Question

10. ABC Company uses a job-order costing system and computes its predetermined overhead rate annual on the basis of direct labor-hours. At the beginning of 2018, it estimated the direct-labor hours for the upcoming year to be 10,000 direct labor-hours. ABC Company also estimated $50,000 of fixed overhead and $40,000 of variable overhead for the year. The actual fixed overhead for the year was $60,000, and the actual variable overhead was $35,000. The actual labor-hours for the year turned out to be 9,000. Compute the predetermined overhead rate for 2018.

Answer 1

Answer:

Predetermined overhead rate is $9 per labor hour

Explanation:

Estimated Direct-labor hours = 10,000

Estimated Manufacturing overheads = Estimated Fixed overheads + Estimated variable overheads

Estimated Manufacturing overheads = $50,000 + $40,000

Estimated Manufacturing overheads = $90,000

Predetermined overhead rate = Estimated Manufacturing overheads / Estimated Direct-labor hours

Predetermined overhead rate = 90,000 / 10,000 = $9 per labor hour