arris Fabrics computes its predetermined overhead rate annually on the basis of

Question

arris Fabrics computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 31,000 direct labor-hours would be required for the period’s estimated level of production. The company also estimated $546,000 of fixed manufacturing overhead expenses for the coming period and variable manufacturing overhead of $2.00 per direct labor-hour. Harris's actual manufacturing overhead for the year was $668,206 and its actual total direct labor was 31,500 hours.

Required:

Compute the company's predetermined overhead rate for the year. (Round your answer to 2 decimal places.)

What is the best and most simple way to solve this type of problem?

Explanation / Answer

Predetermined Rate

Variable over head :- 31000*2 = 62000

Fixed Overhead:- 546000

Total Overhead= fixed + variable = 608000

Overhead rate for the year = 608000/31000 = 19.61 / hour.

The best way to answer these is calculate both variable and fixed overhead and then divide it by estimated labour hours.

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