Question

Martin Company applies manufacturing overhead based on direct labor hours. Information concerning manufacturing overhead and labor for the year follows:
Actual manufacturing overhead $150,000
Estimated manufacturing overhead $145,000
Direct labor hours incurred 4,800
Direct labor hours estimated 5,000

Instructions

Compute the predetermined overhead rate.

Answer 1

Answer:

POAR = $29 per hour

Explanation:

The overhead absorption is a per-determined rate which is used to charge overheads to production units. Note that this rate is computed using estimated figures

The rate is computed as follows:

Pre-determined overhead absorption rate (POAR)

POAR = Budgeted overhead for the period/Budgeted direct labour hours

          = $145,000/5,000 labour hours

          = $29 per hour