Question

(Predetermined overhead rates) Knox corp. is budgeted to spend $80,000 on manufacturing overhead in 2016. What would be the predetermined overhead rate if it based the computation on:

A. Budgeted direct labor hours of 60,000?

B. Budgeted machine hours of 160,000?

C. Budgeted direct materials costs of $480,000?

Answer 1

Requirement A

Calculation of Predetermined Overhead rate
(A)	Total Estimated Manufacturing Overheads	$    80,000.00
(B)	Budgeted Direct labor Hours	60000
(A/B)	Predetermined overhead per labor hour	$               1.33

Predetermined overhead per labor hour=$1.33 per Direct labor hour

Requirement b

Calculation of Predetermined Overhead rate
(A)	Total Estimated Manufacturing Overheads	$    80,000.00
(B)	Budgeted machine hours	160000
(A/B)	Predetermined overhead per Machine hour	$               0.50

Predetermined overhead per Machine hour=$0.50 per Machine hour

Requirement c

Calculation of Predetermined Overhead rate
(A)	Total Estimated Manufacturing Overheads	$    80,000.00
(B)	Budgeted direct material cost	480000
(A/B)	Predetermined overhead as a percentage of Direct material cost	16.67%

Predetermined overhead as a percentage of Direct material cost=16.67% of Direct material cost or 17% approx