Question

Adams Manufacturing allocates overhead to production on the basis of direct labor costs. At the beginning of the year, Adams estimated total overhead of $396,000; materials of $410,000 and direct labor of $220,000. During the year Adams incurred $418,000 in materials costs, $413,200 in overhead costs and $224,000 in direct labor costs. Compute the predetermined overhead rate.

Answer 1

1.8 times the cost of labor.

Explanation:

At the beginning of the year, the rate for overhead was estimated to be ...

(overhead $)/(direct labor $) = $396/$220 = 1.8

The overhead rate is 1.8 times the labor cost.