Question

A company estimates the following manufacturing costs for the next period: direct labor, $500,000; direct materials, $181,000; and factory overhead, $122,000. 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) 24.4%

2) 67.4%

Explanation:

The basis on which overheads are to be applied is considered under 'denominator' value.

1)

Numerator = Estimated factory $122,000

Denominator = Direct Labor $500,000

Overhead Rate =  122,000 / 500,000 = 0.244 ==> 24.4%

2)

Numerator = Estimated factory overhead $122,000

Denominator = Direct Material $181,000

Overhead Rate =  122,000 / 181,000 = 0.674 ==> 67.4%