Capalbo Corporation bases its predetermined overhead rate on the estimated labor

Question

Capalbo Corporation bases its predetermined overhead rate on the estimated labor-hours for the upcoming year. At the beginning of the most recently completed year, the company estimated the labor-hours for the upcoming year at 52,000 labor-hours. The estimated variable manufacturing overhead was $2.78 per labor-hour and the estimated total fixed manufacturing overhead was $1,192,360. The actual labor-hours for the year turned out to be 52,600 labor-hours. The predetermined overhead rate for the recently completed year was closest to

Explanation / Answer

The predetermined overhead rate for the recently completed year = estimated Variable OH rate + estimated Fixed OH rate = $2.78 per L.hr + (1192360 / 52000) = $2.78 per L.hr + $22.93 per L.hr = $25.71 per L.hr.

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