Question

Predetermined Overhead Rate, Overhead Application At the beginning of the year, Ilberg Company estimated the following costs: Overhead $416,000 Direct labor cost 520,000 Ilberg uses normal costing and applies overhead on the basis of direct labor cost. (Direct labor cost is equal to total direct labor hours worked multiplied by the wage rate.) For the month of December, direct labor cost was $39,900. Required: 1. Calculate the predetermined overhead rate for the year. Enter the percentage answer as a whole number. % of direct labor cost

Answer 1

Answer:

Overhead = 80% of direct labor cost

Overhead for December = $31,920

Explanation:

As for the provided information, we have:

Overhead rates are based on percentage of direct labor cost.

Overheads = $416,000

Labor cost = $520,000

Therefore, predetermined overhead = $\frac{416,000}{520,000} \times 100 = 80$

Note: The predetermined rate per hour cannot be calculated as the number of hours or the wage rate is not provided for labor cost, and overheads are based on such rate.

Therefore, for the month of December overhead based on predetermined rate = Labor cost of December $\times$ 80%

= $39,900 $\times$ 80% = $31,920