The predetermined overhead allocation rate is based on estimated direct labor costs of $400k and estimated factory overhead of $500k. Would the answer be 400/500 = 80%?

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Originally Posted by jcarver7

The predetermined overhead allocation rate is based on estimated direct labor costs of $400k and estimated factory overhead of $500k. Would the answer be 400/500 = 80%?

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Hi, jcarver7,

Actually, that is backwards. Your budgeted O.H. costs of $500,000 would be divided by your budgeted (estimated) direct labor costs of $400,000. The result would end up as 5/4 in lowest terms, or 1 1/4, which, as a decimal, would be an O.H. allocation rate of 1.25. The percentage from that decimal would be 125%.

I am currently in a managerial accounting class. We are studying this right now.

Doggymom99

Fine answer, but the post is 2 years old. I think it's probably not mattering anymore. (If you're looking at those "similar posts" it tends to drag up old crap and you got to watch the dates.)

We don't ever get enough posts on here to be worth going past about page 2, if that.

Thread being closed.