EXERCISE 3-1 Compute the Predetermined Overhead Rate [LO3-1] Harris Fabrics comp

Question

EXERCISE 3-1 Compute the Predetermined Overhead Rate [LO3-1] Harris Fabrics computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 20,000 direct labor-hours would be required for the period's estimated level of production. The company also estimated $94,000 of fixed manufacturing overhead expenses for the coming period and variable manufacturing overhead of $2.00 per direct labor-hour. Harris's actual manufacturing overhead for the year was $123,900 and its actual total direct labor was 21,000 hours. Required: Compute the company's predetermined overhead rate for the year.

Explanation / Answer

The estimated total manufacturing overhead cost is computed as follows:

Y = $94,000 + ($2.00 per DLH)(20,000 DLHs)

The predetermined overhead rate is computed as follows:

Predetermined overhead rate = Estimated total manufacturing overhead / Estimated total direct labor hours (DLHs)

= $134,000 / 20,000 DHLs

= $6.70 per DLH

Estimated fixed manufacturing overhead $94,000 Estimated variable manufacturing overhead: ($2.00 per DLH × 20,000 DLHs) $40,000 Estimated total manufacturing overhead cost $134,000

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