Federer Company is debating the use of direct labor cost or direct labor hours a

Question

Federer Company is debating the use of direct labor cost or direct labor hours as the cost allocation base for allocating manufacturing overhead. The following information is available for the most recent year: Estimated direct labor cost $500,000 Actual direct labor cost $465,000 Estimated manufacturing overhead costs $425,000 Actual manufacturing overhead costs $350,000 Estimated direct labor hours 250,000 Actual direct labor hours 232,000 If Federer Company uses direct labor hours as the allocation base, what would the predetermined manufacturing overhead rate be?

Explanation / Answer

predetermined manufacturing overhead rate = Estimated manuf. overheadcost/estimated direct labor hours

predetermined manufacturing overhead rate = $425,000/250,000

predetermined manufacturing overhead rate = $1.7 per direct labor hour

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