Question

The Silver Corporation uses a predetermined overhead rate to apply manufacturing overhead to jobs. The predetermined overhead rate is based on labor cost in Dept. A and on machine-hours in Dept. B. At the beginning of the year, the Corporation made the following estimates:
Dept. A Dept. B Direct labor cost $60,000 $40,000 Manufacturing overhead $90,000 $45,000 Direct labor-hours 6,000 9,000 Machine-hours 2,000 15,000
What predetermined overhead rates would be used in Dept. A and Dept. B, respectively?

(A) 67% and $3
(B) 67% and $5
(C) 150% and $3

Answer 1

Answer: Option (C) is correct.

Explanation:

Given that,

In Dept. A,

Direct labor cost = $60,000

Manufacturing overhead = $90,000

Direct labor-hours = 6,000

Machine-hours = 2,000

In Dept. B,

Direct labor cost = $40,000

Manufacturing overhead = $45,000

Direct labor-hours = 9,000

Machine-hours = 15,000

Predetermined overhead rates in Dept. A = $\frac{Manufacturing\ Overhead}{Direct\ labor\ cost} \times 100$

                                                                       = $\frac{90,000}{60,000} \times 100$

                                                                       = 150%

In dept. B = $\frac{Manufacturing\ Overhead}{Machine\ Hour}$

                = $\frac{45,000}{15,000}$

                = $3