Question

At the beginning of the year, a company estimates the following manufacturing costs for the next period: direct labor, $468,000; direct materials, $390,000; and factory overhead, $117,000. Required: 1. Compute its predetermined overhead rate as a percent of direct labor. 2. Compute its overhead cost as a percent of direct materials.

Answer 1

Answer:

1. Predetermined overhead rate as a percent of direct labor: 25%;

2. Overhead cost as a percent of direct materials: 30%.

Explanation:

Please find the below for detailed calculations:

1. Predetermined overhead rate as a percent of direct labor's calculation:

Predetermined overhead rate as a percent of direct labor = Factory overhead/ direct labor cost = 117,000/468,000 = 25%;

2.  Overhead cost as a percent of direct materials:

Overhead cost as a percent of direct materials = Factory overhead/ direct material cost = 117,000/390,000 = 30%.

Answer 2

Answer:

(1) rate = 25% of direct labor cost

(2) rate = 30% of direct materials

Explanation:

$\frac{Cost\: Of \:Manufacturing \:Overhead}{Cost \:Driver}= Overhead \:Rate$

To determinate the rate We distribute the total overhead cost over a given cost driver.

factory overhead 117,000

direct materials 390,000

direct labor 468,000

(1) We are asked to use direct labor as a cost driver

117,000/468,000 = 0.25 = 25%

(2) We are asked to use direct materials as a cost driver

117,000/398,000 = 0.25 = 30%