What is the firm’s predetermined overhead rate?

A company estimates that it has $400,000 in variable overhead costs annually and $265,000 in fixed rate overhead costs annually. Last year the variable and fixed overhead costs were $300,000 and $200,000, respectively. The firm estimates that it will have 32,500 direct labor hours this year.

What is the firm’s predetermined overhead rate?

Expert Solution

Previous Year	Fixed Overheads	$200,000
	Variable Overheads	$300,000
	Total (a)	$500,000
	Direct Labor Hour (b)	32,500
	Overhead Rate ( a / b )	$15.38

Next Year Estimates	Fixed Overheads	$265,000
	Variable Overheads	$400,000
	Total (a)	$665,000
	Direct Labor Hour (b)	32,500
	Overhead Rate ( a / b )	$20.46

Overhead Rates for:

1. Previous Year: $15.38
2. Next Year Estimated: $20.46

Soumik Mallick Choudhury answered 2 years ago

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