Question

At the beginning of a period a company predicts total direct materials costs of $900,000 and total overhead costs of $1,170,000. If the company uses direct materials costs as its activity base to allocate overhead, what is the predetermined overhead rate it should use during the period

Answer 1

130%

Step-by-step explanation:

Calculation for the predetermined overhead rate

Using this formula

Predetermined Overhead rate = Total Overhead Costs / Total direct materials costs

Let plug in the formula

Predetermined Overhead rate= $1,170,000 / $900,000

Predetermined Overhead rate=1.3*100

Predetermined Overhead rate= 130%

Therefore the Predetermined Overhead rate will be 130%