Exercise F Different companies use different bases in computing their predetermi

Question

Exercise F Different companies use different bases in computing their predetermined overhead rates. From the following estimated data, compute the predetermined rate to be used by each company: Company Paper Rock 100,000 210,000 125,000 DE 50,000 48,000 39,000 $800,000 $735,000 $410,00o Scissors Machine-hours Direct labor-hours Direct labor cost Manufacturing overhead cost $400,ooo $432,000 $375,000 Basis for determining predetermined overhead rate Company Basis Paper Rock Direct labor-hours Scissors Machine-hours Direct labor cost

Explanation / Answer

Paper:

Manufacturing Overhead Cost = $400,000
Direct Labor Cost = $800,000

Predetermined Overhead Rate = Manufacturing Overhead Cost / Direct Labor Cost
Predetermined Overhead Rate = $400,000 / $800,000
Predetermined Overhead Rate = 50% of Direct Labor Cost

Rock:

Manufacturing Overhead Cost = $432,000
Direct Labor hours = 48,000

Predetermined Overhead Rate = Manufacturing Overhead Cost / Direct Labor hours
Predetermined Overhead Rate = $432,000 / 48,000
Predetermined Overhead Rate = $9.00 per direct labor hour

Scissor:

Manufacturing Overhead Cost = $375,000
Machine hours = 125,000

Predetermined Overhead Rate = Manufacturing Overhead Cost / Machine hours
Predetermined Overhead Rate = $375,000 / 125,000
Predetermined Overhead Rate = $3.00 per machine hour

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