EA1.

LO 6.1Steeler Towel Company estimates its overhead to be $250,000. It expects to have 100,000 direct labor hours costing $2,500,000 in labor and utilizing 12,500 machine hours. Calculate the predetermined overhead rate using:

Direct labor hours

Direct labor dollars

Machine hours

Instructions are listed below.

Explanation:

Giving the following information:

Steeler Towel Company estimates its overhead to be $250,000. It expects to have 100,000 direct labor hours costing $2,500,000 in labor and utilizing 12,500 machine hours.

For each allocation base we need to use the following formula:

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

Direct labor hours:

Estimated manufacturing overhead rate = 250,000/100,000 = $2.5 per direct labor hour

Direct labor dollars:

Estimated manufacturing overhead rate = 250,000/2,500,000 = $0.1 per direct labor dollar

Machine hours:

Estimated manufacturing overhead rate = 250,000/12,500=$20 per machine hour