Question

Assume the following costs in 2019: Estimated manufacturing overhead $234,000 Estimated direct labor costs $260,000 Actual overhead costs $280,000 Actual direct labor costs $295,000 What is the predeterminedoverhead rate based on direct labor costs?

a. 0.90
b. 1.11
c. 0.88
d.1.25

Answer 1

a) 90% of labour cost i.e 0.9

Step-by-step explanation:

The per-determined overhead rate based on labour cost would be determined using the formula below

POAR = (Estimated overhead/Estimated labour cost) × 100

POAR = ($234,000/$260,000) × 100

= 90% of labour cost

It implies that overheads would be charged to plroduct by multiplying 90% by the product labour cost

Answer 2

the predetermined overhead rate based on direct labor costs is a. 0.90

Step-by-step explanation:

Predetermined overhead rate is used to allocate overheads (indirect costs) to products and departments.

Predetermined overhead rate = Budgeted Overheads / Budgeted Activity

Note Predetermined overhead rate is based on direct labor costs

Predetermined overhead rate = Budgeted Overheads / Budgeted Activity

= $234,000/ $260,000

= $0.90 per direct labor cost