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18 August, 11:00

The Liang Corporation uses a predetermined overhead rate to apply manufacturing overhead to jobs. The predetermined overhead rate is based on labor cost in Dept. A and on machine-hours in Dept. B.

At the beginning of the year, the Corporation made the following estimates:

Dept. A Dept. B

Direct labor cost $60,000 $40,000

Manufacturing overhead $90,000 $45,000

Direct labor-hours 6,000 9,000

Machine-hours 2,000 15,000

What predetermined overhead rates would be used in Dept. A and Dept. B, respectively?

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  1. 18 August, 13:54
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    Instructions are below.

    Explanation:

    Giving the following information:

    A Dept. B

    Direct labor cost $60,000 $40,000

    Manufacturing overhead $90,000 $45,000

    Machine-hours 2,000 15,000

    To calculate the predetermined overhead rate for each department, we need to use the following formula:

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

    Dept A:

    Estimated manufacturing overhead rate = 90,000/60,000 = $1.5 per direct labor cost

    Dept B:

    Estimated manufacturing overhead rate=45,000/15,000 = $3 per machine hour
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