A company uses direct labor hours as its allocation base. Management estimates the company will have 10,000 hours of direct labor during the year and total overhead costs of $120,000. The predetermined overhead rate will be $ per hour.
Question
A company uses direct labor hours as its allocation base. Management estimates the company will have 10,000 hours of direct labor during the year and total overhead costs of per hour.
Solution
The predetermined overhead rate is calculated by dividing the total estimated overhead costs by the total estimated direct labor hours.
Step 1: Identify the total estimated overhead costs. In this case, it is $120,000.
Step 2: Identify the total estimated direct labor hours. In this case, it is 10,000 hours.
Step 3: Divide the total estimated overhead costs by the total estimated direct labor hours to get the predetermined overhead rate.
So, 12 per hour.
Therefore, the predetermined overhead rate is $12 per hour.
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