rebecca_johnson Posts: 1, Reputation: 1 New Member #1 Apr 20, 2009, 05:58 PM
I have a homework question where a company uses predetermined overhead rates to apply manufacturing overhead to jobs. The predetermined overhead rate is based on labor cost in Dept. A and on machine hours in Dept. B. At the beginning of the year, the company made the following estimates:

Dept. A Dept. B
Direct Labor Cost \$30,000 \$40,000
Direct Labor Hours 6,000 8,000
Machine Hours 2,000 10,000

I believe the rate for Dept. B is \$5.00 but I haven't been able to figure out the rate for Dept. A. I believe it is either 50% or 200% and I'm leaning toward 50%.

Any help would be appreciated.
 ROLCAM Posts: 1,420, Reputation: 23 Ultra Member #2 Apr 20, 2009, 08:50 PM

I believe the rate for Dept. B is \$5.00 but I haven't been able to figure out the rate for Dept. A. I believe it is either 50% or 200% and I'm leaning toward 50%.

1) Dept B = \$5.00 CORRECT

2) Dept A = You are leaning incorrecttly.
It is 200% or \$2 for every dollar.
 morgaine300 Posts: 6,561, Reputation: 276 Uber Member #3 Apr 21, 2009, 12:58 AM

An estimated overhead rate is ALWAYS the overhead costs divided by the activity base. It's the same method you used to get Dept. B. Don't divide backwards even if it looks funny. It's still 60,000/30,000 - cost divided by activity base.

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Hai all, I want to know, why firms use a predetermined overhead rate to alocate the overhead to a job or a product? Just for my knowledge only. Thanks