Question

Trek Cycles makes two products: X-1 and X-2. It takes 80,900 direct labor hours to manufacture the X-1 and 93,500 direct labor hours to manufacture the X-2 Line. Overhead consists of $225,000 in the machine setup cost pool and $149,960 in the packaging cost pool. The machine setup pool has 52,000 setups for the X-1 product and 98,000 setups for the X-2 product. The packaging cost pool has 26,000 parts in the X-1 product and 39,200 parts for the X-2 product. Using the traditional cost method of direct labor hours, what is the predetermined overhead rate

Answer 1

Predetermined manufacturing overhead rate= $2.15 per direct labor hour

Step-by-step explanation:

Giving the following information:

It takes 80,900 direct labor hours to manufacture the X-1 and 93,500 direct labor hours to manufacture the X-2 Line.

Total overhead= 225,000 + 149,960= $374,960

To calculate the predetermined manufacturing overhead rate we need to use the following formula:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= 374,960 / (80,900 + 93,500)

Predetermined manufacturing overhead rate= $2.15 per direct labor hour