Harris Fabrics computes its predetermined overhead rate annually on the basis of

Question

Harris Fabrics computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 27,000 direct labor-hours would be required for the period’s estimated level of production. The company also estimated $562,000 of fixed manufacturing overhead expenses for the coming period and variable manufacturing overhead of $3.00 per direct labor-hour. Harris's actual manufacturing overhead for the year was $698,907 and its actual total direct labor was 27,500 hours.

Compute the company's predetermined overhead rate for the year.

Harris Fabrics computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 27,000 direct labor-hours would be required for the period’s estimated level of production. The company also estimated $562,000 of fixed manufacturing overhead expenses for the coming period and variable manufacturing overhead of $3.00 per direct labor-hour. Harris's actual manufacturing overhead for the year was $698,907 and its actual total direct labor was 27,500 hours.

Explanation / Answer

Estimated direct labor hours = 27,000 DLH

Estimated fixed manufacturing overhead = $562,,000

Estimated variable manufacturing overhead = $3 per DLH = $3*27,000 = $81,000

Total estimated manufacturing overhead = $562,000 + $81,000 = $643,000

Predetermined overhead rate = Estimated manufacturing overhead/Estimated direct labor hours = $643,000/27,000 = $23.81 per direct labor hour

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