Question

Predetermined overhead rate LO P3 At the beginning of a year, a company predicts total direct materials costs of $920,000 and total overhead costs of $1,330,000. 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:

145%

Explanation:

Given that,

Company predicts total direct materials costs = $920,000

Total overhead costs = $1,330,000

Predetermined Overhead rate:

= (Total overhead cost ÷ Total direct material cost) × 100

= ($1,330,000 ÷ $920,000) × 100

= 1.45 × 100

= 145%

Therefore, the predetermined overhead rate it should use during the year is 145%.