Dallas Company uses a job order costing system. The company's executives estimated that direct labor would be $3,990,000 (190,000 hours at $21/hour) and that factory overhead would be $1,490,000 for the current period. At the end of the period, the records show that there had been 170,000 hours of direct labor and $1,190,000 of actual overhead costs. Using direct labor hours as a base, what was the predetermined overhead rate?

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Business

Bruno Escobar

18 February, 16:40

Dallas Company uses a job order costing system. The company's executives estimated that direct labor would be $3,990,000 (190,000 hours at $21/hour) and that factory overhead would be $1,490,000 for the current period. At the end of the period, the records show that there had been 170,000 hours of direct labor and $1,190,000 of actual overhead costs. Using direct labor hours as a base, what was the predetermined overhead rate?

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Maximus · Answer 1

The predetermined overhead rate was $7.84

Explanation:

Predetermined overhead rate is calculated by dividing the Expected overhead by the Expected level of activity on which the overhead is applied. It is a rate at which the overhead is applied to a product / project / department.

Predetermined overhead rate = Expected overhead / Expected activity

Predetermined overhead rate = Expected overhead / Expected direct labor hours

Predetermined overhead rate = $1,490,000 / 190,000

Predetermined overhead rate = $7.84 per labor hour