Question

At the beginning of a year, a company predicts total direct materials costs of $1,010,000 and total overhead costs of $1,270,000. If the company uses direct materials costs as its activity base to allocate overhead, what is the predetermined overhead rate it should use during the year?

Answer 1

Answer:

1.267 = Overhead Rate

Explanation:

As general approach, the manufacturing rate, along with any rate is done by dividing the cost by a cost driver.

$\frac{Cost\:Of\: Manufacturing\: Overhead}{Cost\: Driver}= Overhead \:Rate$

In this case teh cost is the manufacturing overhead and the cost driver the direct materials cost:

$\frac{1,270,000}{1,010,000}= Overhead Rate$

Using Direct Materials cost, the rate would be:

$1.257425743= Overhead Rate$