Question

O.K. Company uses a job order cost accounting system and allocates its overhead on the basis of direct labor costs. O.K. expects to incur $2,000,000 of overhead during the next period and expects to use 50,000 labor hours at a cost of $10.00 per hour. What is O.K. Company's overhead application rate

Answer 1

Answer:

Predetermined manufacturing overhead rate= $0.4 per direct labor dollar

Explanation:

Giving the following information:

O.K. expects to incur $2,000,000 of overhead during the next period and expects to use 50,000 labor hours for $10.00 per hour.

To calculate the predetermined manufacturing overhead rate we need to use the following formula:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= 2,000,000/ (50,000*10)

Predetermined manufacturing overhead rate= $0.4 per direct labor dollar