) 22%

(2) 56%

Step-by-step explanation:

Given that,

Direct labor = $536,000;

Direct materials = $211,000;

Factory overhead = $119,000

(1) Predetermined overhead rate as a percent of direct labor is simply calculated by dividing the factory overhead by its direct labor cost.

Predetermined overhead rate as a percent of direct labor:

= (Factory overhead ÷ Direct labor) × 100

= ($119,000 ÷ $536,000) × 100

= 0.22 × 100

= 22%

(2) Predetermined overhead rate as a percent of direct materials is simply calculated by dividing the factory overhead by its direct material cost.

Predetermined overhead rate as a percent of direct material:

= (Factory overhead ÷ Direct material) × 100

= ($119,000 ÷ $211,000) × 100

= 0.56 × 100

= 56%