Question

CallahanCallahan Pools manufactures swimming pool equipment. CallahanCallahan estimates total manufacturing overhead costs next year to be $ 1 comma 500 comma 000.$1,500,000. CallahanCallahan also estimates it will use 30 comma 00030,000 direct labor hours and incur $ 1 comma 250 comma 000$1,250,000 of direct labor cost next year. In​ addition, the machines are expected to be run for 50 comma 00050,000 hours. Compute the predetermined manufacturing overhead rate for next year under the following independent​ situations: 1. Assume that the company uses direct labor hours as its manufacturing overhead allocation base. 2. Assume that the company uses direct labor cost as its manufacturing overhead allocation base. 3. Assume that the company uses machine hours as its manufacturing overhead allocation base. 1. Compute the predetermined manufacturing overhead rate for next year assuming that the company uses direct labor hours as its manufacturing overhead allocation base. Identify the formula and compute the predetermined manufacturing overhead rate for next year using direct labor hours as the manufacturing overhead allocation base.

Answer 1

Answer:

1. $50

2. $1.2

3. $30

Explanation:

1. The formula to compute the predetermined manufacturing overhead rate based on direct labor hours  is shown below:

Predetermined overhead rate = (Total estimated manufacturing overhead) ÷ (estimated direct labor-hours)

= $1,500,000 ÷ 30,000 hours

= $50

2. The formula to compute the predetermined manufacturing overhead rate  based on direct labor cost  is shown below:

Predetermined overhead rate = (Total estimated manufacturing overhead) ÷ (estimated direct cost)

= $1,500,000 ÷ 1,250,000

= $1.2

3. The formula to compute the predetermined manufacturing overhead rate  based on machine hours is shown below:

Predetermined overhead rate = (Total estimated manufacturing overhead) ÷ (estimated machine hours)

= $1,500,000 ÷ 50,000 hours

= $30