Answer:
The predetermined overhead rate based on direct labor costs is $1.75 per dollar of direct labor cost.
Explanation:
Predetermine overhead rate is an overhead application rate that is used to allocate the estimated overheads to calculate the estimated cost to manufacture a product while budgeting and planning. The predetermined overhead rate is calculated using an allocation base e.g direct labor hours or machine hours etc.
In the given question the predetermined overhead rate can be calculated as follow
First, we need to determine the direct labor cost
Direct labor cost = Direct Labor hours x Average hourly pay rate
Where
Direct Labor hours = 50,000 hours
Average hourly pay rate = $16.00 per hour
Placing values in the formula
Direct labor cost = 50,000 hours x $16.00 per hour = $800,000.00
Now use the following formula to calculate the predetermined overhead rate
Predetermined Overhead rate = Manufacturing overheads / Direct Labor cost = $1,400,000 / $800,000 = $1.75 per dollar of direct labor cost
