Question

Harris Fabrics computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 26,000 direct labor-hours would be required for the period’s estimated level of production. The company also estimated $636,000 of manufacturing overhead expenses for the coming period. Harris's actual manufacturing overhead for the year was $694,606 and its actual total direct labor was 26,500 hours.

Required:Compute the company's predetermined overhead rate for the year.

Answer 1

$24.5 per direct labor-hour.

Step-by-step explanation:

The predetermined overhead rate is determined using the estimated values.

The formula is:

Predetermined overhead rate = Estimated manufacturing overhead cost / estimated total units in the allocation base

The estimated total units in the allocation base is the estimated direct labor-hours.

Now we plug the amounts into the formula:

Predetermined overhead rate = $636,000 / 26,000 = $24.5 per direct labor-hour.