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 38,000 direct labor-hours would be required for the period’s estimated level of production. The company also estimated $542,000 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 $691,582 and its actual total direct labor was 38,500 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 38,000 direct labor-hours would be required for the period’s estimated level of production. The company also estimated $542,000 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 $691,582 and its actual total direct labor was 38,500 hours.

Explanation / Answer

Total overheads predetermined=Variable overhead+Fixed overheads

which is equal to

=(2*38000)+$542000=$618000

Hence company's predetermined overhead rate for the year=($618000/38000)

which is equal to

=$16.26 per direct labor hour.

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