Question

Below is information from the budget of the J. Turner Company at the beginning of the current year.
  

Estimated factory overhead   $132,000     

Estimated direct labor hours   60,000   hours

Estimated machine hours   41,250   hours

Estimated direct labor cost   $825,000     

Actual factory overhead incurred during the year   $144,000     

Calculate the predetermined overhead rate if the company uses the following as a basis:

(a) Direct labor hours. (Hint: The POHR for this item should be greater than $2.00 but less than $3.00 per DLH).
(b) Direct labor cost.
(c) Machine hours.

Answer 1

Calculate the predetermined overhead rate if the company uses the following as a basis:

(a) Direct labor hours

Predetermine overhead rate = Estimated factory overhead/estimated labour hours

                                          = 132000/60000

Predetermine overhead rate = 2.2 per labour hour

(b) Direct labor Cost

Predetermine overhead rate = Estimated factory overhead/estimated labour cost

                                          = 132000/825000

Predetermine overhead rate = 0.16 per labour cost

(c) Machine hours

Predetermine overhead rate = Estimated factory overhead/estimated machine hours

                                          = 132000/41250

Predetermine overhead rate = 3.2 per machine hour